Financial liberalization, along with trade reform, was at the core of the comprehensive economic reform program launched in 1980 in Turkey. The purpose of this chapter is to examine the impact of financial liberalization on the behavior of financial-sector agents as well as on the corporate sector. In the first section, the history of the Turkish financial liberalization program is briefly summarized. The second section addresses the changes in the structure of the financial system and examines the behavior of banks. The corporate sector is then examined, while the final section is devoted to conclusions and lessons that can be derived from the Turkish experience.

A brief history of financial reform in Turkey

Financial development during the prereform period: From statism to planned development.

As demonstrated in Akyuz (1984), the Turkish financial system during the 1970s was relatively underdeveloped even when compared to countries at similar levels of industrialization. Historical factors such as the rather centralized character of the government apparatus in Turkey, as well as the statist growth and industrialization strategy adopted in the 1930s in response to economic crisis considerably enhanced the role of government in economic life. Economic policies in the 1950s, which initially attempted to increase the role of the market mechanism, were unsuccessful and led to a more drastic, albeit uncoordinated, increase in the level and extent of government intervention. The search for coordination led the post-1960 regime to adopt a planned development strategy, which seemed to fit the country's statist traditions.