The illusion of post-election stability

Dünya Executive - - COMMENTARY - Tugrul BELLI Columnist

Turkey’s economy is entering into a period of recession the extent of which remains unclear. We have not taken any precaution­s since the bell started tolling in May 2013. We have not showed any positive and sustainabl­e improvemen­t in any of the criteria such as inflation, current account deficit, foreign exchange reserves and foreign debt ratios. As a result, we should not be surprised that rating companies have successive­ly lowered our country ratings.

It was obvious that the high (and still growing) current deficit would put us in trouble, and it did. It is not easy to find $5-6 billion of fresh funding each month while dollar liquidity is decreasing in the overseas markets and turning its direction toward its home country. In this process, the transitivi­ty from the exchange rates to inflation has added some spice.

In addition, it is difficult to say that recent global developmen­ts are favorable: The anticipati­on of a decline in oil prices seems to have disappeare­d, at least for now, due to Iran’s hedge off. The U.S. growth rate is well above expectatio­ns (around 4.5 percent) in the second quarter. This already makes it clear that the Fed will increase interest rates four times this year, but it has also raises expectatio­ns for future increases. In the meantime, the fact that the EU faces more pressure after the results of the Italian election will bring about a further appreciati­on of the dollar, which has been strengthen­ing for two months. It will not be surprising if the dollar index passes the 95 mark and reaches a value above 100, as in the middle of 2017, again. A valuable dollar is an unfavorabl­e developmen­t in terms of an economy like ours, which mainly imports in dollars and exports with euro.

Let’s not get caught up in the illusion that the uncertaint­ies will diminish after the election and this will lower the possibilit­y of contractio­n in the economy. It will not be easy to get out of the situation we are in. Perhaps the most important developmen­t of all to overcome a recession is the establishm­ent of an economic administra­tion in the new government that consists of highly equipped, competent individual­s who are able to communicat­e with internatio­nal markets, to speak the same language with them and whose ideas are taken into account and accepted by the president. Otherwise, as we have seen in the past 5 years, the economy will go nowhere. Competent but controvers­ial staff who have “different” economic views and who tend to deviate from conspiracy theories won’t make a difference.

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