Turkey's average growth performance of 5 percent in the periods of stable government is often emphasized. The important thing for Turkey is achieving inclusive growth without creating a current account deficit and inflation. Right now, Turkey has the requisite potential and level of development to realize this.
However, since the beginning of the 1970s Turkey's growth pace continued until the Justice and Development Party's (AK Party) took over. It did so with a distorted but non-inclusive trend that disrupted the income distribution with an average of 4 percent in the spiral of external debt-constrained growth-current account deficit-crisis.
With the 1973 crisis, known as the oil crisis around the world but now regarded as the beginning of the current crisis, a period of current account deficit external, debt-based crises started in Turkey.
The crises of 1973, 1980, 1987, 1994 and 2001 were the products of a period when domestic demand was limited, resources were distributed to the ruling oligarchy by the public, and the wealth of the country was transferred outside overnight by overvaluing the lira. This resulted in the current crisis and a 100 percent overnight devaluation, leaving no currency left in the country to pay its debts.
Turkey began to break this vicious cycle in 2008 when President Recep Tayyip Erdoğan cut Turkey's ties with the International Monetary Fund (IMF). However, the approach of "let's not exceed 5 percent, it will return to us as current-deficit, inflation and therefore crisis" has held on strong.
Yet, a non-inclusive, non-employment generating growth of 5 percent is like walking a tightrope for Turkey. This rate does not provide the needed support for the rising middle class, so it cannot bring the savings rates to the desired levels.
As a result, this middle class constantly demands more by also putting the country's political stability in danger. Since the country is not at a sufficient level for domestic savings rates, it has to apply a debt-based monetary policy in line with external short-term inflows. This creates a cycle of mediocre growth, deterioration in income distribution, political instability and economic crisis in the middle term.
However, Turkey possesses the potential to catch a sustainable growth of at least 7 percent and above without creating an account deficit or inflation. To achieve this, resources should be directed to the right fields, sectors and institutions, while public finance should support development, and monetary policy should be employment centered rather primarily focused on financial stability.
At the end of the 1990s, many Asian countries, like Turkey, were liberated from IMF tutelage and began to realize their own unique models of growth and development, along with a new understanding of politics. For example, South Korea was hit by the global financial crisis of 1997 and then had to borrow $57 billion from the IMF. However, especially after this date, South Korea identified the potential and problems of the private sector very accurately and built its economy accordingly, based on its own specific circumstances. In fact, from the middle of the 1970s, when the period of crises began in the world, South Korea started to establish these institutions. The Korea Credit Guarantee Fund (KODIT) in South Korea was the world's largest credit guarantee fund with a volume of $45 billion, until our Credit Guarantee Fund (CGF) broke the record with a volume of TL 250 billion ($71.83 billion).
The KODIT works with a leverage of 10 percent just like we do. It has 2,300 employees and 109 branches across the country. The fund almost serves as a bank of the banks in South Korea because the risk information, credit requirements and growth models of all the technology-producing enterprises that export worldwide in Korea are in KODIT's database. It is fully owned by the state.
Now let's talk about our CGF, which has become very successful in a very short period of time in Turkey. Undoubtedly, the support and foresight of the President Recep Tayyip Erdoğan has greatly aided this progress. The CGF in Turkey is now the largest credit guarantee institution in the world, as well as an example and a new collateral system for the whole world in this sense. The CGF puts forward an understanding that transforms project risks into credit risk, which speaks of a new era in banking. However, the CGF in Turkey is more advantageous than South Korea's KODIT, because Turkey's CGF is a direct participant of the private sector and the banking system, as well as an important and successful example for the world in this sense.
The Union of Chambers and Commodity Exchanges of Turkey (TOBB) and 23 market-builder banks are partners in Turkey's CGF, and this partnership structure fully represents the private sector in terms of both the real side as well as the finance and services sides. It should be noted that Turkey's CGF is not based solely on the Treasury's guarantee, which has a share of as low as 10 percent. Here, there is a market-friendly rating system that does not disrupt market balances and draws down the risks of the banking system, the essence of the business. In this respect, Turkey's CGF cannot be sectoral, meaning that some sector representatives cannot come together and say they are establishing a CGF. It is also wrong to attach the CGF to a direct incentive system. This means the non-market placement of bank resources, which disrupts resource allocation and has very grave consequences.
So, there is only one CGF in Turkey, and it needs to stay that way. As a result, such practices are intended to make the growth in Turkey healthier and more inclusive. Accordingly, I expect that 2017's growth will exceed 5 percent, and in 2018, Turkey will be among the countries with the largest and healthiest growth rate in the world.