Central Bank in the Democratic Party Period

The purpose of this thesis is to analyze the monetary and credit policy of The Central Bank of the Republic of Turkey (CBRT) during the period of the Democratic Party (DP). To realize this purpose within the relevant period, data is collected from Annual Reports and Statistical Bulletin of CBRT, Memorandum Ceride of the Grand National Assembly of Turkey, Bulletin of Ministry of Finance, and Official Gazette of the Republic of Turkey, and content analysis method is applied on this data. DP has abandoned balanced budget and balanced external payments which were applied before 1950. To achieve the goal of rapid economic growth DP has resorted to foreign aid and foreign loans, and liberal economic policies were applied in foreign trade. Export did not satisfy import, external balance of payments deficit has increased, currency experienced a bottleneck, external debt has not been paid. Domestic production was carried out using imported intermediate goods. Import substitution policy was adopted to overcome the recession. DP has increased the number of the State-Owned Enterprises (SOEs) and has taken an active role in the etatist economy. The financing of investment were satisfied with deficit budget policy and has resorted to domestic borrowing. Domestic savings were inadequate to satisfy the investment and external debt could not be found. As a solution to the problem of budget deficit financing and investment resources were consulted to the CBRT. The Amortization and Credit Fund was founded in 1953. Reserve requirement assets of the monetary policy instrument was admitted to the Fund, therefore dependence on monetary and fiscal policy has increased. The CBRT and the Fund have been transferring resources to the public and private sectors through Treasury bond, Treasury guaranteed bond, commercial bond, Treasury advance and commercial paper advance. Implemented expansionary monetary and credit policy had and effect on Turkish monetary policies and caused high inflation. Reserve requirement had not been successful in controlling inflation in the absence of capital markets during this period. In order to overcome exchange bottleneck and control the inflation, Stability Programme was signed with the International Monetary Fund on August 4, 1958. Democrat Party did not comply with the principles of the Stability Programme. The CBRT and the Fund have continued to transfer resources to public and private sector. DP has used the yearly financial budget planning without considering the principles of economy instead of slow but steady economic growth and economic development planning. Implemented expansionary monetary and credit policies in DP period had quashed the economy's saving-investment balance, the budget deficit and high inflation rate had become permanent, Turkish economy was made addicted to foreign debt.