It is fair to say that the economy of Turkey was successfully integrated into the world economic system by the end of the 1980s. However, as we have outlined in the previous chapter, this made the economy more susceptible to the fluctuations of the international financial markets. When the global economy started to experience some serious setbacks in the 1990s, with intense financialization (see Box 3.1) and the emergence of serious competition from the South East Asian economies’ manufacturing exports, Turkey's economy faced productivity gaps, which were too big to compensate for by relying on speculative short-term capital alone. The country tried to overcome this limitation by borrowing more, which soon resulted in a fully-fledged financial crisis in February 2001. Eighteen months before this crisis hit the economy, a massive earthquake shattered the heart of Turkish industry – the provinces most affected accounted for 80 per cent of the country's industrial production, including İstanbul, which generated one-third of Turkey's gross national product (GNP). This massive earthquake intensified the fundamental volatilities of the economy in the summer of 1999. Economic losses caused by the devastating 45-second Marmara earthquake reached tens of billions of dollars at a time when the country's finances were already in deep trouble. The earthquake killed around 17,000 people and made more than a quarter of a million homeless. It destroyed or severely damaged some 60,000 buildings and vital infrastructure in an area of some 30,000 km2. The total economic damage was estimated at between $3.1 and $6.5 billion by the World Bank, or between 2.4 and 5.1 per cent of Turkey's GDP (World Bank 1999).

The Turkish crisis of 2001 was not the result of any one particular factor. The impact of several international setbacks, such as the Mexican crisis in 1994, the Asian crisis in 1997 and the Russian crisis in 1998, together with this massive earthquake in 1999 pushed the Turkish economy into recession, and as a result Turkey experienced a very serious crisis in late 2000 and early 2001. This was the most severe crisis in the country's history so far and was particularly far-reaching in terms of its consequences and its impact on output and employment.