_Political Econony of Policy Reforn in Turkey 41_ 1988 the Turks confirmed in a speech to the EC Ad-hoc Committee that they would fulfill all remaining obligations to tariff reductions on an accelerated schedule, by 1995 (Bateman and Arslan, 1989, p. 5).

Short-run political concerns also added to the pressure for liberalization: high inflation had persisted for over a year, and polls conducted just after the municipal elections in March 1989 singled out inflation as the most important cause for ANAP's unexpected set back. To stem the ebb of his popularity, Ozal felt that he had to do more to combat inflation. He had since the 1970s put forth the argument that liberalizing imports could combat inflationary pressure from domestic monopolies (D. Gokce, source). It would lower the price of imports, with a direct impact on price indices and therefore on wage demands, and it would reduce aggregate demand for domestic products, as purchases switched to import goods.'6 There have been two wild cards in the array of protectionist instruments in Turkey -- levies by the EBFs and customs-duty exemptions for incentive programs. The protective effect of the import levies imposed by the EBB increase in the late 1980s. In 1987, the levies contributed approximately 6.1 percentage points to an overall rate of nominal protection of 25.5 percent. More interesting from a political economy perspective, however, is the sectoral incidence of the levies and the way in which they contribute to a highly uneven tariff structure. In general, consumer goods and agricultural products have managed to secure the highest level of protection from the levies, with relative less for capital goods producers and virtually none for intermediate goods. Some traditional consumer goods industries, including beverages and cigarettes, and the transport sector, have been able to secure very high levels of protection, for instance 83 percent on autos. (Bateman and Arslan, 1989).

Exemptions to import duties were widely granted in the 1980s as a way to encourage certain economic activities, particularly investment and export production, (Bateman and Arslan, 1989). In 1988 over two thirds of imports were exempt from all import taxes, not only from customs duties. Just over half of imports were duty free because they were for investment or export production (Bateman and Arslan 1989, p. 1). Exemptions were sometimes granted as purely political favors. In some notable cases, an importer had a large shipment waiting in port, and then a short term exemption would be granted for that particular category. Obviously the importer in question would gain a tremendous advantage over his competitors, at the expense of the public treasury and of the stability of incentives for domestic producers. Other widely-known abuses, like export subsidies granted for fictitious exports by politically favored firms, became an embarrassment to the government and contributed to ANAP's setbacks in the municipal elections of March 1989.

16. To some extent. these effects would be mitigated by the effect of import liberalization on the real exchange rate. causing it to depreciate by increasing the demand for foreign exchange. Depreciation would push import prices back up and increase export demand, but this would take longer than the anti-inflationary effects.