Currency Crisis
A Simulation: Turkey 2001

The Case

The date is March 2001. The IMF Mission (the delegation from the IMF) and the representative of the U.S. Treasury and the European Union (EU) have arrived in Ankara. In the days that follows, the IMF Mission, the U.S. Treasury and the EU representatives will meet with Prime Minister Bulent Ecevit (pronounced ejevit) and the Supreme Economic Council of Turkey (SECT) to review the problems related to the external balance of the country and to reach a conclusion about the outline of an economic policy. The IMF and the U.S. Treasury, and the EU stand ready to extend substantial loans to save Turkey from its currency crisis provided that Turkey would implement an appropriate policy to mitigate the crisis. A policy outline will be proposed to the SECT by the Prime Minister, the Minister of Finance, the Minister of the Economy and the Governor of the Central bank of Turkey. This Council will meet for four sessions. The IMF Mission, the representatives of the U.S. Treasury and the EU will also take part in the discussions. The SECT must come to a conclusion before the IMF, U.S. and EU missions leaves Ankara on the afternoon of Friday, a week from their arrival. The emergency loans of IMF, the U.S. and EU, as well as future loans to support the Turkish lira are pending on the approval of the policy of SECT by the IMF mission and the representative of the U.S. Treasury and the EU.

The Cast

The participants in the SECT meetings are the following:

• Prime Minister Bulent Ecevit, Chair
• Minister of Finance, Secretary
• Minister of The Economy, Secretary


• The Central Bank
• Minister of Industries
• Minister of Foreign Trade
• Minister of Social Welfare
• Turkish Chamber of Commerce (large corporations)
• Independent Union of Small Businesses
• Association of Turkish Banks
• International Association of Investment Bankers
• Confederation of Turkish Workers
• Union of Turkish Rural Workers
• Turkish Confederation of Teachers


• The IMF Mission


• U.S. Treasury
• European Union

The historical time of our debate is March 2001. In February 2001 the Turkish lira tumbled down and a financial crisis engulfed Turkey. These meetings of SECT are called by Prime Minister Ecevit to formulate an economic policy program. In these debates you can view the information and the actual events related to the period after these meetings of SECT as foresight. Please note, by no means we should intend to reach the same policy conclusions that Prime Minister Ecevit actually pursued or other parties (e.g., IMF) proposed. SECT can come to any conclusions that it regards as a way to resolving the current crisis in Turkey.

Preparation

You are expected to know international finance theory and the relevant policy and institutional issues very well. This means knowing what we have studied in Kreinin and the articles from Finance and Development, among others.

Please note that exchange rate and the external balance of a country is a reflection of the internal economic conditions of a country and its position in the international market. Therefore, the SECT is concerned about the exchange rate regime (Should it float? How freely? Should it be kept fixed? How fixed? At what level and against what currencies?) as well as modifications in the exchange control policy, and domestic policies which may have an impact on the external balance. Among important issues of debate are capital flows (should there be any limit on capital movement? If so, what kind of control on what kind of capital flows?), privatization of state-owned industries, decontrolling prices, and elimination of industrial and public subsidies and institutional corruption. Just as important are government budget, social programs, labor policies, taxation and trade policies. You must be able to evaluate each of the relevant policies in the context of the debate.

You need to have some knowledge of the politics and the economy of Turkey. A packet will be given to you in class which includes some preliminary information on Turkey. In addition, other packets of information (including an extensive chronology of events and wire news reports of the days of the crisis) are available in ECON Library. Everyone is required to become familiar with the content of these packets.

In addition you should visit the IMF web page on Turkey at
http://www.imf.org/external/country/TUR/index.htm
to find material that enhances your understanding of the debate. You may acquire your information from the articles and books listed above AND from other sources. You may also ask me for the specific issues of your concern. The more you know your theory and facts, the better you can argue your point. I am available at any time for consultation about any aspect of your work. Specifically, you may discuss with me your strategy and your proposal.

The Nature of the Debates

Everyone in the debates must be concerned about the effects of each policy on the domestic economy, as well as on the external balance. The domestic effects of the policy will hurt or benefit certain social groups, economic activities, or sectors of the economy. Be aware of these effects.

The debate in the SECT will have a political tone. The Prime Minister wants to put forth a liberalization package (as reflected in the news articles available to you) without antagonizing the opposition and other major interest groups. The Minister of Finance, the Minister of the Economy and the Governor of the Central Bank are supposed to be close allies of the Prime Minister (although they may have their own agenda).

Note that Turkey can receive the loans from the IMF, the U.S. or the EU, if their representatives approve the policy that SECT adopts. Prime Minister Ecevit is maneuvering in midst of various conflicts. He wants not to intimidate or alienate his opposition. So he is willing to make some concessions, while he and his allies try to press the opposition hard on their demands. On the other hand, Prime Minister Ecevit does not want to give in totally to the IMF, U.S. and the EU?s demands for an austerity package and a total liberalization of the economy. For this reason he does not mind at all that the IMF mission, the U.S. and EU representatives see for themselves the opposition that he has to put up with. It is a delicate game that Prime Minister Ecevit is playing. Watch out!!

Members of the Council may be politically on the right or left of the Prime Minister. For example, Minister of Social Welfare holds a liberal point of view on the matters related to social welfare policies, and the representative of the Confederation of Turkish Workers, a labor union, defends the rights of urban workers, and Union of Turkish Rural Workers, a newly formed radical organization, defends the interest of agrarian workers, and more! These representatives oppose the austerity program of the government, each from a different perspective. The Chamber of Commerce is on the right and wants to protect the privileges of the large corporations (mostly joint ventures with foreign multinational corporations). Independent Union of Small Businesses is in strong opposition to the large corporations on many issues, but in coalition with them when it comes to limiting the power of the labor unions and eliminating many social programs. The representative of U.S. Treasury supports the official position of the U.S. and is most concerned about the free flow of goods and capital to and from Turkey, and the political stability of Turkey. The EU representatives share many points advanced by the U.S. Treasury, while holding a more liberal view toward social programs. The IMF Mission has the standard views of the IMF.

The other participants may be anywhere in the spectrum between the radical and the conservative positions. In the context of this debate, the participating ministers and other representatives are most concerned with the issues relevant to their own ministries and constituencies (e.g., special consideration for imports of seed or fertilizer for the Union of Turkish Rural Workers). Yet, in light of the turbulent political conditions in the country, they each try to push their overall economic agenda. You must be consistent, both theoretically and politically. Be careful to catch the inconsistencies in your opponents. Don't let your opponents get away with them!

Remember, political affiliations are not expressed openly. Nobody says I am a leftist or a conservative. No one will say let's run the economy inefficiently or let's dump on the poor. Everyone is for efficiency, for social justice, etc. Formulate your policy as it fits the political belief of those whom you represent, don't attach labels to it. But don't let your opponents get away without their position being clearly exposed!

Also remember, the SECT is an assembly of economists. You are expected to present your case in the context of economic models and with theoretical rigor. Sloganism is out of place.

Presentations, Handouts and Grades

Your presentation must be based on prepared notes, which will be handed out before your speech. But reading speeches from a text will put people to sleep and is seriously frowned upon. Your presentation must be interesting, theoretically convincing, and relevant to the case of Turkey-2001. You are expected to show your knowledge of economic theory and the Turkeyn economy. You must do your best to persuade the Council to adapt the policy that you support. You must be influential and confrontational.

The outline of your position, your main theoretical arguments, tables and graphs, must be presented in your handouts. Handouts must be typed. You should have sufficient copies of your handout (one copy for the representatives of each group and one copy for me). If you bring your handout in advance, I will help you copy it for free. Otherwise, you must make your own copies.

There is a maximum of 100 points for the simulation: 70 points for your presentations, 30 points for your handouts. Please note that question and answer exchanges are an important part of the debate and a good part of your grade (Don?t sit there quietly once you give your presentation.) You are there to push a policy forward, to convince others and to stall the opposition. Your presentation will be graded for content and delivery. If you have a partner, you must demonstrate participatory teamwork. If the teamwork is not coordinated, both partners will receive low marks, if one partner does not take an active part in the debate, that partner will receive a low mark.

There is a 50-point penalty for missing a session even if you are not scheduled to give a presentation. Coming late or leaving early is considered missing a session.

Schedule of Events

General Notes:

• Semi-formal attire is required in all sessions of the SECT
• Presentations with a * have handouts
• Sessions begin on time. Everyone must be in the room 2 minutes before the beginning of the sessions.

1st Meeting: Monday April 24, 9:30-10:20 am, Board Room/Barney-Davis

Introduction and a policy proposal

• *Opening Remarks, The Prime Minister, 6 minutes
  (A statement of economic hardships faced by Turkey, the need for a comprehensive policy to eliminate the foreign exchange crisis, and to promote economic development in Turkey.)
• *A Report on the internal and external disequilibrium of in the past decade,
  • The Governor of the Central Bank of Turkey, 10 minutes
  • Questions for the Governor of the Central Bank, 3 minutes
• *Reasonable Alternatives,
  • The Report of Minister of Finance and Minister of the Economy, 10 minutes
    (What can be done to eliminate the currency crisis and to promote economic development? Some policy recommendations. Outline the objectives and specify the policy measures in detail.)
  • Questions for the Minister of Finance and Minister of the Economy, 3 minutes
• *The Stabilization Policy
  • The IMF Mission, 10 minutes
    (The recommendations of the IMF. Specify in detail.)
  • Questions for the IMF Mission, 3 minutes

2nd Meeting: Tuesday April 25, 5:00-7:00 pm, Board Room/Barney-Davis

Debates on the proposed policy: I

• Position Statements, 5 minutes each. (Indicate your position about the recommended policy and make specific suggestions or requests.)
  
  *Minister of Industries
  *Minister of Foreign Trade
  *Minister of Social Welfare
  
  *Turkish Chamber of Commerce (large corporations)
  *Independent Union of Small Businesses
  *Association of Turkish Banks
  *International Association of Investment Bankers`
  *Confederation of Turkish Workers
  *Union of Turkish Rural Workers
  *Turkish Confederation of Teachers
  
  *U.S. Treasury
  *European Union
• Recess, 5 minutes
• Questions for the ministers and other representatives by the Prime Minister, Minister of Finance, Governor of the Central Bank, the IMF Mission, 8 minutes
• Responses of ministers and representatives to the questions, 25 minutes

3rd Meeting: Thursday April 24, 5:00-7:00 pm, Room 110/Barney-Davis

Debates on the proposed policy: II

• Policy Defense and Reconciliation, 5 minutes each
  (Your task is to convince the Council, in the light of Tuesday position statements, that the recommended policies are workable and reasonable. At this stage you may give concessions to your opponents.)
  
  * The Prime Minister
  *Minister of Finance and Minister of then Economy
  *Governor of the Central Bank
  *The IMF Mission
• Recess 10 minutes to incorporate the responses to the above statements in your rebuttal.
• Rebuttals, 5 minutes each
  (You are making your last effort in convincing the Council to formulate the policy in the way that you prefer. Be ready to make a deal: "We would not insist on this if we get ....") Your main points must be expressed in the context of a theoretical analysis.
  
  *Minister of Industries
  *Minister of Foreign Trade
  *Minister of Social Welfare
  
  *Turkish Chamber of Commerce (large corporations)
  *Independent Union of Small Businesses
  *Association of Turkish Banks
  *International Association of Investment Bankers
  *Confederation of Turkish Workers
  *Union of Turkish Rural Workers
  *Turkish Confederation of Teachers
  
  *U.S. Treasury
  *European Union

After this session, the Prime Minister and Minister of Finance and Minister of the Economy will formulate the final policy proposal to be voted on in the Friday's meeting of the SECT. The IMF Mission and the U.S. Treasury, EU representatives will be informed about the policy statement prior to the SECT meeting tomorrow.

Final Meeting, Friday April 27, 9:30-10:20 am, Board Room/Barney-Davis

Conclusion

• Opening Statement, The Prime Minister, 4 minutes
  (The general remarks on why the Council should accept the policy.)
• The policy, Minister of Finance & Minister of the Economy, 5 minutes
• IMF's view, The IMF Mission, 3 minutes
• U.S. Treasury & European Union, 3 minutes

Voting: Participants will each make a 2 minute statement indicating why they vote the way they do. The Prime Minister, the Minister of Finance and Minister of the Economy will vote but will not make a statement. The IMF Mission, U.S. Treasury and EU representatives do not vote and do not make a statement.