A competitive, fully outward-oriented economy is our starting point

  • 12 Temmuz 2018 Perşembe

Depending on the obscurity of election results before the elections, one of the main theses argued by those who wanted to propagandize that the Turkish economy would not get better was that “there was ambiguity about Turkey’s economic policies.”

In essence, both our articles and the repeated statements by our relevant institutions refuted this argument. Moreover, the Justice and Development Party’s (AK Party) election manifesto is so inclusive and detailed about economic policies that those who are bothered to read it will find out what kind of an economic policy Turkey will pursue in the next five years.

However, especially after the announcement of the Cabinet, I have been reading such nonsensical news and reports that it is disgraceful even to answer this nonsense. Of course, this nonsense is also a story of fraud, if not ignorance… This is because those who write these reports and those who take them seriously and make news of them are misleading their clients and the public. Persons and institutions that believe in them and those who receive professional services from them are being deceived.

There are numerous documents, texts and explanations about the road map of the Turkish economy. The data, explanations, presentations and studies on the web pages of related institutions reveal everything to the very finest of details.

The path of Turkey’s economy for the next five years is clear. Monetary and fiscal policy sets and objectives are also clear. In fact, steps toward the new era had begun long before transition to the presidential system. Steps that strengthen our banking system and ensure financial depth were taken long before the elections.

The Credit Guarantee System, Credit Insurance and independent valuation/rating agency that will evaluate the balance sheets of small and medium size enterprises and grade them have been the most serious reforms of recent years. On the other hand, it is the main starting point to ensure more efficient market functioning and maintain the floating exchange rate regime in monetary policy and to insist on a sound budget understanding in fiscal policy – a tradition of the AK Party.

One of the greatest advantages of the new era is that the economy administration has been gathered under a single roof. To put it plainly, we will not experience coordination problems arising from the old system between economic units and practices in this new era. We are removing the discrepancy between monetary and fiscal policies, which is one of the most fundamental problems of the economies of all countries and which is the basis of the current EU crisis.

In this sense, one of the biggest hurdles in front of the Central Bank of the Republic of Turkey’s (CRBT) inflation targeting has been lifted. In this new period, we will see that the central bank is very relaxed both in its targets and operational decision-making mechanisms. The CBRT will continue to be independent and strong in the new period.

One of the basic structural problems of Turkey’s economy is inflation. The fight against inflation should also be seen as a problem of welfare and development. The improvement of income distribution and stable and inclusive growth are not the targets to achieve in an accelerating inflation environment. The constantly rising inflation is also an unfair income transfer mechanism from the poor to the rich and from the small to the large, and for that reason, it is not something that can be preferred by the political will.

In this sense, it is wrong to suggest, “Turkey should grow by risking inflation.” This cannot be the choice of any politician for it is technically illogical, too. Moreover, it is at least as wrong as this to say, “Turkey’s economy should grow below the world average. The production capacity of Turkey is also evident. Growing above the ‘average’ (whatever this average is) will create inflation and a current account deficit.” No! The production facilities and capabilities of Turkey’s economy are flexible upwards. If we provide our industry enough support for high-value-added production and if we move through an export-based and technology-intensive new industrialization route that minimizes the import of intermediate goods, high growth will come without inflation and current account deficit.

Turkey’s inflation does not become rigid because of intense demand, but it concentrates on the production side and goes up and becomes rigid as it moves toward the demand side, and it becomes as such a structural problem.

This phenomenon is a historical-structural issue for Turkey’s economy. The Turkish economy used to have poverty and hyperinflation and unemployment in the past. In other words, the economy was in the grip of a constant state of crisis. The moment when foreign debts became unpayable or faced the danger of being converted, the International Monetary Fund (IMF) came to the fore on the national agenda with its request of equalizing domestic prices and external prices. This was a spiral of high rate of devaluation and inflation as a result of the price hikes which followed.

Well, why were both inflation and unemployment together in those days? Why did we experience constant absence of basic necessities?

Prof. Dr. Emre Alkin, one of the most respected economists in Turkey, put forward the following argument on his website: “If we are to talk about poverty in those days, we should also talk about the property delivered to a few families. The property was delivered to the holding companies of a few families. The market was ruled with an oligarchy or oligopoly. The reason for the long queues that lasted for hours was not the poverty, but the tendency of the oligarchy to stock, cartel and exploit.” Undoubtedly, Alkin is right in his argument. If we move the markets away from competition and leave the pricing to oligopolies now, and if we do not carry out pro-market reforms aimed for competitive pricing, especially in basic areas like food, and if we allow producers to be oppressed by stockers, will inflation fall?

Here, Turkey needs a new deal. We need comprehensive reforms to run the markets in a competitive way in every area, to rapidly improve the investment climate and to support the technology intensive industry. Here, our economy-related ministers, ministry staff and related institutions are well-equipped people/institutions who really know these problems from industry to trade.

In short, the new era is a revolution, but it will return to the old unless crowned with the economy. As such, a comprehensive reform program, which will quickly resolve major structural problems, particularly inflation and unemployment, should come up as the starting point of our new growth and development path.

As already mentioned above, steps toward this had already begun before the elections and will continue to accelerate from now on. A floating exchange rate regime, and a competitive market where inflows and outflows are ultimately free are indispensable for a transparent and fully outward-oriented economy. I will continue from here.