Change in political system, change in Turkish economy
Turkey is changing its political system with the constitutional amendments. If the constitutional amendments are approved by the public after receiving Parliament's approval, a new era will begin in Turkey. Undoubtedly, this change means a qualitative transformation of the political system. All of the political and legal institutions will be restructured, new institutions will be added to them and the inter-institutional communication mechanism and bureaucracy will be reshaped. Can we argue that the Turkish economy will go ahead independently of this qualitative political change as before, while political, administrative and legal spheres go through such a great change? Definitely not.
However, when I look at the exchange rate debates in recent days, I see that those who do not want their "old" order to be disturbed in any way hope that the basic ideology of both economic institutions and the economic administration will not change at all. Moreover, they resort to all kinds of speculation and pressure to maintain the old system. Turkey cannot go on with a facile monopolistic and oligopolistic financial system. In this sense, all of Turkey's economic institutions will do what is necessary and take strong steps for an innovative and production-oriented economy.
The steps taken by the Central Bank of the Republic of Turkey (CBRT) over the past week and this week are undoubtedly innovative practices that disturbed the old cliches and long-term interests of some circles. The CBRT canceled the weekly repo auction similar to the "exceptional day" practice it had previously implemented, and directed the banks to the overnight borrowing mechanism (upper band) and the late liquidity window. In other words, the banks used the overnight borrowing facility with an 8.5 percent interest rate. I do not think there are banks that resort to the late liquidity window and end the day with 10 percent, but some exceptional developments can push the CRBT to direct the system here. This is a monetary policy instrument as the central bank simultaneously launched borrowing limits in the money market between the banks, and prevented unnecessary and speculative dollar demand by easily and cheaply borrowing lira. Coupled with a 0.5-point reduction in the banks' required foreign exchange reserves and $1.5 billion foreign exchange provided for the system, all these steps upset the collusion which has been maintained so far.
First, I must say that the capital adequacy ratio of Turkey's financial system is up to 16 percent and the average capital adequacy ratio of the banking system is above 12 percent. Turkey is one of the most robust and adequate countries in the world in terms of public debt, the financing adequacy of the public sector and the budget. What did the CBRT exactly do last week?
First of all, due to the cancelation of the repo auction, the banks funded overnight borrowing at 8.5 percent instead of 8 percent. The late liquidity window was only an option that was the technical definition of the CRBT's following message: "I can direct you here as well and the Turkish lira is not a currency that you can easily and cheaply access for your carry-trade customers and dollar speculations in shallow pools." As a result, the game, which they had been playing for years, was spoiled. Through this game, the central bank filled their pools with water and they were filling their buckets there. For years, they pressured Turkey with high interest rates and an overvalued lira and built a debt and import economy. When a political or economic development took place against their desires, they created a currency threat by raising the dollar demand with the cheap lira they bought from the central bank.
Of course, another game was funding the Treasury with high interests. We know what kind of shameful fights were waged and how interest rates were increased in auctions. We know how the oligopolistic market worked here. We know that games similar to the London Interbank Offered Rate (Libor) scandal are being played in developing countries like Turkey these days.
Here is the crux of the matter: Turkey is being reborn. This is undoubtedly a renewal that encompasses the economy altogether. Turkey will no longer go on with the lira, which is artificially made valuable with high interest rates and robbery purposes. But this is not a monetary policy change alone, but also an institutional quality change in the economy. Turkey is taking strong steps to this end. We will continue to carry out market-friendly reforms that deepen financial markets. We will carry out these reforms and take the necessary steps.
The founding of the Sovereign Welfare Fund (SWF), the CRBT's pursuance of innovative and realistic policies, the enlargement of the Credit Guarantee Fund to TL 250 billion ($66 billion) with Treasury support, which will increase the activity of the banking system, are steps taken with this purpose.
Now, the banking system must consider all these steps, structure itself and end speculative-mortgage banking in order to be more robust and to finance production and exports.
As a result, we will support a new production-oriented, human-centric and outward-oriented economy and innovative and inclusive growth, instead of debt and import economy. We will build competitive and export-oriented global brands aiming for Industry 4.0., as Turkey has no other alternative.
However, when I look at the exchange rate debates in recent days, I see that those who do not want their "old" order to be disturbed in any way hope that the basic ideology of both economic institutions and the economic administration will not change at all. Moreover, they resort to all kinds of speculation and pressure to maintain the old system. Turkey cannot go on with a facile monopolistic and oligopolistic financial system. In this sense, all of Turkey's economic institutions will do what is necessary and take strong steps for an innovative and production-oriented economy.
The steps taken by the Central Bank of the Republic of Turkey (CBRT) over the past week and this week are undoubtedly innovative practices that disturbed the old cliches and long-term interests of some circles. The CBRT canceled the weekly repo auction similar to the "exceptional day" practice it had previously implemented, and directed the banks to the overnight borrowing mechanism (upper band) and the late liquidity window. In other words, the banks used the overnight borrowing facility with an 8.5 percent interest rate. I do not think there are banks that resort to the late liquidity window and end the day with 10 percent, but some exceptional developments can push the CRBT to direct the system here. This is a monetary policy instrument as the central bank simultaneously launched borrowing limits in the money market between the banks, and prevented unnecessary and speculative dollar demand by easily and cheaply borrowing lira. Coupled with a 0.5-point reduction in the banks' required foreign exchange reserves and $1.5 billion foreign exchange provided for the system, all these steps upset the collusion which has been maintained so far.
First, I must say that the capital adequacy ratio of Turkey's financial system is up to 16 percent and the average capital adequacy ratio of the banking system is above 12 percent. Turkey is one of the most robust and adequate countries in the world in terms of public debt, the financing adequacy of the public sector and the budget. What did the CBRT exactly do last week?
First of all, due to the cancelation of the repo auction, the banks funded overnight borrowing at 8.5 percent instead of 8 percent. The late liquidity window was only an option that was the technical definition of the CRBT's following message: "I can direct you here as well and the Turkish lira is not a currency that you can easily and cheaply access for your carry-trade customers and dollar speculations in shallow pools." As a result, the game, which they had been playing for years, was spoiled. Through this game, the central bank filled their pools with water and they were filling their buckets there. For years, they pressured Turkey with high interest rates and an overvalued lira and built a debt and import economy. When a political or economic development took place against their desires, they created a currency threat by raising the dollar demand with the cheap lira they bought from the central bank.
Of course, another game was funding the Treasury with high interests. We know what kind of shameful fights were waged and how interest rates were increased in auctions. We know how the oligopolistic market worked here. We know that games similar to the London Interbank Offered Rate (Libor) scandal are being played in developing countries like Turkey these days.
Here is the crux of the matter: Turkey is being reborn. This is undoubtedly a renewal that encompasses the economy altogether. Turkey will no longer go on with the lira, which is artificially made valuable with high interest rates and robbery purposes. But this is not a monetary policy change alone, but also an institutional quality change in the economy. Turkey is taking strong steps to this end. We will continue to carry out market-friendly reforms that deepen financial markets. We will carry out these reforms and take the necessary steps.
The founding of the Sovereign Welfare Fund (SWF), the CRBT's pursuance of innovative and realistic policies, the enlargement of the Credit Guarantee Fund to TL 250 billion ($66 billion) with Treasury support, which will increase the activity of the banking system, are steps taken with this purpose.
Now, the banking system must consider all these steps, structure itself and end speculative-mortgage banking in order to be more robust and to finance production and exports.
As a result, we will support a new production-oriented, human-centric and outward-oriented economy and innovative and inclusive growth, instead of debt and import economy. We will build competitive and export-oriented global brands aiming for Industry 4.0., as Turkey has no other alternative.