Rushing toward currency convertibility

Abstract In 1989, Turkey became one of the first—and few—emerging economies to fully liberalize its capital account. Given the adverse macro-economic conditions before the reforms, it is puzzling that Turkish policy-makers implemented policies amounting to a comprehensive and imprudent capital account liberalization. Using in-depth interviews with a significant number of key decision-makers behind capital account liberalization and employing archival material from news sources on the debates surrounding the reform process, this article examines the policy objectives and rationale behind the Turkish capital account liberalization. The main argument is that capital account liberalization represented a political rationality that put a premium on short-term expansion through funds from the rest of the world. This liberalization was a policy response to decreasing rates of economic growth and demands from organized labor and public employees for better working conditions and higher wages. Thus, this article shows that these distributional conflicts and the trajectory of economic growth were important determinants of the timing and scope of capital account liberalization in Turkey.