Nowadays, those who want to invest in the Turkish economy and those who analyze Turkey are absorbed by the following questions: Which path will the Turkish economy take after the June 7 elections? Will the reforms that have been ongoing since 2008 continue? Will economic stability be ensured? I would like to briefly address the disinformation that accompanies these questions.
In order to find an answer to the question of the state of the Turkish economy after the elections, we should make a rough estimate of the election results. It seems inevitable that the Justice and Development Party (AK Party) will come to power alone once again. However, the question is: how strong will the AK Party be in Parliament? If the Peoples' Democratic Party (HDP) can enter Parliament, this will considerably disrupt the parliamentary balance to the detriment of the AK Party, a development which might affect political and economic stability. On the other hand, the formation of a new constitution and rapid transition to a presidential system depend on the AK Party's power in Parliament. According to election forecasts released by independent surveys, it will be a difficult task for the HDP to pass the election threshold of 10 percent and to have seats in Parliament. In this case, the strongest possibility is a new and stronger AK Party rule. If we are to pursue this scenario, we need to discuss how the economic administration will be formed by the new AK Party rule and which path this administration will follow.
Unfortunately, we are faced with a large volume of disinformation in this regard. The "independence" of many of Turkey's economic institutions, particularly of the Central Bank, is being discussed. Recently, Standard & Poor's reaffirmed Turkey's rating in foreign currency, but it downgraded its rating in terms of the Turkish lira, offering the discussions about the Central Bank's independence as a major justification. In fact, there is no such a debate in Turkey. Nobody, including President Recep Tayyip Erdoğan, discusses the independence of the Central Bank. Central banks across the world can have two types of independence: goal independence and instrument independence. No one discusses the instrument independence of the Central Bank of the Republic of Turkey. Moreover, there is a broad consensus about the further consolidation of the Central Bank's instrument independence. Therefore, it should be acknowledged that goal independence is a controversial topic not only in Turkey, but all over the world. Moreover, the central banks of all developed countries are dependent on governments in terms of goals. Thus, we need to pursue a really frank discussion here. Undoubtedly, following the elections, the new government and relevant state agencies will support both the Central Bank and supervisory and regulatory institutions in Turkey so that they can act independently and strengthen their independence.
On the other hand, the flow of foreign direct investment (FDI) to Turkey between 2015 and 2019 is very important. To this end, the new government will take rapid steps to further improve the investment environment. There are significant reforms that have thus far been made in this field, but we cannot yet argue that they are sufficient. Bureaucratic transactions will be rapidly lessened and they will even be made foreign-investor-friendly. Additionally, the project to make Istanbul a financial center will gain speed. We expect that, to this end, strong steps will be taken after the elections in order to strengthen capital and foreign currency markets.
We agree with credit rating agencies that a growth of around 3 percent is not sufficient for Turkey. However, there is a paradox: If Turkey does what such rating agencies say, in other words, if the Central Bank continues to target inflation alone and ignore employment, and if it merely focuses on non-interest budget surplus in fiscal policy, Turkey will be entrapped in low growth that it cannot overcome. This means a middle income trap for developing co
untries like Turkey. In this case, Turkey has to develop a new growth paradigm for the upcoming years between 2015 and 2019. This paradigm will bring major constructive reforms in fiscal and monetary policies, strengthening FDI inflow. Currently, infrastructural investments over the past 10 years, as well as industrial and manufacturing sectors, have achieved major external advantages.
The fact that oil prices are following a downward trend offers a great advantage to Turkey in terms of shrinking its foreign trade deficit. Additionally, Turkey is commercializing the Caspian region's, Mosul's and Kirkuk's resources at a fast pace. The Trans-Anatolian Natural Gas Pipeline, which will carry Caspian resources to Europe, will come into force in this period and this is the strongest step that will make Turkey an energy hub.
Apart from all this, with the achievement of Kurdish peace, employment will rise in Turkey starting from the east of the country and unemployment, particularly youth unemployment, will dramatically drop. All of these developments will lead to a serious improvement and stability in inflation. Turkey's current banking system is one of the most robust banking systems in the world in terms of capital adequacy. It will gain more strength with the participation of public banks that operate on the principle of Islamic banking after 2015. Additionally, Turkey's information technology and economy is rapidly growing and technological intensity in defense industry is soaring. Small and medium sized enterprises (SMEs) make better use of technology every passing day.
As a result, the Turkish economy is poised to be one of the most stable, outward-oriented and competitive in the world, and will have a well-functioning market mechanism between 2015 and 2019. These qualities will bring Turkey stability and a strong pace of growth.
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