Political priorities are endangering the economy

Foreign trade figures for January released by the Turkish Statistical Institute don’t signal a positive outlook no matter how you look at them. The positive sides of the data remain insignificant when compared to the negative sides.

Exports rose by 10.7 percent year-on-year while imports rose by around 38 percent. The foreign trade deficit reached $9.67 billion in January and amounted to almost 10 percent of foreign exchange reserves. These figures make us think that the economic policies are wrong, and goals and priorities may be inconsistent. They make details regarding the causes insignificant and increase concerns over instability.

Double digit increases in foreign trade volume can contribute to upward expectations in shortterm growth and employment. But ultimately, the financial consequences of the deficit may be devastating! Upward fluctuations in foreign exchanges, inflation and interest rates may become the cause of systemic shocks. Serial bankruptcies that may step in can reverse the recovery in growth and employment sharply.

When assessing these figures, we should recall the gas-brake discussions following 2011. To reduce the foreign deficit and to stop an unrestrained increase in foreign financing, necessity was made a priority for a while in light of worsening global conditions. There was this need to take the foot off the gas and to pursue more modest goals in growth and employment to avoid bigger financial shocks. But by the second half of 2016, the rash decision was made to step on the gas in economic policies. Political – not economic - priorities were decisive in this decision.

To let the def c t grow s a major cause of vulnerab l ty

The problems we face on the foreign trade front is actually a result of the change in priorities over the last year and a half. At a time when the cost of foreign borrowing was becoming more burdensome and when it was clear that this was not temporary but permanent, to let the foreign trade deficit grow at an unreasonable pace was the most important cause of the vulnerability we now suffer.

This approach will probably perpetuate the waste of resources and make problems worse. We want the economy to grow and employment to increase; but we also want foreign exchange rates, interest rates and inflation to retreat or remain unchanged! Making all of this happen at once can only be accomplished over the short term. Improvements on both sides will probably have the opposite effect than expectations. Our chance to fix the problem is being sacrificed at the altar of political priorities. Global conditions are not helping either; on the contrary, they are making things worse.