Referendum no magic wand for economy
How realistic are the expectations in the market that the economy will recover after the constitutional referendum on April 16?
There is no doubt that the coup attempt on July 15 had a negative effect on consumer and business confidence, as well as on economic activity. But it’s important to note that the slowdown in the economy and the rise in the unemployment rate date back to before the failed coup.
Despite the highly controversial upward revisions in national income, a significant slowdown in economic growth has been underway since the second quarter of 2014. In fact, our growth rate since then until the third quarter of 2016 fell down to 4.1 percent, halving the pace of growth in three years. As for unemployment, it has been rising since mid-2012.
With this in mind, is it really possible that the economy will improve on April 17, as if by magic? I don’t think so. First of all, it is highly probable that the referendum result will be a close one. If the result is “yes” by a narrow margin, it raises questions about whether a country should decide such a radical change in its political system without a much broader consensus. It is obvious that dimidation of the votes could cause some cracks in the society.
The government is already announcing different stimulus packages and tax amnesties to boost the economy. It has had to make increases in on and off-budget expenditures and outstanding loans of public banks. That’s why state banks’ non-interest expenses rose by an enormous 27.4 percent in February. The credit expansion to public banks in lira terms is 26.5 percent. The credit expansion to local private banks is 10.1 percent, which is below the rate of inflation.
The government can’t be criticized for taking such measures in such a weak environment. However, it’s also a fact that all of these measures have come to an end. Unless the economy normalizes in a short span of time, these measures could have devastating effects on fundamental economic data, especially on the budget deficit and on banks’ balance sheets.
Turkey does not have time to lose on these kinds of cyclical, save-theday policies that depend on foreign borrowing. Instead, it has to improve the investment environment quickly to attract the right investors. We have no need for more nomadic investors who do not contribute know-how to our economy, make undeserved income by the help of royalties supplied for them and take their earnings back to their own countries.