Time for a new reform agenda for Turkey
Turkey is currently in a political transition process – a very orderly one so far. Let me tell you what we know as of this Friday. We have a new president, a new prime minister and a new council of ministers. The successful Babacan-Şimşek team has kept its portfolio as deputy prime minister responsible for the economy and minister of finance, respectively. So there is no news when it comes to economic policy. No news is good news under these circumstances. So far so good.
However, I have been observing three alarming issues in the Turkish economy recently. One has been solved with the decisions this Friday. Prime Minister Davutoğlu hinted at another’s solution in his inauguration speech. A third is still pending, but that one is not a policy parameter for Turks. Two out of three positive development messages is not that bad. Let me be more specific.
First of all, minister Babacan was seen as the anchor of the Turkish economy. Many are relieved that he will stay on in the Davutoğlu government. I personally do not expect any adventures in economic policy, so that is one uncertainty less when it comes to Turkey. That is for all of us, both Turks and foreigners.
The second issue is that Turkey’s economy is in need of a strong new reform agenda. In the current, rather fragile parameters, countries like Turkey do not have anything to sell or any way to expand. What we can all do is to focus on the future, which requires a reform agenda. Ankara is now busy coming up with one. A new government, a new prime minister and a reform-minded, experienced economy minister are a good recipe for the task. Already, Davutoğlu touched on some major reform areas, and we will most likely see more of it in the new government program due to be published by Monday. An orderly transition requires speed. None of the newcomers has time to adjust to the new situation, and this is good for establishing order. Isn't that what every caudillo does from time to time? I need to ask a Mexican friend. I'll let you all know what he says.
The third alarming issue for Turkey has been the U.S. Federal Reserve's tapering turning into an effective tightening process. This is obviously out of Turkey’s control. With recent penalties on financial institutions, the situation of European banks and problems with shadow banking in China, no one yet knows the pace of the tightening process.
Like all other emerging countries, we only know our own political process. There are going to be elections in 10 months in Turkey and the ruling Justice and Development Party (AK Party) can develop a strong agenda around a new Constitution by then. New constitutions are always good when accompanied by strong economic reform agendas. Who knows?