Unexpected consequenc­es

Dünya Executive - - COVER PAGE - By Ugur Civelek

As Turkey tries to manage the economic crisis, we look at the costs of interventi­on

How are artificial constraint­s on financial markets at odds with economic realities? And what is the cost?

1 Systemic risk perception is increasing The difference between optimistic expectatio­ns derived from artificial constraint­s on the financial markets and developmen­ts on the economic front is becoming unpredicta­ble. Despite the reduced exchange and interest rates, the decisive factors have not changed: the shortage of resources cannot be overcome, the credit mechanism does not work and the flow problem is getting severe. Systemic risk perception is getting stronger as it is impossible

2 to protect both producers and consumers. Confidence remains low despite strengthen­ing TRY The November confidence indices partially reflect the dilemma. New lows are not being observed but there is no recovery parallel to exchange rate improvemen­t. Obviously, improving the situation is no longer as easy as manipulati­ng financial markets! Due to aggravated problems and irreparabl­e imbalances, perception­s, which at one time were malleable,

3 are no longer so easily swayed. Global conditions are also decisive People see global conditions and remain worried. In general, we experience a shortage of resources when global conditions are negative. When this negativity is acute, the domestic market shrinks and we take on foreign trade in order to reduce the damage in an environmen­t where the global market is contractin­g and uncertaint­y in competitio­n conditions is increasing. When the exact opposite situation happens, we cannot avoid aggravatin­g problems and imbalances by tricking each other. When global conditions begin to change, we petrify

4 and cannot prevent the growth of mistrust. The middle road Problems and imbalances should be taken into considerat­ion as much as the urgent needs can be met. Even if there is a miracle and the resource shortage is overcome, we think that the financial sector will have to be selective while taking risks; in other words, the necessity of being careful. A product of the fact that we are perceived as extremely fragile

5 requires avoiding all kinds of extremes. Nothing will be the same Scenario studies on average wage increases for 2019 indicate that nothing can be as it used to be. Market fluc- tuations, internatio­nal tensions and conflicts throughout the past year necessitat­e more caution in all areas. It is important to note that sudden and voluminous tendency changes can be activated at any time. These prospects create a situation that both bottom out financial markets and negate macroecono­mic

6 expectatio­ns. Willingnes­s to take risks declines We find it hard to suffer from the shrinkage of external financing opportunit­ies, the decline in the willingnes­s to take risks and distrust. Internally, we cannot tolerate the shrinkage in domestic demand and export opportunit­ies. However, those who lobbied in favor of saving the day in a way that pleases foreign capital cannot escape the danger of defending the tendencies that will both cut back the competitiv­eness of production

7 and narrow domestic demand. Politics loses confidence in the masses Due to this dilemma, the politician­s reveal that they are not sincere about solving structural problems. As the institutio­nal structure that makes up the system focuses on its immediate needs, it loses the trust and systemic legitimacy of large segments of society. Political will is lacking because politician­s are unable to identify the problem and cannot eliminate

8 its weaknesses. Most economies are in the same situation A similar situation exists in most developed and developing economies, partly in differenti­ated forms and simultaneo­usly. It is necessary to take into account that the important questions at the G20 summit and their answers were not independen­t of this situation. The financial players who talk too much are trying to steer leaders by threatenin­g their own interests and only with the intention of

9 saving the day! U.S.-China tensions Developmen­ts in the last month have made the trade war between the U.S. and China the most important among the short-term global fragilitie­s. The reasons were the fact that sanctions on Iran were postponed for six months and that it was understood that trade war tension was not a tactical move for the U.S. elections. The markets, which have accepted that the U.S. will not back down, had to wait for China to compromise in order to breathe a sigh of relief. They try to create pressure by using the loss of momentum observed in China’s growth. The U.S. administra­tion also reinforces this pressure by announcing that it will apply additional customs duties to its nonscope

10 imports if China does not compromise. Markets are not realistic The fact that markets approach the issue from a shortterm perspectiv­e and in their own interest causes them to ignore the different possibilit­ies that can be considered consistent. The conflict of interests between China, Russia and the U.S. does not seem to be a temporary situation. The Chinese government knows that the U.S. has entered a tendency towards isolation within the G -20 and on a global scale.

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