Turkey’s answer to economic hitmen
Recently, the International Monetary Fund (IMF) delegation issued its ordinary revision report on Turkey, which was followed by Moody’s downgrade of Turkey’s sovereign rating. I should note that the IMF report and the reasons for Moody’s downgrade coincide, and that the former pioneers the latter.
Undoubtedly, ratings and assessments by organizations like Moody’s should be overlooked now, which is what the markets have been doing for a while. However, we have seen this week that these economic hitmen who work on the Turkish economy have continued their operations particularly on exchange rates through some unfounded news.
With Afrin about to fall, we knew that they would publish such reports, downgrade Turkey’s sovereign rating out of the blue and spread some baseless rumors in the market to unnecessarily push up exchange rates.
The steps taken by those who want to create a negative atmosphere in the Turkish market are part of the current economic war.
They still make plans considering that the Achilles’ heel of the Turkish public and economic bureaucracy is the rapid rise of exchange rates, especially the dollar, and the devaluation of the Turkish lira. As a legacy of the old closed economy and the fixed exchange rate regime practices, the concern about devaluation has become a national problem.
Of course, we have a history of economics to justify this concern: All the devaluations implemented as required by IMF prescriptions, including those that happened during the most recent crises of 1994 and 2001, were recognized as the official registration of crisis by the state among the public. And as a result of high devaluations, the Turkish economy gave into global loan sharks like the IMF.
In this sense, the upward move of exchange rates has always been the soft spot of economic bureaucracy as well. In the past, all the institutions, from the central bank to relevant banks, resorted to hiking interest rates and reducing growth by further tightening monetary and fiscal policies to handle rising exchange rates.
Apparently, they think that they can do this now as well and that “ignorant exchange rate fuss” is still in place in the bureaucracy. If you look carefully, you see manipulative moves in exchange rates not only in these sensitive times, but also before the central bank’s Monetary Policy Committee meetings. Then we need to say the following thing to those who make these plans:
Now, the “old” Turkey is over. Both the dynamics of the pre-2001 crisis period and the Kemal Derviş program that was imposed on Turkey in the post-2001 crisis period have been water under the bridge. Turkey is implementing a floating exchange rate regime. Accordingly, it is also highlighting an export-oriented industrial growth by following global competition in an inclusive way.
In this framework, exchange rate fluctuations are common (by the very nature of a floating exchange rate regime) and they support exports and global competition in the medium term, automatically control speculative short-term capital inflows and outflows within the framework of the market mechanism, and gain stability in an optimum range.
Here, for instance, an overvalued domestic currency is a disadvantage for competition in global trade and may create a dangerous hot money stock, which is a great risk for economic security - which is a ticking time bomb in the heart of the economy. And it is never the domestic economy players and the economy bureaucracy that set the time of this bomb.
The first step should be to implement production-oriented measures that will meet foreign exchange and Turkish lira requirements of the economy without panicking in the face of rising exchange rates. If we panic in the face of such obsolete operations and tighten policies unnecessarily, that is, if we stop pedaling, then we will be dragging the economy into a crisis, as it was in the past. Then, we will continue to promote inclusive, competitive, exportoriented and industry-based growth that goes beyond the Medium-Term Program (MTP), and also keep Turkey’s 2018 growth around the 2017 levels.
As the Organization for Economic Cooperation and Development (OECD) has put in its report this week, Turkey will grow above 5 percent for three years in a row, including 2017. In a sense, the OECD has reaffirmed “official” growth figures in Turkey’s MTP.
Here, we aim to institutionalize an inclusive and sustainable growth and development path that will further push up Turkey’s growth in this process. At the same time, this will be the most fundamental answer to any economic operation. If Turkey leaves aside the failed neoliberal fallacies in the strictest sense, it will not encounter problems with the chronic current account deficit and inflation while growing fast.
Inflation and the current account deficit are the problems that “certain segments” voice most often when they act as economic hitmen. Today, Turkey’s inflation and current account deficit are the issues we need to dwell upon. And, these are only the result of distorted and uncontrolled market operations in areas that push up inflation, such as high production costs, uncompetitive market structure and food.
Therefore, trying to solve these problems by lowering growth and pushing interest rates even higher is a trap that makes these problems structural. If Turkey crowns production and export-oriented growth with a new development story, it will quickly achieve a non-energy balance and beyond in the foreign trade deficit.
We should quickly introduce a comprehensive reform program that will support intermediate goods production in the industry and prevent unnecessary imports in this area. On the other hand, with a perspective that supports comprehensive growth, we will maintain incentives provided for small-and-medium-sized enterprises (SMEs), tradesmen and agriculturists especially within the framework of the Credit Guarantee Fund (CGF) in 2018.