Turkey: Securing Stability in a Rough Neighborhood

Case Solution

Richard H.K. Vietor, Emily J. Thompson
Harvard Business School ()

After years of volatility and crisis, Turkey desperately sought macroeconomic and political stability in a constantly deteriorating region of the world. In the short term, Turkey had to repay its debt, which amounted to more than 80% of GDP. In January 2004, Turkey entered the final stages of the IMF’s latest $ 17 billion loan program. Each revision required Turkey to achieve certain monetary policy objectives (for example, reduce inflation), restructure the banking sector, reform the public sector, and increase privatization. The country’s long-term goal of joining the European Union will only be achieved if the criteria required by the EU are met. Elected in November 2002 and with the first absolute majority in parliament in 15 years, the AKP promised to meet the requirements of both the IMF and the EU. Although his AKP party had Islamic roots, Prime Minister Erdogan wanted to show that Turkey was a stable and secular democracy. After Turkey complied with the EU requirements, the question remained: Would the EU “Christian Club” accept a Muslim Turkey?

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