Budget discipline talk show parties are more mature
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“Listening to [politicians], you can’t say, ‘They have not thought of the resources,’ because they have,” said Özatay. “They have learned their lessons from the past.”
Economic issues have been the major theme of these elections. Let’s start with the AKP’s manifesto.
The AKP has been in government for  years; therefore we should also look at its performance. What it has done so far could shed light on the future beyond what it promises to do. At any rate, when you look at what needs to be done, all the four major parties say the same thing. Everybody sees what the problems are.
So you say all the four parties have the right definition of the problems.
Yes, because they are crystal-clear. Obviously the AKP does not define them as problems; it says, “What we have done and what is missing.” At the end of the day, they all say they will continue with the market economy. In the Republican People’s Party (CHP) and the Peoples’ Democratic Party (HDP), there is more emphasis on income distribution. But all talk about price stability, financial stability. They say it is important to acquire competitiveness in external markets. That’s why when you have general principles, it becomes a bit difficult to compare them. With the AKP, however, we have a tool to evaluate their election promises; what they have done and not done. That gives us an idea.
What do you see when you look from that perspective?
There are two phases; from 2003 to 2007 and then from 2007 and afterwards. In the first period, there was a high growth rate, while inflation and interest rates dropped. But the performance worsened in the second period compared to the first one.
The growth rate is half what it was, and Turkey has become more indebted, while unemployment has risen. We have also seen a drop in saving rates. Despite the fact that our investment rates are way below those of developing countries, our saving rates are not enough for investments. As such, we become subject to foreign debt; this makes us dependent on external markets. This is the essential fragility. This is the problem in the short term. If the problem has continued until now, it means there is a problem with the prescription. Of course the government took some steps, but there is no convincing answer as to how it will increase savings. A party that brags about maintaining macro-economic stability has actually sowed the seeds of macro-economic instability, and that makes us fragile.
From the long-term perspective, Turkey’s essential problem is the income gap with developed countries. There is no difference there; for the past 30 years Turkey, has been the [world’s] 17 or 18th biggest economy. But what matters here is the per capita income; in comparison to the EU, for instance. That has remained nearly the same. Another issue that matters is income distribution. Both are issues that can be solved via long-term steps.
But what has the AKP done since 2008? Why is this gap not narrowing? The government announced two reform programs before the election manifesto. It has 2,000 reform items. There cannot be a reform program that is 2,000 articles long. A reform program needs to focus; it has to have a priority listing. The problems are correctly defined but it is impossible to deal with all of them at the same time.
In addition, it’s like a wish list. It says the local input to the production of wind energy will be increased. When you look at the “how” section, it says, “It will be increased.” It’s like wishful thinking.
Let’s talk about the opposition then.
Obviously, there we need to look at what they say. All parties see the problems. When the solutions are general and, as we can’t expect them to go into details in their manifesto, it’s not possible to comment in detail. The positive point is that in both the CHP and the HDP, for instance, there is an emphasis on structural reforms. The HDP, for instance, underlines women’s participation in the labor force. Again both parties emphasize the rule of law and democracy in their economic programs. We can analyze the CHP’s recently announced “Center Turkey” project in that framework; it’s both an important structural reform step and a big investment project. It seems they have worked on it, meaning it goes beyond wishful thinking. But obviously the debates have focused on the issue of finding the resources for the economic promises.
What is your view on these debates?
There are two sides to it. The positive side: This shows we are no longer in the 1990s when parties used to promise double of what the others would pledge. You can’t give what you don’t have; it seems that people have understood that there are budget constraints. This is a good debate. All parties have budget discipline [in their programs]. They say we won’t disrupt budget discipline. This is an important development.
Does this also show the awareness among voters, too?
Definitely; it shows the importance of macro-economic stability and that we have learned from past lessons. One of the reasons for high inflation levels in the 1990s was budget deficits – the practice of spending without the resources. The Central Bank used to print money. All parties emphasize budget discipline and the independence of the Central Bank.
This is good. But there is another side to it. There is something bizarre. This is all the more so because the AKP has initiated questions on resources. We keep saying we have made miracles; we are the 17th biggest economy. Then wouldn’t the question of resources be weird for something that will not bring a huge burden for a big economy like ours? At the end of the day, the promises are not that excessive.
Parties are pledging to increase the minimum wage, as well as pensions, for instance. You don’t find the amounts expressed exaggerated?
No, they are not. Besides, each party can choose to spend the budget to A, instead of B. This is what differentiates parties from each other. One can say, I’ll spend it on the minimum wage, the other will say I’ll spend it on constructing roads or on education. In addition, budgets are not static. If you design a program based on growth, once you push the button at one stage, your income will increase and the budget constraints will become less pressing. What’s important is to see that consistency.
Do you see that consistency?
When you listen to party representatives, you see that they have made certain calculations. This is not empty talk. At any rate, parties have economy professors, former members of the economic bureaucracy; these are people who are aware of the problems – you can’t expect them to come up with exaggerated promises. Listening to them, you can’t say, “They have not thought of the resources,” because they have.
So are you saying that parties are staying away from populism?
Yes. They have learned their lessons from the past. They might have made some miscalculations on resources, but it can’t be totally wrong. At least they have the sensitivity on budget constraints; in the past there was no such thing.
It is also interesting to see the emphasis of democracy and the rule of law in economic programs.
One of the issues the AKP says it is proud about is the decrease in inflation. One of the reasons behind it is the independence of the Central Bank. In a country where the Central Bank takes its decisions under political pressure, the flow of liquidity form outside will be problematic.
Then what is your comment on the AKP’s rhetoric on the Central Bank.
What counts is what they do, rather than what they say. This is a debate that was sparked during their governance. A briefing was given to the president and it seems that the issue is suspended for now. But I think it will be taken off the shelf. The advisers of the president blame high interest rates as the main reason behind the drop in the investments. That means this issue has been put on the shelf for a temporary period. Then we need to look at what they do, not to what they say; and that shows us that the pressure [on the Central Bank] will continue.
Who is Fatih Özatay?
Fatih Özatay received his Ph.D. in economics from Ankara University in 1986. He worked at the research department of the Turkish Central Bank from 1987 until 1995 when he joined Ankara University’s Faculty of Political Sciences. In May 2001, he was appointed as vice governor at the Central Bank and also served as a member of the Monetary Policy Committee. He has been working as a professor at the Department of Economics at the TOBB University of Economics and Technology and the director of the Finance Institute at the Economic Policy Research Foundation of Turkey (TEPAV) since April 2006. His main areas of interest are financial crises, monetary policy and the Turkish economy. His two recent books – in Turkish – are “Financial Crises and Turkey” (2009) and “Monetary Economics: Theory and Policy” (2011).