Since the start of 1980s, liberalization policies have played a pivotal role in defining how states exercise the control over their economies.
It is important to note that an essential element of the liberalization policies has been the withdrawal of the state from utility (infrastructure) sectors which have been typified by market failures, for example natural monopoly situations that resulted in the reduction of the level of competition in the markets.
However, the withdrawal of the state from these sectors have resulted in the introduction of policies that focus on regulating (but not imposing direct control) of the economy activities of the newly liberalized markets at the macroeconomic level.
Thus, one of the notable aspects of the changes to regulatory policies has been the formation of specialized independent regulatory agencies (IRAs) that are different from standard bureaucratic structures. This paper examines IRAs in Turkey with the aim of analyzing their independent features.
IRAs in Turkey are distinguished by organizational attributes that are not the same as the traditional bureaucratic structures in the country and they make up service-based (as opposed to geographical) decentralized governance according to the country’s constitution.
Thus, analyzing how they were established and investigating their autonomous attributes is important in knowing the track of liberalization that began in the country in the early 1980s. After experiencing a long period of both economic and political confusion during the better part of the 1970s, Turkey started to institute market-focused changes during the beginning of 1980.
This initiative was an important change from the country’s etatist past. One of the main aims of the 1980 reform agenda was to institute changes in the trade regime and it involved introduction of a more flexible exchange rate policy (Zenginobuz, 1). It also involved doing away with stringent import substitution policies. This was achieved by encouraging exports of goods and services and liberalization of imports.
The reform process also aimed at lowering the size of the country’s public sector. This was intended to give opportunity to private initiatives and markets in establishing fair distribution of resources in the economy; thus, the process of privatization of state-owned enterprises and liberalization of financial markets were thought to be imperative aspects of Turkey’s reform agenda.
The 1980 economic reforms in Turkey led to remarkable transformations in the way business was done in the country. Export promotion policies resulted in new incentives and financial liberalization was also realized.
The emergence of IRAs in the country started to take place in the aftermath of the new initiatives described above and even though their emergence goes back to the start of the 1980s, their steady growth took place during the 1990s and the 2000s. In the 1980s, Turkey was not focused on instituting an efficient regulatory framework; thus, it was only towards the end of the 1990s that it passed regulations to this effect.
The country paid no or little attention to the significance of creating a regulatory framework prior to liberalization and privatization of industries and it only realized this need following years of stagnant economic conditions.
More so, after the Southeast Asian and the Russian crises of the late 1990s, essential structural problems in the country’s economic structure were exposed, and this further propelled the need of creating a regulatory framework.
External anchors propelled the creation of regulatory agencies in Turkey. As pointed out earlier, the economy of country was stagnating; thus, international agencies such as International Monetary Fund (IMF) and World Bank (WB) put an overpowering pressure on the Turkish government to institute reforms and create regulatory agencies.
As a result, the policy makers in the country endeavored to create autonomous and credible IRAs so as to ensure that the markets function properly. More so, the establishment of the IRAs was aimed at marketization of public services as much as possible.
The efforts to establish regulatory agencies in Turkey served as the prerequisites for making the country eligible to loans that were to be provided by international agencies; therefore, the stand-by agreements that were made with IMF and the proposals of WB to revive the country’s ailing economy played a crucial role in suppressing the opposition of establishment regulatory agencies.
For example, in the intention letters submitted to the International Monetary Fund on 9 December 1999 and latter letters, Turkey promised to establish IRAs such as “BRSA (Banking Regulation and Supervision Agency), EMRA (Energy Markets Regulatory Agency), TTPABMRA (Tobacco, Tobacco Products and Alcoholic Beverages Markets Regulation Agency), and PPA (Public Procurement Agency) to the IMF as a part of the criteria of stabilization” (Sonmez, 133).
The European Union (EU) also played a role in the establishment of IRAs in Turkey. In the 1990s, Turkey was preparing to join the European Community and this obliged it to make some reforms so as to meet the objectives of the EU (Gul and Zenginobuz, 20).
Notably, public sector reforms were enacted; thus, the establishment of the regulatory agencies is a component of these reforms. The reforms were intended to provide liberalization and competition in the country’s national markets, which had not been performing as desired.
For example, Turkey has prepared a national program to adjust “its administrative, political, economic and social structures to the EU’ Acquis Communitarie and introduced the Turkey’s ‘National Program for the Adoption of the Acquis’ which was adopted by the Council of Ministers on 19 March 2001” (Sonmez, 133).
In the report, the Turkish government has promised to institute a number of reform programs in the country concerning IRAs as well as in the public sector to achieve transparency and competition in the running of its affairs. Some of the reforms Turkey promised to adopt include the establishment of a draft law on public procurement and the establishment of an IRA in that sector.
This led to the creation of the PPA on 1 January 2003. Other IRAs subsequently established include TTPABMRA in 2002, which was mandated to regulate tobacco products and alcoholic beverages, and the EMRA in 2001, which was mandated to regulate gas and electricity companies in the country. The EU and other international organizations became efficient in directing the internal policy of Turkey.
Therefore, they pressurized the country’s politicians to enact structural reforms, notable was the creation of regulatory agencies that were not subject to political control in several important aspects of the country’s economy.
There were remarkable changes over time in Turkey’s attempts to create regulatory agencies. As pointed out earlier, even though there were domestic drivers of regulatory reforms in the country from the 1980s, the process of establishing the reforms was rather slow.
The slow implementation of regulatory reforms in the country was brought about by paying more attention on market orientation and liberalization instead of the reforms. Consequently, at the end of the 1990s, there was an urge to create the conditions more favorable for private investors.
Such private investment into infrastructure industries, for example, electricity and telecommunication, was ignited due to the increased macroeconomic instability and inadequacy of resources that prevented the government from meeting its obligations of establishing the necessary infrastructure facilities. Additionally, several attempts had been made to make a number of public assets in infrastructure industries private.
However, these attempts did not succeed because they were hindered by the legal challenges that were brought about by the Constitutional Court and the Council of State, inter alia. In this aspect, the law did not allow the privatization of natural monopolies if it was proved that they could not function to fulfill the bigger public interest.
Thus, the hope of making state monopolies private and opening imperfectly competitive enterprises to new entry level evidently necessitated the creation of IRAs in Turkey. Appertaining to financial services, the financial crisis of 1982 sent a message to the policy makers in the country that having a banking sector that was not regulated was a threat to its growing economy.
Whereas there was remarkable progress in the creation of IRAs in Turkey, such attempts were not successful up to the end of the 1990s.
In addition to the other reasons provided earlier, the majority of the politicians in the country did not want to relinquish their political power because of the fear of losing control over the administrative agencies; thus, this understanding of the need for establishing a regulatory framework was ubiquitous among sections of the bureaucracy.
The process of establishing credible IRAs was reinforced by the financial crisis in 2001; it formed an opportune environment for the passage of the necessary regulations on regulatory reforms and enhancing the political and bureaucratic commitment for reforms in the country.
The financial crisis threatened the credibility of Turkey internationally to cope with such an emergency. Consequently, it lessened the resistance to prevent the passage of the necessary legislation for instituting regulatory agencies in the country.
According to Tamer, the policy changes that were meant to establish the IRAs cannot be considered to be successful; there is still substantial exertion of political authority over these agencies, in varying intensities across different sectors of the country’s economy (57).
Despite the recognized autonomy together with the complete economic and managerial sovereignty of the majority of Turkish IRAs, in reality, operation swerves from the official structures.
In comparison to their counterparts in other countries, the IRAs in Turkey have a seemingly high level of autonomy; however, in some instances, they have served secluded interests of the country’s politicians, bureaucrats, and other private interests.
It is important to note that even if the autonomy of the IRAs is perceived to be of essence for good regulatory results, official autonomy itself is not a guarantee to automatic “good” results; therefore, Turkey is a good example to depict the inconsistency between official structure and actual operations.
For instance, in the telecommunications sector, the autonomy of ICTA (Information Technology and Communication Authority) is comparable to that in the United States, which is a noteworthy progress for a “latecomer” in the creation of regulatory agencies; nonetheless, there are substantial differences among the IRAs of the two different countries as appertains to real autonomy and performance of their operations.
A number of IRAs in Turkey have been reported to be subjected to undue interference by the state. Some of these are ICTA, Sugar Agency (SA), and the Agency for Tobacco and Alcohol Markets (TAMRA).
For the case of ICTA, the government employed various tactics to interrupt some of its liberalization measures, for example, the issuing of license to new operators, and for the case of SA and TAMRA, their institutional design has attracted interference by the government, as some of their board members are still employees of the government who serve its interests.
In conclusion, since the 1980s, Turkey was engaged in market reforms without comprehensive regulatory framework, and it was until the country started experiencing economic crisis in 1999 that it began to adopt elaborate regulatory reforms in its governance.
IRAs were established as key agencies of the reform process, which were aimed at creating a sound and competitive framework so as to avoid the major economic problems that the country had been facing. More so, the establishment of the IRAs was meant to exemplify the aspects of good governance.
These aspects are, but not limited to, political insulation, transparency in service delivery, responsibility, and involvement. External pressures that were put on the country by international agencies such as the IMF and WB also facilitated the establishment of IRAs in Turkey.
Another crucial role was played by the EU, which formulated stringent policies that the country had to adhere to before being accepted as a member of the European Community.
Works Cited
Sonmez, Umit. “Independent Regulatory Agencies: The World Experience and the Turkish Case.” Etd.lib.metu. Middle East Technical University, 2004 Sept. Web.
Sosay, Gul, and Zenginobuz, Unal. “Independent regulatory agencies in emerging economies.” Mpra.ub. Bogazici University, 2005 Sept. Web.
Tamer, Cetin. The Political Economy of Regulation in Turkey. New York: Springer Verlag, 2011. Print.
Zenginobuz, Unal. “On Regulatory Agencies in Turkey and Their Independence.” Bog Uni. Bogazici University, 2007 June. Web.