Let’s not deceive ourselves; investor perception is not getting better
A year has passed since the July 15, 2016, coup attempt, and we have gone through the last week in a consciously created demagogic climate.
In this context, in addition to the inflamed political discourse, exaggeration and over-optimism dominated comments related to the economy.
We need to say that the rosy descriptions by government members about the mood in the economy are a big deception, unless it is related to their concerns of taking part in the cabinet changes.
Recently, Deputy Prime Minister Mehmet Şimşek said global investors started returning to Turkey and that the increase in the fund flows was continuing. “The investor perception is getting better now,” he had said.
If what Şimşek talks about is not hot money, it is not possible to say that investor perception toward Turkey is getting better. You will see this clearly when you listen to the true and sincere comments made by the attendants of a meeting President Recep Tayyip Erdoğan held with foreign investors.
Foreigners’ astonishment toward the attitude of the government is continuing. The government’s statement regarding the state of emergency and the uncertainty on the exact date it would be lifted was not found credible. When you add to this the comments they heard about democracy and freedom of press, it looks like they ended up seeing an approach far from rationality.
In this environment, investor trust cannot improve. If what is meant by saying investor perception is getting better is the hot money whose accelerated inflow recently has rallied the stock market, Şimşek is the one of the people to know best that this is temporary. Everybody knows that this money, which is circulating in global finance, is making profit maximization for the last time before returning home.
Everybody knows that if not now, in a few months, interest rate hikes in the United States and Europe will start, and when this movement starts, it will be rapidly exiting from countries like Turkey. The timing of this turnabout might change depending on Fed, but it is a matter of months.
Also, in this slackness, seeing hot money like permanent capital and avoiding taking measures can cause tougher consequences on the outflow. So let’s not kid ourselves. The global risks and our own political and economic risks are growing. Exaggerated optimism reinforces slackness.
Before everything, we have to see that macro balances give the alarm signals in the economy, while global capital is withdrawing back to their country of origin, disrupted balances is the biggest reason of negative differentiation.
Because the EU anchor that we have relied on for many years and the financial discipline are now in danger. Budget deficits and borrowing needs are increasing rapidly. In this environment, expanding credits and postponing the problems of real market do not solve the problems. On the contrary, it makes them bigger in the midterm. If you try to resist with pressure to normal hikes in the interest rate while you take these steps; even if in the short term you can serve a half point drop, you would lead to an explosion in rates in the midterm.
We saw this pattern several times, and for this reason, instead of ignoring it we need to issue warnings.
Even if inflation rates were to drop to single-digit figures only for a few months, the investor sees, like everybody, that it will continue to be high in the midterm. While saying exports are on the rise, we also started to get the signals that we will see a wider current deficit. When it becomes evident that instead of normalization, the return to democracy will take longer, what do you think disrupted balances mean in such a country?