The need to return to the economic reform agenda
While markets went back to normal after the unsuccessful coup attempt, the postponed reforms agenda in the economy must be resumed, as the structural problems seen in Turkey’s economy remain exactly as they were and the need for the required measures has become more urgent.
Before the major trauma was experienced, economy managers were aware of the shrinkage in growth rates and expressing the need to take new measures as soon as possible. Alongside the measures taken during the prime ministry of Ahmet Davutoğlu, there were also additional measures planned. However, for almost 20 days, these efforts, inevitably, seem to have stopped.
When we review market trends, we see that because of the re-postponement of the expectation of U.S. Federal Reserve (Fed) rate hikes, positive developments have occurred in the value of the Turkish Lira. However, while foreign capital inflow into other developing countries restarted, there is still no start of inflow into Turkey. While the effects of the trauma are decreasing, the debatable and rushed governmental decrees are lessening this favorable consequence. Despite this, there was definitely a recovery recently.
The July inflation rates to be announced on Aug. 3 are expected to be high, as the Central Bank had warned beforehand. Because this expectation has been formed, the high inflation rates are not expected to have very much of a negative effect on the markets. However, on the other hand, the markets are pressured by Moody’s. Market actors are not expecting a downgrading on the announcement date of Aug. 5, but they also cannot say that here will not be a downgrading in the future.
For this reason, no significant disruption in the markets is expected in the coming week, but nobody is optimistic for later on.
Need for foreign capital
While the situation of the markets is like this, the need for structural measures for the economy to reenter the growth trend has become more urgent for it to maintain its stability in the medium-to-long-term. These measures should be taken before an exit occurs from countries like Turkey with the Fed rate hike. Otherwise, serious conjuncture-related market problems will be added to the already problematic structural problems.
In the existing climate, when major political and diplomatic problems are added and even more are to come, it does not seem possible that we would be able to draw foreign capital investments. In fact, for Turkey to reach even 3 or 4 percent growth rates, it needs the inflow of international capital. While this equilibrium is maintained, measures should be taken in the meantime to increase saving rates in the future and also measures that will lessen the current account deficit problem. For this to happen, a series of important structural measures from changing the production structure to employment conditions should be facilitated.
Otherwise, Turkey’s need for foreign capital to be able to grow will last forever. It means that this need will further increase the external dependence in terms of politics.
We need to return to the economic reform agenda as soon as possible, otherwise it will be too late.
