to borrow, which leads eventually to crowding - out, the banks turn to the public sector as a simple method of investment. this causes them to turn away from their basic function of intermediation, so essential for the efficient allocation of resources. a system that finances the public sector loses its power. on the other hand, in an environment like that just described and an economy where capital movements have been liberalized, the soundness of banks is especially important. how, then, can banking system soundness be attained? there are four means to this end : 1 ) a more efficient and independent supervision system. 2 ) embracing internationally accepted auditing principles. 3 ) improving methods for reducing the financial risks taken by the banks. 4 ) the most important is reducing the internal and external imbalances and preserving market stability by creating a sound macroeconomic environment. thus, the most important task for the system belongs to the public. the public authorities have an obligation to prepare the necessary legal regulations immediately and pass them through parliament. regulations that are inadequate or not updated only cause problems to accumulate. for these reasons the new banking law has been prepared and submitted to parliament. the aims of the draft law are basically to strengthen supervision and make it more efficient, and to make sure supervision standards remain in line with international standards. the draft law was prepared on the basis of the laws and regulations of the european union and other accepted international practices, and the “ 25 core principles for effective banking supervision ” promulgated by the bank for international settlements. i hope that after the forthcoming election, the new government will be able to pass this law through parliament. now i must state clearly that i do not believe there are serious problems in the turkish banking system. there are not many that interfere with the system. we, the public authorities, evaluate the real financial standing of banks. we know the reality well. if we find a problem in the system, we can take the necessary actions within the framework of the law. we have the necessary tools to do this. the turkish banking sector has existed for 130 years and knows how to manage risks. it has credibility in the international arena. it is sounder than many of the world ’ s national banking sectors. it is dynamic. its human resources are well trained. supervision and auditing requires several years of experience. a correct judgment of the system cannot be obtained by focusing on a couple of difficulties in isolation. these facts should not be overlooked.

gazi ercel : the role of the euro from the turkish standpoint speech by mr gazi ercel, governor of the central bank of the republic of turkey, made during the 6th international financial and economic forum, held in vienna on 9 november 2000. * * * ladies and gentlemen, i would like to thank the organizers of this conference for inviting me to share my thoughts on the euro ’ s role as seen from the turkish point of view. of course, the introduction of the euro is affecting not only the economies that are members of the european union but also non - member economies that have close links with members. these include emerging market economies much of whose trade and financial transactions is with european union members. those whose external debt is largely denominated in european union currencies will be affected the most. even though turkey is not yet a member of the european union, it has close ties with countries that are. not only does turkey carry on a large volume of foreign trade with eu members, it is also the only candidate for membership that has entered into a customs union with the eu, signed at the end of 1995. turkey ’ s close relationship with eu countries and the present role of the euro in the turkish economy are illustrated by the following : • europe is turkey ’ s largest trading partner. in 1999, 54 % of turkish exports - $ 14. 3 billion - and 53 % of turkish imports - $ 21. 4 billion - went to or came from eu countries. • about 54 % of turkey ’ s official reserves consists of euro - 11 currencies and the euro itself. • the foreign exchange deposits belonging to turkish workers in other countries and held in the central bank of turkey amount to about 11 billion euros, almost 93 % of which is in the form of deutsche marks. • our external debt totals about us $ 106 billion, 34 % of which consists of euro - 11 currencies and the euro itself. • since 1 january 2000 the turkish treasury has borrowed via bond issues in the international capital markets a total us $ 7. 5 billion, 37 % of which is denominated in euros. • during the last five years, 60 % of direct foreign investments in turkey came from europe. • of the 9. 3 million foreign tourists who visited turkey during the first ten months of this year, 5. 1 million came from europe. given the breadth and depth of turkey ’ s relationship with the european union, it is no wonder that the euro and the