Watch out for the economy

Depreciation of the exchange rate with rising inflation and interest rates at the same time rings alarm bells.

“We did not foresee such a rapid depreciation in the value of the Turkish lira. The underlying problem here is the currency. The rapid depreciation in the value of the lira, at least, has postponed the inflation rate’s decrease to one-digit levels,” said Mehmet Şimşek, the deputy prime minister and economist, in an interview on private broadcaster NTV on April 30.

While he was talking in the morning, the Turkish lira was at 4.06 against dollar but climbed to 4.18 in the afternoon.

Of course, there are some external factors for this. But, there should also be some domestic reasons, as the Turkish lira is among the currencies that have depreciated the most.

The Turkish government had foreseen in the “medium-term program” that one dollar would be 4.02 Turkish liras in 2020. However, we have passed that level before mid-2018, economist Özcan Kadıoğlu has said.

So, how will investors plan their potential investments in the following years?

Do not forget we are living in a country that has foreign currency debt.

We will need bitter pills to swallow after the elections, really bitter ones.

Economic conditions prompt snap elections

“It is getting more difficult every minute to reach Nov. 3, 2019,” said Devlet Bahçeli, the leader of the Nationalist Movement Party (MHP), when he issued a call for snap elections in his speech at parliament on April 17.

I am not sure whether or not he had referred to the economic conditions.

The next day, President Recep Tayyip Erdoğan mentioned the status of the economy when he announced snap elections would take place on June 24, even earlier than Bahçeli had demanded.

“In a period of time when we need to give vital decisions on several issues, such as the macroeconomic balance and sizable investments, we have to drop elections off the agenda immediately,” he said on April 18, after meeting with Bahçeli.

Obviously, deterioration in the macroeconomic balance has been observed.

So, will we be speaking on this during the election campaigns? Unfortunately, we will hear both the ruling party and the opposition parties making populist promises.

Take the recent handout package, worth up to 24 billion Turkish liras or nearly $6 billion, declared by Prime Minister Binali Yıldırım on April 30.

The source is said to be the payments made by those who will receive “building registration documents” for their unlicensed properties. But those are one-off payments. What will happen in the following years?

More productive economy needed

Regardless of who comes to power, a need for new sources will arise and most likely, the first things that will spring to their minds will be more taxes and price hikes.

However, the right path is to transform the economy into one that produces more effectively and creates added value.

“Most of the investments have gone to soil and cement, when we needed new investments that we call ‘greenfield,’ that would increase exports and strengthen competition in the country, new factories, new jobs. We have made no progress in terms of international competition in the last seven to eight years,” prominent Turkish industrialist Rahmi Koç said on Feb. 18, 2016.

That remark explains the underlying reason of the depreciation of the exchange rate, rising interest rates and deterioration in the macroeconomic balance.

Incumbent and former Deputy Prime Ministers responsible for the economy Mehmet Şimşek and Ali Babacan, who have held several posts such as treasury minister and foreign minister, have made similar remarks before.

In order to make our economy create more added value and export technology products, what we need is a drastic reform package that will improve Turkey’s image and increase its attraction for investments. It should enhance the rule of law, diplomacy, education and institutional rationalization.