The effect of ISIL on economic balances

The effect of ISIL on economic balances

Turkey is currently going through difficult times, Finance Minister Mehmet Şimek has accurately said, adding that the Islamic State of Iraq and the Levant (ISIL) has hurt the country’s trade routes and export market for some time. Şimşek said effects had been felt on the foreign exchange deficit, growth and inflation.

He has also spoken of the ISIL factor as an additional element to global negativities, which also included the Russia-Ukraine crisis, the global increase in food prices, and the fact that Europe is still not growing.

However, the real reason for the Turkish economy's struggles is not the ISIL factor. Obviously, ISIL has had some effect on the disruption of the economic balance underlined by Şimşek but this effect, for now, has been relatively low.

The real problem is Turkey’s entry into a normalization period after the global economic crisis, and its delay in taking the necessary structural measures. If we continue to delay the necessary measures against global developments, their effects will increase.

This will likely sound like an exagerration, but if the necessary measures are not taken urgently, ISIL’s effect on internal and extenrnal political developments will be heightened due to fundamental Turkish fragilities and it will be too late for economic measures to have an effect.

Above all, we should not forget that with developments such as U.S. Federal Reserve (FED) tapering, much more difficult days lie ahead for emerging market economies. While there are contradictory expectations, we will see the effects of the FED’s decision more at the beginning of next year.

While all developing countries will be affected negatively, it’s likely that Turkey’s economy, identified as one of the most fragile, will be deeply affected.

That is why without waiting for the structural reforms, we need to take measures to tighten fiscal discipline, for example, increasing the interest rate without further delay.

In the meantime, it should not be forgotten that global oil prices, which have dropped $90, will begin to increase again with the end of Ukraine-Russia crisis.

In that case, a factor that has softened the blow on the Turkish economy over the past few months may also turn into a negative one in the near future.

Contributing to the anti-ISIL coalition

Meanwhile, looking from a political perspective, the domestic situation that has come as a result of the Kobane protests has shown the internal political environment to be very fragile. With Turkey starting to act together with allies against ISIL, this fragility may become further pronounced.

Everyone knows that Turkey needs to participate in the international coalition against ISIL. The latest incidents have shown ISIL’s presence not only outside, but inside Turkey as well. Therefore, when we get involved in a conflict outside the country using force, a domestic effect will be inevitable.

We are in a fragile climate and this fragility has started to seriously threaten our macroeconomic balance. The fact that we are caught in this period with double digit inflation and interest rates is making our job even more difficult.