A tough road ahead but not impossible
The interest rate of the treasury benchmark bond has reached 20 percent, core inflation has reached 13 percent, and external debt has reached $453 billion (53 percent of our gross domestic product.) We boast that growth is high; but these three figures show that this growth is not sustainable. Moreover, a significant portion of the increase in external debt in recent years has financed construction and consumption, not the production facilities of the future. In other words, there is no quality in growth. The unemployment rate is not falling below 10 percent in a significant or sustainable way (see page ? – Alaattin piece)
External economic conditions are also not developing in favor of fragile countries. The Fed is raising interest and shrinking the balance. Soon, the European Central Bank will be on the same path. The period of plenty is over. The countries that are in need of external borrowing in order to turn the wheels of the economy at a reasonable pace will have difficulty meeting their financing needs and their growth rates will necessarily fall unless they convincingly correct their fragility. If they do not take convincing steps on this, their economies will be stagnant.
The next few years will be tough in terms of Turkey’s economy. In some circumstances it is also possible that the economy will shrink and the unemployement will soar. But such an unpleasant development is not destiny; there is an exit. We need to implement a threepronged program.
The first leg involves what we will do outside the economy. Of course, the first thing will be ending the the state of emergency. Then, peace and reconciliation, the implementation of the rule of law, a fair justice system and checks and balances, freedom of the press and the establishment of good relations with the European Union again. In sum: domestic and foreign policies that try to solve existing problems and avoid generating additional problems. There is also the issue of assigning jobs based on competence in the public sector.
The second leg involves macro and financial stability measures aimed at eliminating short-term risks. In terms of monetary policy, an independent Central Bank only focusing on inflation and financial stability. In fiscal policy, a stress test that reliably reveals how much additional burden the Treasury may carry if all of the conditional guarantees kick in. Then there is the issue of monitoring income guarantees, especially those in foreign currency, and to sit at the bargaining table with those who get those guarantees. There is also the elimination from the public discourse of election practices that cause new duty losses or high hikes for public banks. And in terms of policies for financial stability we must address the difficulty of borrowing in foreign currency by those who cannot make foreign exchange and establish a realistic way of measuring the non-performing loan amount of the banking sector. In other words, we need reliable stress tests on the banks, testing their durability particularly against large currency shocks.
There are structural reforms in the third pillar. Reforms that I see as a priority are: education reform, a tax reform that boosts public savings, taxation of land rent, the fight against the informal economy and the continuation of reforms to increase the savings of households.