In other words, most financial savings are channelled through the banking sector. The banking sector’s total assets amount to 66 percent of GNP. The BIS Review 42/1997  -4-  reformation of the financial sector had the effect of reinforcing the privileged position of the banks. Turkey has a universal banking system, which is another way of saying that Turkish banks are allowed to participate directly in all forms of financial activity except insurance. The Banking Act of 1985 governs the establishment of banks, their capital structure, branch banking, foreign banking, credits, deposit insurance, and all other activities related to banking. Today our banking sector is highly competitive and efficient. It is integrated with the international financial markets. Its strength is based on an up-to-date technical infrastructure, a well-educated work force and experienced, and a well-qualified management. The banking sector’s adaptability, shown by its rapid introduction into the system of new financial instruments, has increased the available range of financing sources. Financial reform has increased the efficiency and competitiveness of our banking sector. The Istanbul Stock Exchange is one of the best performing of all the emerging markets. Its total market capitalisation is increasing, both in nominal terms and as a percentage of GNP, which indicates that it is playing an increasing role in the transmission of domestic financial savings. The GNP share of market capitalisation has increased to 22 percent, while the GNP share of M2y, which is the total of financial savings held in the banking sector, is around 40 percent.

Let me follow this account of the general framework of regulation governing financial investments denominated in foreign exchange with a description of the structure, strengths and weaknesses of our economy. The basic economic features of our country are attractive. A liberal trade and exchange rate regime, a modern and competitive private sector, abundant and vigorous consumer demand, and extremely attractive investment opportunities. This rosy picture is clouded by three economic problems that can be solved by a firm commitment to macroeconomic discipline. These three problems--high and persistent inflation, high public sector deficits, and large current account imbalances--are interrelated. Persistent high inflation has been Turkey’s main economic problem for the last two decades. Its main cause lies in the sizeable public deficit. Its other causes include entrenched inflationary expectations, exchange rate movements, monetary developments, interest rates, and price increases initiated by public enterprises. Under conditions of an open capital account, large public deficits can generate imbalances in the current account. Turkey’s current account tends to be volatile. For this reason, what Turkey really needs is to accept fiscal discipline. A sustainable and consistent fiscal policy is evidently the key to solving other economic problems. Achieving fiscal discipline will require political will as well as persistence. BIS Review 42/1997  -3-  Even though we have economic problems, we unquestionably also have the ability to overcome them. Turkey needs to make use of this potential. I therefore now wish to draw your attention to the considerable strengths of our economy.