Economy

1997 coup hit Turkish economy hard

'Postmodern coup' paved way to 2001 financial crisis as stock market collapsed, interest rates jumped, Turkish lira plunged

Ugur Aslanhan   | 25.02.2021
1997 coup hit Turkish economy hard

ISTANBUL

Turkey’s 1997 military coup, also known as the Feb. 28 or "postmodern coup," hit the country's economy deeply, causing untold billions of dollars- worth of damage.

In February 1997, the military ended the administration of Prime Minister Necmettin Erbakan amid concerns by generals about its alleged “Islamist” program.

According to many assessments, the coup paved the way for the 2001 financial crisis and caused a cost of hundreds of billions of US dollars on the country's economy.

In 2001, a stormy disagreement over supervision of the Turkish banking system between then-Prime Minister Bulent Ecevit and former President Ahmet Necdet Sezer caused the biggest financial crisis in the country's history.

The Istanbul Borsa Stock Exchange collapsed, interest rates jumped to historic highs, and the Turkish lira plunged in value. The crisis also affected companies’ bottom lines, and as a result many people lost their jobs and their livelihoods.

From 1997 to 2001, more than 20 private lenders were seized by the country's Saving Deposit Insurance Fund.

Only during the period of 1997-2000, the country's extra interest payments were $34 billion.

In 1997-1999, interest expenses increased five-fold, while it increased 9.4-fold when the year 2000 was included.

While the rate of interest payments to the country's GDP was 5% in 1997, it reached 17% in 2001.

The US dollar/Turkish lira exchange rate, which was 122.1 on Feb. 28, 1997, jumped to 675, up 5.5-fold.

The rise in the exchange rate increased the cost of imports significantly, especially of intermediate goods, and caused a heavy burden on the private sector's external debt.

After the coup, investments slowed down and uncertainty was seen in markets, causing a narrowing economy.

While the GDP growth rate was 7.5% in 1997, it dropped to 3.1% in 1998 and to negative 3.4% in 1999. Although the rate was 6.6% in 2000, after the 2001 crisis it dropped to negative 6%.

On the consumer prices side, the inflation rate was 77.7% in February 1997, dropping from 125.9% in 1995, and rose to 99.1% in December 1997.

The inflation rate fell to single-digit figures in 2004.

In 1999, the number of unemployed people increased by 278,000 to exceed 1.8 million versus around 1.5 million in 1997.

Coup shakes Turkey's credibility

Abdurrahman Kaan, the president of the Independent Industrialists and Businessmen's Association, told Anadolu Agency that the main purpose of all coups -- military or civil -- is the transfer of resources, wealth, and income.

The coup in 1997 was also directly related to siphoning of funds from banks as well as to the corruption that increased in the following years, he said.

This process has been a major factor leading to the great economic crisis in 2001, he added.

He said the uncertainty caused by the political instability also increased the public imbalance, noting that the rise in interest rates destabilized the growth on the one hand, and on the other hand prevented the resources from turning into investments, and caused the development of the rent economy.

Orhan Aydin, the chairman of the Anatolian Lions Businessmen Association noted that targeting continuously the elected government, the postmodern coup of human rights has shaken the international credibility of Turkey.

This resulted in a fall in direct foreign investment in Turkey, he said, adding that the country had paid a heavy price of the postmodern coup.

Yasar Dogan, the chairman of All Industrialists' and Businessmen's Association, noted that the economy had suffered greatly due to the process that created uncertainties for the future.

Speaking of the damage caused by the coup to the economy, Dogan said one of the main damages was the rise in the fragility of the economy that hit badly the psychology of the business world.

*Writing and contributions by Gokhan Ergocun and Aysu Bicer

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