Recurrent severe macroeconomic crises have not allowed the Turkish economy to realise its growth potential over the last two decades. The stabilisation programme launched after the latest crisis in the spring of 2001 has so far been successful in the sense that inflation has fallen from over 70% to less than 10% and public debt is declining slowly as a % of GDP. The key task now is to transform this hard won stability into a normal state of affairs, i.e. to stabilise stabilisation.
This paper addresses several aspects of this overall task. Section 1 gives a brief overview of what has been achieved so far. It then turns to the key variable that determines Turkey’s vulnerability to shocks, namely the debt-to-GDP ratio and its dynamics. Section 3 then deals with external vulnerability: How can Turkey import capital to accelerate its convergence with the EU without accumulating a crippling foreign debt burden? FDI might play a crucial role here (as it did, and still does, for the new member countries). Section 4 then deals with the quality of the institutions that determine the performance of the Turkish economy in a European context. Section 5 concludes.