Turkish economy: Notes on rights, wrongs, futile attacks

Published 01.08.2017 22:52

We know that the assessments made in relation to the economic outlook of Turkey and the future of the economy differ in accordance with perspectives and political standpoints. That is to say, this is the issue of whether the glass is half full or half empty.

When Turkey's current macroeconomic data, namely inflation, unemployment and current account deficit figures, as well as exchange rates and interest rates depending on these basic variables, are compared to those of countries like Turkey and other countries in the region, it speaks to the glass being half full. For instance, foreign trade data released on Monday indicates that the growth trend in the second quarter is rising in a sound way. Foreign trade deficit decreased by 9.1 percent in June and the export-import coverage ratio increased to 68.7 percent from 66.1 percent compared to the same month last year. On the other hand, seasonally adjusted exports rose by 2.5 percent. Despite Europe's crisis, we expect exports in the second quarter and beyond will make a positive contribution to growth.

On the other hand, the Credit Guarantee Fund (CGF) will be an important factor supporting the industry and exports in the second and third quarters. At this juncture, I would like to indicate that the CGF is not a structure that has been launched as a Band-Aid solution for the Turkish economy for a certain period of time, but is a new way to finance the economy and this path will continue to deepen.

The Turkish banking system should well consider this. With the CGF, we have left behind an outdated mortgage-based collateralization system and stepped into a new banking approach that turns project risks into credit risks and that strengthens the receivables, and hence the assets, of banks. Now, those who do not want to see this new step as it goes against their interests and those who want to maintain the old commission-interest robbery system may struggle to blemish it and explain it by distorting its essence. We will see that these have no significance.

The Turkish Sovereign Welfare Fund (SWF), like the CGF, one of the new-term institutions in Turkey, will soon show all friends and foes that it is a major player of the Turkish economy and even of the global system. So, we will closely watch it in this period. If we quickly functionalize new-term institutions like the CGF and the SWF, in a way that they reveal the potential of the Turkish economy, we will undoubtedly reveal a new development story as well.

In these days when the new Medium Term Program (MTP) meetings have started, I hope Turkey is assertive in its objectives of inclusive growth and the MTP not to set so-so, makeshift and obscure targets. For this, however, we need a new development story as I mentioned above. If we can create this story, I would argue that the empty side of the economy will start being filled as well.

To this end, it is necessary to get rid of some wrongs and taboos. For instance, countries like Turkey are associated with an oft-told story about the inadequacy of savings. The argument that "Savings are inadequate in Turkey, so we must further tighten the belt" is undoubtedly an illusion and is the basic argument of an understanding that we need to kick away. In response to this, I would like to say: "No, savings in Turkey are not inadequate. This is because in a country that is fully outward-oriented and that implements a floating exchange rate regime, you cannot build a general equilibrium model through domestic savings." It would be right to mention an insufficient and shallow financial structure that cannot assess external savings, instead of the inadequacy of savings, in a fully outward-oriented economy, where capital inflows and outflows are absolutely free and which has a floating exchange rate regime. What is important here is to develop a true financial architecture. Otherwise, there is no point in building Ponzi-style chains with the aim of transferring the savings of middle-income groups and the poor to the distorted banking system, to continuously hike interest rates, to reduce wages and to practice outdated austerity policies on the pretext of the savings gap.

Joseph Stiglitz destroyed these "austerity" policies in his book named "The Price of Inequality" in 2012. In the book, Stiglitz suggests that we need to look at history to see belt-tightening policies. Economic policies, which are set by raising interest rates, minimizing money supply, preventing the demands of middle classes and the poor and completely immobilizing the public sector, have always failed. You cannot find a successful example of this in history.

In the upcoming days, Turkey will determinedly carry out reforms that will improve its investment environment. Meanwhile, let me note that Germany's warnings against Turkey will be responded to on all levels and they will not work out in any way. According to Reuters, Germany recently wanted the European Commission (EC) to freeze Turkey's request for the revision of the Customs Union agreement. These efforts by Germany will not work, as Turkey will not continue with the current state of the Customs Union. If they insist on this, we will secede from the Customs Union - which will harm Germany the most.

Turkey will carry out the necessary reforms and continue to develop at an inclusive growth pace without tightening the belt.

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