Policy Briefs

Replace Discretion with Rules: How Policy Reform Can Boost Economic Performance

No.

10

Date

May, 2016

Topic

O1. Economic Development

In a nutshell
  • Before the 2000s economic policy making in Turkey was based on discretion and patronage rather than rules.
  • This put a significant amount of stress on public finances, resulting in macroeconomic instability.
  • In the wake of the 2000/01 financial crisis, the government created independent regulators for banking, telecoms, energy and public procurement, and made the Central Bank independent.
  • To support its candidacy for the European Union it embarked on economic reforms broadly based on EU legislation.
  • It was mainly due to the new regulatory environment that the financial industry survived the global financial crisis of 2008-2009 relatively unaffected.
  • Between 2002-2007, Turkey experienced one of the highest sustained growth rates in per capita income in her history.
  • Recently the government has weakened regulators’ independence and introduced new schemes with greater discretionary powers.
  • As a result economic growth is less likely to be driven by open competition and will rely on discretionary instruments to generate investment.
  • The Turkish experience suggests that a reform-minded government that adopts institutional reform to increase policy credibility and enhance competition may be rewarded with increased economic performance.
Replace Discretion with Rules: How Policy Reform Can Boost Economic Performance

Research Fellows

Izak Atiyas

Associate Professor of Economics, Faculty of Arts...