How will Turkey's economic policies take shape in the new era? This is one of the questions that I most frequently hear these days. I think that steps taken in the economy in recent years, President Recep Tayyip Erdoğan's statements and Turkey's economic and social dynamics depending in the global economy answer this question.
First of all, Turkey has taken major economic steps under the Justice and Development Party (AK Party) since the 2001 crisis, with the most important being the transition to a floating exchange rate regime.
Before the 2001 crisis, Turkey was practicing an exchange rate regime that targets the exchange rate and that can be considered under the category of a fixed exchange rate regime. It was striving to ensure financial stability with high interest-overvalued lira arithmetic.
However, this was a trap for an outward-oriented country competing in global markets. This trap turned out to be one of the main reasons for the 2001 crisis. Since 2002, Turkey has been implementing a floating exchange rate regime, and we no longer have a semi-colonial economy that highlights imports and borrowing. This was a closed – hence unhealthy – economy in which the fixed exchange rate regime was valid.
As for the issue of the exchange rate, which has been on our agenda in recent days, it is not desirable for exchange rate to quickly rise over the equilibrium exchange rate in a floating exchange rate regime, nor is it desirable for it to fall down in the same way. However, it is merely an undesirable situation and does not point to a state of crisis on its own.
Here, for a state of financial crisis, you look to the public-foreign exchange debt; the household foreign currency debt; the foreign exchange gap that the private sector will convert in the short term; and the foreign exchange gap position of the banking and financial sectors. In fact, deterioration or improvement in these items is not very different from each other. Currently, the basic data of the Turkish economy on these topics tells us that this is far from a financial crisis induced by exchange rate increases.
Here, the balance sheet deterioration in the private sector due to the effect of the exchange rate is not on a level that cannot translate foreign currency debts. In particular, public banks and the banking system in general are far from foreign exchange debt bottlenecks stemming from gap positions. So, the rapid depreciation of the lira in recent days is undoubtedly abnormal, but it will quickly return to normal after the elections.
Since the Central Bank of the Republic of Turkey (CBRT) targets inflation, monetary and fiscal policies should be in close partnership regarding inflation targets and expectations. Today, the most important reason for the crisis in the eurozone is the fact that there is not a single fiscal policy despite the single currency and the monetary policy based on this currency. As a result, for the new period we can say:
1. We will never compromise the floating exchange rate regime which is a requirement for the fully outward economy. On the contrary, other agents of the economy will give full support to the CBRT so that it can practice a floating exchange rate regime in real sense. The CBRT will not target exchange rates, albeit implicitly, but will target inflation alone.
2. Monetary and fiscal policies will completely become common. As such, inflation expectations will be even better and a central stable management will emerge in terms of both budget realizations and financial stability.
3. The current account deficit is a dynamic that largely depends on exchange rates, public sector balance and export-import rates. Monetary and fiscal policies becoming common on the highest level will minimize relative deterioration and timing failure between internal and external prices and will strongly support exports on the basis of prices.
On the other hand, in order to minimize the import of intermediate goods, which is one of the largest import items for us, in the new period, stronger support will be given to the intermediate goods industry and overall industry with the aim of improving the investment environment.
4. The Sovereign Welfare Fund (SWF) will be influential in markets.
5. Institutions such as the Credit Guarantee Fund (KGF) and Small and Medium Enterprises Development Organization (KOSGEB) that regulate the financial and real sector in-line with market conditions will be more influential in the new period.
6. The necessary administrative regulations will be made to bring the regulation power of regulatory and supervisory institutions to the highest level in relevant markets.
Depending on all of this, measures that will demonstrate Turkey's saving power will be launched in an institutionalized way. For instance, necessary institutional steps will be taken to include gold savings in the financial system.
As you know, Russian President Vladimir Putin recently touched on the dollar pressure on emerging economies, saying that necessary steps must be taken to overcome this. In fact, the dollar-based monetary system that was established under the U.S. hegemony in 1944 after World War II is ending.
As President Erdoğan has reiterated on various occasions, Turkey will take the necessary steps to save the economy from the dollar pressure. More importantly however, Turkey is far from Argentina's current position. Do not doubt the fact that the Turkish economy is too strong to kneel down before this global financial gang.
After the elections, we will see a more efficient economy administration where bureaucracy is minimized. Accordingly, Turkey will insistently maintain strong and inclusive growth, continuously raising its export levels to catch the new industrial revolution in-line with its 2023 goals.
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