The illusion of post-election stability
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.