Turkey is currently going through a very instructive historical process in politics and the economy. When it highlights its interests on a regional and global level, it comes to know that this is the most important part of domestic peace and stability. Moreover, it is discovering that to avoid repeating old clichés, searching for new things in the economy is the most important thing in the beginning to raise social welfare. We see that the threat on Turkey's eastern and southern borders today has been the source of perennial terror. The U.S. will soon learn the hard way how wrong its policies in the region have been.
On the other hand, when we look at the story of Turkey's economy in 2017, we can see a new path of growth.
As of the end of 2017, the Turkish economy came to both a crucial turning point and to the brink of a very important opportunity. I am sure that 2017 and the growth achieved in the year will be told as a year of rising by the writers of the history of economics in the future. This is because in that year, perhaps for the first time, the banking system tried to further support exports and industry to direct its resources to production rather than consumption, and corporate and commercial loans had a significant share in credit expansion of over 22 percent.
The year 2017 saw important steps and endeavors that were aimed at regulating the financial system, and we will see the fruits of this in 2018. The reforms and steps that consolidate the banking and financial system and support capital markets and industry will be on the agenda this year in continuation from 2017.
Of course, the most important step taken in 2017 was the introduction of the Credit Guarantee Fund (CGF). In fact, this practice spread a new story of growth and development, but most importantly, out of its scope and domain, it raised expectations from the state.
The industrial and employment data we received in the first month of 2018 are the results of this hope and expectation. Let us notice that all the data about industry, exports and employment have gone beyond expectations. For instance, employment data for October 2017, which was released this week, shows an increase beyond expectations in seasonally adjusted employment. The industrial production and capacity utilization rates also show us that this rapid decline in unemployment will be industry-oriented. Thus, the fourth-quarter growth in 2017 will also reveal growth focused on supporting export- and industry-oriented growth, and Turkey will have achieved 7 percent growth in 2017.
Right here we have to ask the question of how we achieved this brilliant growth in the first quarter of 2017, when both inflation and unemployment increased together, and how we overcame the possibility of stagnation in the vortex of stagnation and price rises.
Here is the answer to this strategic and even, I think, historic question: Turkey has abandoned repeating the old clichés and has begun to take steps to mobilize its potential. The Central Bank of the Republic of Turkey (CBRT) has switched to a multi-faceted path that also takes into account employment and financial stability. Steps have been taken toward the regulation and credit guarantee systems that will correctly raise the banking system's credit appetite, and these have started to be implemented quickly. In this sense, the CGF has not been support established just on Treasury bail and it has never been a populist operation aimed at smoothing the danger of crisis over the cracks as a makeshift solution. On the contrary, the representatives of monetarist theories who have opposed the CGF practice and who receive their knowledge of economics from the practices of Ponzi scheme-style financial institutions have convinced us for years that palliative financial tricks and austerity policies were reforms set to delay crises. These fallacies, however, have always brought us larger crises.
The CGF has broken all such clichés With a very low treasury leverage ratio, the banking system has intensively supported the industry and exports under market conditions. This is because this situation was leading to a rise in the asset structure and capital adequacy ratios of the banking system. For years, banks have bought treasury bonds at high interest and financed consumers with high interest rates by atomizing risks. They thought that they needed to keep interest rates high and avoid expanding loans downward for the sake of public financing, financial stability and current account deficit in order to avoid inflation. However, this argument has been falsified. On the other hand, some well-heeled banks that were at the top in terms of profits and that provided loans to whom they wanted have been disturbed by these new steps and the CGF. They have started to say let's stop for a while, where are we going?
They have started to spread the fallacy that the CGF creates inflation. Even now, they are pedantically saying this was the reason for the inflation in 2017.
Today, the reason for inflation in Turkey is related to production. The producer price index (PPI) sharply rose until March 2017, and it reflected this rise on consumer prices as much as market conditions allowed in areas where producers did not compete. As a result, inflation started to go up as of March 2017. At this point, the CBRT had nothing to do either. As monetarists say, if the CBRT had hiked interest rates radically, things would have been even worse. This is because inflation was on the supply side, and we know that the restrictive measures would only push up the coming recession.
With this picture, we have done the exact opposite of what monetarists said we should by supporting both the real economy and the banking system by introducing the CGF. After that, the rapid rise in inflation stopped. Financial markets, as well as commodity and money markets, have been relieved and the stability and growth that has unleashed production potential and dominated the economy.
Now, the proponents of monetarist theses are angry at the CGF, as it has subverted all of their fallacious theses. We have shown that a correct credit expansion and providing funds to markets this way will not create inflation, but pull inflation down in the middle and long term, as opposed to what they think. We have also seen that such support will alleviate the current account deficit in the middle and long term to the extent that they increase competition and exports. So while we have been helping Turkey grow, we have also disproved their fallacious understanding of economics.
We are now also seeing that the U.S. plans to blockade Turkey politically and militarily, and the flimsy monetarist economic rhetoric imposed on us for year, has also fizzled out. Certainly, this is not a coincidence.
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