Sensitive economic equilibriums cannot tolerate mistakes
The fact that the equilibrium has changed in the global economy has made economy management for countries like Turkey much more sensitive. Those periods of abundance in global liquidity, even if mistakes were made, created a climate that could make up for it. However, now, in the period of global liquidity tightening, which is now confirmed, the luxury to make a mistake has been extremely reduced. This reality is valid for administrations of all developing countries that have gotten used to being fed by hot money. For those developing countries, such as Turkey, that have a high current account deficit, it has become even more crucially significant.
Exactly for this reason, Turkey is pointed out as the top country that will suffer the most in the new period that has started. If you add to this conjuncture the domestic political clashes and the three elections to be held in the next two years, then it is automatically revealed how tough it would be for Turkey’s economic administration.
Well, does the economy administration generate a confidence for the new sensitive period? It is not very possible to have a positive reply to this question. If you ask how great was the role of the inadequacy of the economy administration in this lack of confidence; it is not too much. There is a bigger structural issue in economy management; that is the management of the economy is not left to the relevant ministers and their bureaucrats. In other words, the weight of Prime Minister Recep Tayyip Erdoğan and the party administration on economy management plays a serious role in creating the lack of confidence.
We can see the effect of this in the behavior of the Central Bank recently. With the exit of hot money, as foreign exchange rates are naturally increasing, it is observed that the Central Bank administration cannot act quite at ease.
All market actors think that it is necessary to increase official interest rates to stop the exchange rate but the Central Bank administration does not do that.
Timid Central Bank
It is reported that because of Prime Minister Recep Tayyip Erdoğan’s sensitivity to interest rate increases, the Central Bank administration, even though they know the necessity, cannot increase interest rates due to the “fear of upsetting the PM.”
Also, markets believe that the Central Bank is not brave enough regarding the interventions in the market. Apparently, both for protecting the foreign exchange reserve and because they blame the former administrations for foreign currency sales, apparently the Central Bank administration cannot demonstrate the required courage in interventions in the foreign exchange; whereas, with well-timed interventions in the market in adequate amounts, success could have been achieved with a sale of much smaller amounts of foreign currency.
This perception in the markets is a huge source of anxiety regarding economy management. Market players who see that there will be a need to intervene in a much more severe way in the future fear that in if the Central Bank continues this timid attitude of its, the price of fluctuations to be experienced will be heavy.
From a different point of view, they are pondering how they would harmonize with this irrational behavior of the Central Bank.
When the new trend in global liquidity and the distinctive domestic circumstances are combined, it is definite that at least the next two years of the economy in Turkey will be very difficult ones…