We assumed therefore that growth in the world economy would be somewhat weaker in 2008 and 2009. In Sweden on the other hand, economic activity was somewhat stronger than expected. Nevertheless, it was assumed that the weaker prospects for economic activity internationally would lead to a slowing down of growth in Sweden as well later this year and early next year. Signs of this slowdown were already beginning to appear, for example in the data in the National Institute of Economic Research’s Economic Tendency Survey and in the statistics on retail sales and new job vacancies. Our assessment, however, was that the slowdown in Sweden would be relatively moderate. GDP growth remained good, and the potential for future growth was still relatively favourable. The level of saving among households and in the public sector was high. Property prices were fairly stable and the direct effects of the financial turmoil were expected to be relatively slight. BIS Review 68/2008  1  At the same time, inflation was high both in Sweden and abroad. This related above all to higher energy and food prices on the world market. Inflation expectations in Sweden also remained high, and were also way above the inflation target even in the longer term. We thus had to take various counteracting factors into account. On the one hand, growth in the Swedish economy was still good and both inflation and inflation expectations were high.
Lastly, in the 90s, regulatory and supervisory measures and changes in the structure of the financial system in the Turkish economy were not designed for strengthening the system in the long term, by incorporating elements such as prudent supervision, institutionalization of regulation, etc. Instead, the measures mostly sought daily solutions to the problems. As you know well and the research in the area suggests, “Actions to deal with crisis can clearly lead to future moral hazard. If any protection provided to banks in a crisis is greater than they expected, this could increase their risk taking and [the  4  BIS Review 38/2005  possibility of another] crisis in the future.”5 As Bagehot also put it, “any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank.” In my opinion, the 100 percent blanket guarantee that was brought as a part of crisis resolution during the 1994 crisis, but kept in effect until very recently is a good example of this. The measures taken during the 1994 crisis unfortunately paved the way for the moral hazard behavior in the banking sector. All of these distortions in the banking sector and institutional structure of the financial system led to important systemic risks in the Turkish economy. As the 1990s were over, it was impossible for the Turkish economy to operate without reforming its financial sector. Therefore, the restructuring program for the financial sector was launched as a component of the exchange rate based disinflation program in 2000.