The country’s economic dilemma is clear. It is stuck between macro stability-producing first generation reforms and productivity-enhancing second generation reforms.

When times were good, policymakers were unable to usher in the range of structural reforms necessary to sustain growth. They were lulled into complacency by high growth rates achieved on the back of easy global liquidity. Now that the times are not so good, Turkey may pay a severe price for this complacency.