External factors, the worsening of the public debt situation and an unhealthy financial system dominated by state banks, triggered several crises in Turkey’s economy during the 1990s. The net public debt stock, which accounted for only 29% of the GNP in 1990, rose to 61% of the GNP at the end of 1999. The domestic debt, which increased only 6% in 1990 jumped 41% in 1999.
The rapid rise in public debt in the latter half of the 1990s led real interest rates to soar. To diminish the risks of debt default, expand investors’ base and reduce “risk” premiums on interest rates, the government introduced a market making mechanism that continues today with 10 banks.
