After the turbulence and volatility of the 1990s and the beginning of the 2000s, the period between 2002 and mid-2007 witnessed significantly high and relatively stable growth in the Turkish economy. The AKP's solution to the ongoing economic problems was entirely in line with the IMF-backed reform package devised by Kemal Derviş, the economy chief of the preceding coalition government. The AKP took the necessary measures to reinstate the faith of the country's long list of creditors by pledging allegiance to a programme approved by major international financial institutions. Several macroeconomic reforms introduced by Derviş as a response to the 2001 crisis were important in this respect. Public finances and the government's budget deficit were kept under control as a result of Derviş's reforms. The role of the Central Bank of the Republic of Turkey and the Banking Regulation and Supervisory Authority was increased and they were allowed to operate more independently of the government. Several revisions of banking laws strengthened the regulatory and supervisory framework to bring the practice of Turkish banks closer to international standards, in particular to European best practices. The capital requirement for Turkish banks was set at 12 per cent, which was even higher than the minimum requirement decided by Basel III, the international regulatory framework for banks,1 in order to minimize financial risks. At the end of 2001, the government injected $22 billion into the market through the Savings Deposit Insurance Fund to enhance the capital structure of state banks. Also, government securities held by private Turkish banks were exchanged for dollar-denominated bonds to help banks cover their negative foreign exchange positions.

Once in power, the AKP government stuck with these reforms and pursued policies that were directly in line with the 2001 reform agenda, which came to be known as “regulatory neoliberalism”. The AKP government adopted a strong reformist orientation, which fitted the requirements of the mainstream neoliberal reform agenda. A strong economic performance was helped by a favourable global liquidity environment that enabled Turkey to attract large inflows of short-term and long-term foreign capital in the first part of the 2000s. Turkey's growth in this period was ranked the third highest in the world, after China and India.