Financial Globalization, the Democratic Deficit, and Recurrent Crises in Emerging Markets : The Turkish Experience in the Aftermath of Capital Account Liberalization

Abstract

Financial globalization offers both risks and benefits for countries of the semiperiphery or "emerging markets." Politics within the national space matters, yet acquires a new meaning, in the age of financial globalization. "Weak democracies" are characterized by limited accountability and transparency of the state and other key political institutions. Such democracies tend to suffer from populist cycles, which result in a low capacity to carry out economic reform. Financial globalization, in turn, magnifies populist cycles and renders their consequences more severe. Hence, "weak democracies" are confronted with the predominantly negative side of financial globalization, which includes overdependence on short-term capital flows, speculative attacks, and recurrent financial crises leading to slow growth and a more regressive income distributional profile. The relevance of these sets of propositions are illustrated with reference to the case of Turkey, which, indeed, experienced recurrent financial crises in the post-capital account liberalization era, with costly consequences for the real economy. Two general conclusions follow. First, there is a need to strengthen democracy in the developing world. Second, since this is hard to accomplish over a short period of time, serious questions are raised concerning the desirability of early exposure to financial globalization given the current state of the world.

Measuring monetary policy for a small open economy: Turkey

“…It is often argued that the self-inflicted 1994 financial crisis in Turkey altered the working of the financial markets (see Ozatay, 2000;Alper and Onis, 2003;Ertugrul and Selcuk, 2002). Therefore, we performed the analysis for the post-crisis era by considering the period from 1994:08 to 2000:10.…”

Policy transfer from advanced to less-advanced institutional environments: Labour market orientations of US MNEs in Turkey

“…Firms in Turkey do not experience a comparable pressure for demonstrating short-term achievements, as the publicly traded shares do not constitute a critical amount (Balaban and Kunter, 1997). Moreover, the leading holdings have their own banks, which extend credit lines for their affiliates (Alper and Öniş, 2003), although this has recently changed with the increased share of foreign capital through acquisitions and mergers (Bakır and Öniş, 2010).…”

Quel avenir pour Istanbul en tant que centre financier international ?

“…These crises were taken as a justification by the country's military for yet another coup in 1980. With the military's crushing power over democratic processes, the early liberalization reforms, devised by technocrats were passed unopposed (Alper and Onis 2003). The introduction of a capital markets code in those years and the subsequent opening of the Istanbul Stock Exchange (ISE) in December 1985 were major steps to nurture a market based people's capitalism in the country (Kazgan 1995;Denizer et al, 2000).…”

“…These twin deficits made the country very dependent on foreign capital, mainly brought to the country by Turkish public and private banks. Any sudden reversals of these capital flows owing to local or international events meant runs on the Turkish currency, balance of payments issues, and bank failures (Alper and Onis, 2003;Alper and Yilmaz, 2004). Erturk (2003) describes the 1990s as an era of coupon capitalism in which successive Turkish governments financed their profligate expenditure by crowding out private actors in the Turkish financial markets.…”