We have been spinning in terms of economic policy to a certain extent since 2006 but more prominently since 2007. For instance in 2007 public budget deficit started to go up and rose further in 2008 as local elections were near. We did not encounter the global crisis at an advantageous position.

These are all correct. They are correct; but after all this was not Turkey's crisis. There is another crisis which was not also created but was felt intensely by Turkey, as the current one, is the 1998-1999 crisis. Let us see what we encountered back then.

On 18 August 1998, Russia announced that they will not be paying their liabilities arising from domestic currency denominated public bonds. In short, the government rested on public debt. Over the period from July 1998 to January 1999 ruble depreciated by 262 percent. This situation put a range of countries 'similar to Turkey' into trouble. Financial earthquake has not only been felt in 'countries like Turkey'. A hedge fund resident in the USA and called LTCM, which hold ample of financial assets of high-risk countries including Russia bankrupted on 2 September 1998.

In particular the bankruptcy of this fund significantly reduced the risk appetite in international financial markets. Under these circumstances, other hedge funds sold in panic financial assets issued by countries like Turkey. In such countries, risk premiums rose considerably and real interest rates jumped high. Here, countries like Turkey refer to Brazil, Mexico and to a certain extent former Soviet Union countries etc...

Current global crisis have brought reputation to a risk appetite indicator: VIX index. A rise in this index indicates that risk appetite has been decreasing significantly. Daily VIX index data are available since the beginning of 1990. Highest value since then was recorded at 80 in December 2008. There are also considerably high values recorded over a long period both before and after the given date. Except for the high values at the end of 2008 and the beginning of 2009, VIX index attains significantly high values also during the Russian crisis (there are index values such as 47). However, this rise spans a relatively shorter period.

In short, back then existed a global movement though the intensity, prevalence and duration is not as serious as today. The movement back than appears too 'innocent' then today; but besides the triggering factor the way it affects countries like Turkey is similar to what we experience today. People try to reduce high risks taken in financial markets and thus panic sales take place.

Similarly as you can guess, rapid capital outflow from Turkey takes places back then. While 6.9 billion USD of capital flew in Turkey in 1997, 1 billion USD of capital leaves the country in 1998. But the most striking outflow of the time takes place in the third quarter of 1998 when the crisis was most intense:
11 billion USD of capital flows out of Turkey.

As a result, Turkey's economy contracts as did in 1994 and 2001 and will do in 2009. The economy which sustained an impressive average growth rate between 1995 and 1997 with 8.2 percent grows just by 3.1 percent in 1998. In the following year the economy does not grow at all but contracts by 3.4 percent. In terms of quarters, growth rate in the last quarter of 1998 and all over 1999; i.e. over five quarters, remains negative.

The point I try to get is: Today there exists a much more intense, prevalent and long standing crisis. If the economy of Turkey was as fragile as it was in 1998-1999 period, we would now be faced with a catastrophic result. Currently we think that the economy will contract by around 6 percent. If the fragilities back then applied today, we would most likely see double digit contraction rates. And God knows at what level unemployment rate would stand. In short, we have to appreciate what we have achieved following the 2001 crisis. We have to try neatly protecting the milieu of stability. But considering the economic policy which is being implemented since 2007, it is not much possible to say that we have been acting neatly.

This commentary was published in Radikal daily on 28.06.2009