And last but not least, good governance requires a fair legal framework and impartial enforcement of this legal system that protects property and individual rights and constitutes a strong base for prudent policy-making. The rules need to be preset, predictable and applied equally regardless of whether the parties in dispute are domestic or foreign, individuals or state. Enforcement of rules in speedy and impartial manner would create a self-fulfilling environment, where adhering to contracts voluntarily becomes the norm and there is little need to formally recourse to the legal system. How can we match governance practices with the current financial turbulence? It is too early to make a judgment about the institutional failures that have led to current financial turbulence, but we have a few clues on what went wrong. Lack of transparency and accountability is at the top of the list. In retrospect there were some important gaps in the U.S. regulatory structure that caused poor underwriting and some fraudulent practices in the sub-prime mortgage sector. Parties in the originate to-distribute chain did not have incentives to generate and provide information on the quality of assets. We can add poor investor duediligence practices and poor performance of credit rating agencies to that list. Public disclosures required of financial institutions were not enough to shed light to the risks  2  BIS Review 38/2008  associated with their on- and off-balance sheet exposures. Public authorities were way behind in assessing and regulating the complex financial instruments created by financial engineers.

Turkey has achieved significant progress in this front, but today, I would like to put a special emphasis on the role of regulatory and supervisory institutions without getting into details. Establishment and effective implementations of institutions such as the Banking Regulation and Supervision Agency, the Turkish Competition Authority, the Energy Market Regulatory Authority, the Telecommunications Authority and many others have contributed to the development of a competitive, resilient and efficient economy in Turkey. It is not surprising that manufacturing, retail, energy and financial sectors have attracted the interest from foreign investors in recent years, as witnessed by over 40 billion USD foreign direct investment in the last two years. The good corporate governance practices have also contributed to the overall economic governance in the country. As a result of the steps taken in the four categories that I have just mentioned, Turkey has shown an impressive economic performance after 2001. The consumer price inflation declined to the single-digit territory. The GDP has continuously grown in the last 24 quarters. This strong growth performance was private sector driven and supported by continuous productivity gains. Along with the high economic growth, openness of the Turkish economy has also increased substantially. Exports increased by more than two-folds since 2001 and reached to USD 107 billion in 2007. The banking sector has strengthened significantly and became resilient to internal and external shocks. Finally, budget deficit and debt stock of the public are no longer sources of vulnerability.