Except the temporary amendment concerning the short-term advances to the government before the Second World War, no major amendments were made to the Central Bank Law. 1950s and 60s were relatively easy years. However, the authorities thought that the provisions of the Law of the Central Bank fell short of meeting the necessities of contemporary central banking. Therefore, on January 14, 1970 a new Law on the Central Bank of Turkey was adopted. The new Law brought in changes on the structure of the Bank as well as changes in its policy implementations. The most important organizational change was replacing the General Director, the highest post in the Bank, with the Governor. As regards policies, the Bank was directly authorized to set monetary policy in line with the development plans and annual programs. The Bank was also authorized to conduct open market operations in order to manage money supply and liquidity and was entrusted with medium term discount credit facilities to real sector through the intermediary of commercial banks. In the 70s, there were significant developments in the world economy. In the aftermath of the first oil shock in early seventies, inflation all over the world economies became rampant. Accordingly, the main focus was directed towards the fight against inflation. The 1980s and 90s were the years where a number of structural and institutional changes were introduced in the Turkish economy. With various measures taken between 1980 and 1989 Turkey’s both current and capital account transactions were fully liberalized.
The second major program for disinflation was the exchange rate based stabilization program of 2000 under the IMF support. This program collapsed for known reasons in February 2001. At this juncture, one might wonder why Turkey was not successful in her disinflation attempts. I believe the answer lies, as already mentioned, in the lax fiscal policies. As I have already mentioned the very  2  BIS Review 57/2007  first law of the Central Bank did not have any provision for financing the government. However the amendment made to the law just before the Second World War to extend temporary short-term advance facility to the government, in order to smooth out the difference between timing of taxes and expenditures, was firmly incorporated in its Law in 1970. The provision stipulated that the government had the access to the Central Bank financing to the tune of 15 % of the total budget spending. Although this facility was phased out after the 1994 crisis, it was one of the reasons of fiscal indiscipline and high and persistent inflation in Turkey. As we all know, tough times call for tough decisions. The collapse of exchange rate-based stabilization program in 2001 was, in one sense, an opportunity for Turkey to “put her house in order”. The fiscal cost of the crises brought every individual in the economy to his senses. Fiscal discipline and tight monetary policy were the immediate answers to the chronic problems of Turkey. But how would this discipline be achieved?