Going to the polls with a huge debt burden
Early elections have become a feature of our politics again since the 2008 global crisis. Before that, it seemed the issue had passed. Initially, it was thought the election would be held on schedule near the end of next year, but suddenly this date was brought forward by more than a year.
This implies a great unease in political will. I believe economic problems are the most important factor creating uneasiness in politics and pushing the incumbent party to act quickly. Some of the issues are cyclical. There are also problems arising from weaknesses in economic structures.
For example, fiscal discipline has deteriorated after a long period, and budget deficits have soared. I believe that this is mainly due to the continuous climate of hot conflicts and the the persistent election atmosphere and will lose its importance when these conditions change. But there are also other problems, like inflation and the current account deficit, both structural in nature. These are harder to deal with.
On top of that, such structural problems are contagious; they produce other problems. As far as we can understand from the remarks of politicians, the fast deterioration of the current account balance is the biggest and most rapidly developing problem and most in need of redress.
No one can say that it won’t be a problem if this issue is put off until 2019. There is a consensus, both among political insiders and outsiders, that the growth of this deficit will create a serious financing problem.
The current account deficit is a structural problem. There is a simple reason behind foreign borrowing (in foreign currency): The monetary easing introduced in developed countries as a counter-measure to the 2008 economic crisis had almost zeroed interest rates.
This made financing from these countries extremely cheap. Therefore, foreign borrowing was considered a preferred choice not only for us, but for all countries.
Recently, problems began to occur. The most significant of these was the fact that risks soared in the economy. The increase in the perception of risk pressured our borrowing conditions. Borrowing became harder and cost of borrowing rose.
The depreciation of the lira increased the already high cost of borrowing for local units. High costs make it harder and more expensive to finance the current account deficit. It’s a sort of vicious cycle. In case of persistence, it may cause a sizable collapse in the Turkish economy.
Actually, the reason why we came so far is definitely the fact that the political staff doesn’t see this dangerous trend as they are busy with the upcoming elections. It’s unlikely now for the political ruling class to take the radical measures needed for a solution in this prolonged election process. I believe that this confusion is the reason behind such a rush move to hold elections.