Turkey stepping into a commonwealth
I guess we will experience a first in Turkey at the beginning of next week. Referendum results will reflect in the economy as early as one day after people go to the polls. If the constitutional amendment is voted for in the April 16 referendum, capital and foreign direct investment (FDI) inflows into the Turkish economy will begin. In addition, a new reform package will be swiftly implemented.
Markets have begun buying the possibility of the acceptance of the constitutional change in the last week. While investments in the Borsa Istanbul Stock Exchange are continuously accelerating, the Turkish lira is regarded as one of the five currencies that will see the most rapid appreciation next week. I predict this appreciation will be fixed on a level in market conditions. So, we will leave behind the volatility in the lira, which has been the most-complained about economic problem recently.
Undoubtedly, this will rapidly spread into other areas of the economy and we will be faced with a clearer picture of the economy as of the second half of this year. Apart from this, we can also say that we will enter into the process of a gradual decline in interest rates depending on capital flow, which will enter Turkey both as portfolios and FDIs. I must note an important development right here: Institutions such as the Organization for Economic Co-operation and Development (OECD) and the World Bank estimate that Turkey will grow by 2.8 percent in 2017.
Recently, however, a market note based on Bank of America Merrill Lynch was released with the title "Turkish Credit Guarantee Fund (CGF) changed the game." The note increased the estimates for the Turkish banks' earnings per share by 12 percent and emphasized that the Turkish banking system would make a positive move in credit growth, asset quality and capital ratios thanks to the CGF. While it is estimated that Turkey will grow by a maximum of 3 percent in 2017, we guess that the CGF will make an additional 1.5 percent contribution to this growth rate. Thus, Turkey can grow by 4.5 percent at the end of 2017.
The CGF has reached a bail volume of TL 114 billion ($31 billion) as of this week. TL 103.8 billion of the said amount is secured through 157,000 firms. The CGF had reached a size of merely TL 20 billion at the end of February 2017. It signed a protocol with the Treasury on March 20 and the revolution in the bail system took place that day. In other words, it provided collateralized credit expansion of nearly TL 100 billion in one-and-a-half months. Thus, the outdated mortgage-backed credit system in Turkey has become a thing of the past.
Our small and medium size enterprises (SMEs) are turning project risks into credit risks now and, as contemporary financial institutions such as the CGF undertake this credit risk, companies can access cheap financing. At the same time, banks are improving their asset quality and capital ratios by providing CGF-guaranteed loans. This also means that the banking system's need for resources will be provided in an easier and cheaper way. Banks whose asset quality and capital adequacy are rising can find longer-term resources from the outside world in better conditions. This change will boost employment and, when companies, which can rapidly make their allocation investments thanks to new resources, prefer educated and quality employment for the sake of competition, prices will rise in parallel with this. Here, we need to build the incentive system in a new framework that ensures the optimum level of both technology and labor productivity. To this end, Turkey is taking many steps toward encouragement for technology-intensive investments in sectors with a high export capacity, and will accelerate these steps in the upcoming period.
If Turkey can switch to the presidential governmental system as a result of the April 16 referendum, we will see the economic impacts of it before we actually adopt the new system. As can be seen in the CGF instance, we have already begun creating the institutions and economic and financial approaches of the new period. The Turkish Sovereign Welfare Fund (SWF) is an institution of this kind and it has changed the rules of the game.
Although Turkey is not a net exporter and does not have an export product like oil, which is in high demand and has rigid price flexibility, it founded an assertive welfare fund, breaking all the taboos. Many countries like Turkey have taken action to establish a sovereign welfare fund now and request cooperation with Turkey in this step. The SWF will develop a new financial architecture starting with Turkey. When this architecture emerges, we will more clearly see the distorted structure of the tutelary economy that has been imposed on us so far and that transfers resources to the outside. We will embed this exploitative, statist and anti-market tutelary economy in history on April 16.
I believe Turkey will achieve inclusive growth of nearly 10 percent under these circumstances from 2018 to 2019 and this growth will be permanent. If Turkey can change its constitution as a result of the April 16 referendum, it will be the center of a new commonwealth in its region.
In this regard, "yes" votes on April 16 will not only pave the way for a constitutional change for Turkey. The system change in Turkey will also accompany a step that will destroy the Ponzi-style financial system and the robbery depending on this system in the region. The endless and unique resources and the economic power of the Middle East, North Africa and the Eastern Mediterranean will permanently belong to their true owners and the region's people will take a historical step toward permanent welfare and peace.
Markets have begun buying the possibility of the acceptance of the constitutional change in the last week. While investments in the Borsa Istanbul Stock Exchange are continuously accelerating, the Turkish lira is regarded as one of the five currencies that will see the most rapid appreciation next week. I predict this appreciation will be fixed on a level in market conditions. So, we will leave behind the volatility in the lira, which has been the most-complained about economic problem recently.
Undoubtedly, this will rapidly spread into other areas of the economy and we will be faced with a clearer picture of the economy as of the second half of this year. Apart from this, we can also say that we will enter into the process of a gradual decline in interest rates depending on capital flow, which will enter Turkey both as portfolios and FDIs. I must note an important development right here: Institutions such as the Organization for Economic Co-operation and Development (OECD) and the World Bank estimate that Turkey will grow by 2.8 percent in 2017.
Recently, however, a market note based on Bank of America Merrill Lynch was released with the title "Turkish Credit Guarantee Fund (CGF) changed the game." The note increased the estimates for the Turkish banks' earnings per share by 12 percent and emphasized that the Turkish banking system would make a positive move in credit growth, asset quality and capital ratios thanks to the CGF. While it is estimated that Turkey will grow by a maximum of 3 percent in 2017, we guess that the CGF will make an additional 1.5 percent contribution to this growth rate. Thus, Turkey can grow by 4.5 percent at the end of 2017.
The CGF has reached a bail volume of TL 114 billion ($31 billion) as of this week. TL 103.8 billion of the said amount is secured through 157,000 firms. The CGF had reached a size of merely TL 20 billion at the end of February 2017. It signed a protocol with the Treasury on March 20 and the revolution in the bail system took place that day. In other words, it provided collateralized credit expansion of nearly TL 100 billion in one-and-a-half months. Thus, the outdated mortgage-backed credit system in Turkey has become a thing of the past.
Our small and medium size enterprises (SMEs) are turning project risks into credit risks now and, as contemporary financial institutions such as the CGF undertake this credit risk, companies can access cheap financing. At the same time, banks are improving their asset quality and capital ratios by providing CGF-guaranteed loans. This also means that the banking system's need for resources will be provided in an easier and cheaper way. Banks whose asset quality and capital adequacy are rising can find longer-term resources from the outside world in better conditions. This change will boost employment and, when companies, which can rapidly make their allocation investments thanks to new resources, prefer educated and quality employment for the sake of competition, prices will rise in parallel with this. Here, we need to build the incentive system in a new framework that ensures the optimum level of both technology and labor productivity. To this end, Turkey is taking many steps toward encouragement for technology-intensive investments in sectors with a high export capacity, and will accelerate these steps in the upcoming period.
If Turkey can switch to the presidential governmental system as a result of the April 16 referendum, we will see the economic impacts of it before we actually adopt the new system. As can be seen in the CGF instance, we have already begun creating the institutions and economic and financial approaches of the new period. The Turkish Sovereign Welfare Fund (SWF) is an institution of this kind and it has changed the rules of the game.
Although Turkey is not a net exporter and does not have an export product like oil, which is in high demand and has rigid price flexibility, it founded an assertive welfare fund, breaking all the taboos. Many countries like Turkey have taken action to establish a sovereign welfare fund now and request cooperation with Turkey in this step. The SWF will develop a new financial architecture starting with Turkey. When this architecture emerges, we will more clearly see the distorted structure of the tutelary economy that has been imposed on us so far and that transfers resources to the outside. We will embed this exploitative, statist and anti-market tutelary economy in history on April 16.
I believe Turkey will achieve inclusive growth of nearly 10 percent under these circumstances from 2018 to 2019 and this growth will be permanent. If Turkey can change its constitution as a result of the April 16 referendum, it will be the center of a new commonwealth in its region.
In this regard, "yes" votes on April 16 will not only pave the way for a constitutional change for Turkey. The system change in Turkey will also accompany a step that will destroy the Ponzi-style financial system and the robbery depending on this system in the region. The endless and unique resources and the economic power of the Middle East, North Africa and the Eastern Mediterranean will permanently belong to their true owners and the region's people will take a historical step toward permanent welfare and peace.
Last Update: April 13, 2017 21:42