Durmuş Yılmaz: Global crises and economic governance Speech by Mr Durmuş Yılmaz, Governor of the Central Bank of the Republic of Turkey, at the conference on “Global crises and economic governance”, İnönü University, Malatya, 15 April 2010. *  *  *  Distinguished Rector, Distinguished Academicians and Esteemed Guests, First of all, I would like to thank everyone who has contributed to the organization of this conference, primarily Prof. Cemil Çelik, the Rector of İnönü University and distinguished faculty members of the university. I take great pleasure in participating in such an event with you. I would like to start my speech with a brief evaluation of the global financial crisis. Later on, I will share with you my observations related to developments in the global economy and the Turkish economy. After presenting a brief overview of the monetary policy implemented and the measures taken by the Central Bank during the crisis, I would like to close my speech with the monetary policy exit strategy, which we announced to the public yesterday. As you know, problems that emerged in the US subprime mortgage market in the second half of 2007 spread the whole world to reach threatening levels for both financial and economic stability. We can say that the reaction of market players and the public has gone through four subsequent stages since the eruption of the crisis. These stages can be summarized as those of Denial, Disappointment, Panic and Hope.
In the first stage, the markets had difficulty perceiving the dimension of the damage caused by the crisis and considered that such an incident would be overcome shortly and/or would not reach significant levels. As a matter of fact, especially in the first half of 2008, one of the most discussed items on the agenda of international financial circles was whether there would be a decoupling of economies or not. In that period, many economists and market specialists supported the idea that the crisis that emerged in advanced economies would have a limited impact on emerging economies and that emerging economies had the capacity of compensating the global demand deficit, which was to be observed. In conclusion, they claimed that there would be a distinct decoupling in the growth dynamics of country groups. It has been fortunate that the expected decoupling has not been as intense as estimated. It is inevitable for both developed and emerging economies to be affected by global economic turbulence in a period characterized by the progressively rising interdependent nature of global economies. However, the scale of the impact has differed from one country to another. When we look back, we see that the resilience of countries in the face of the crisis has been determined mainly by four structural factors. It is possible to examine them under four headings as (1) Floating exchange rate regime (2) Resilience of the banking system (3) Countercyclical monetary policy and (4) Room for maneuver provided by the fiscal discipline implemented in the pre-crisis period.