No faith in Turkey

Why Turkey s unrel able?

Dunya Executive - - COVER PAGE - By Ugur Civelek

Foreigners don’t trust Turkey’s ability to fix its economy. We look at the reasons why

Reactionary responses have not only made economic problems worse but contribute to the deterioration of trust in Turkey’s ability to manage...

1 A daily struggle

We are going through a period now in which we are only covering the costs of problems that should have been solved a long time ago. All the important economic indicators are stressed. Major economic players are keeping Turkey afloat day-to-day, but only reactively, like dressing a wound.

2 A self-destructive cycle

The result is an economy that is eating itself, starved by negative developments in the global economic environment and inconsistencies in policy preferences at home.

3 The rise of the dollar

Over the last year, the dollar rate has increased by 52 percent, which has been instrumental in escalating costbased inflation pressures. The price of energy has increased by 78.3 percent in the last year and now ranks second in terms of its contribution to instability.

4 Increase in producer prices

As of the end of September, the annual increase in international producer prices exceeded 75 percent. Domestic producer prices increased by 46.15 percent over the same period. At the end of August, the price increase in construction materials was 41 percent. The annual increase in domestic agricultural producer prices was limited to 16.09 percent due to strong pressure placed on it to keep consumer prices down, despite the increase in costs.

5 The response

The cost-based pressures above have started to affect consumer prices. Based on the end of September data, the annual increase in CPI rose to 24.52 percent. When the economy management team realized the dire circumstances, an anti-Inflation campaign was introduced to limit the damage and fast-track a recovery. The 10 percent discount campaign was launched, especially in products that go into the daily shopping basket. The measure, however, does not address the roots of price instability. It is an eyewash which brings immediate relief but leaves the wound untended.

6 The exchange rate dilemma

On the exchange rate side: The reason for mobilizing such a radical effort is claimed to be to interrupt the upward trend in the exchange rate and to get a significant portion of the losses back. The approach here is similar to the 10 percent discount: instead of focusing on eliminating the root causes of exchange rate instability, the approach obsesses over its outcome. The fact is that this approach will not work in the medium term and it will only add to financial instability.

7 Fresh resource needs cannot be met

A vicious cycle has formed, forcing the producers, especially agriculture, to consume their energies by struggling in a cycle of desperation. Cost increases cannot be reflected in prices. Cash flow problems are weighing producers down and recourse to fresh funding has evaporated due to the non-functioning credit mechanism.

8 Those in power do not like the word “crisis”

Negativities in domestic and foreign markets contribute to the growth of problems. The competitive environment is deteriorating. Companies are forced to continue their activities by increasing wages in line with inflation and thus eat into their balance sheets. Economic sectors are suffering from the severe crisis but the political class does not want to hear the word “crisis”. It expects sacrifice from all sectors, especially producers.

9 Hard questions need to be answered

The troubles increase the number of questions that cannot be answered and nurtures insecurity. Is it possible for existing producers to make new investments in an environment where they can barely continue operating ? How will a severe contraction in domestic demand affect the macroeconomic outlook? How can the rapid deterioration of income and wealth distribution and the multiple instabilities that it will produce be prevented?

10 Global perceptions

The New Economy Program cannot respond to such problems due to its unrealistic assumptions. The fact is, it is becoming impossible to save the day without aggravating problems more because global economic conditions are working against Turkey. But this fact is ignored. We are now a country perceived as uncertain, fragile, and unreliable.

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