Tim Ash: What Is the Alternative to Şimşek?
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Economist Timothy Ash questions growing criticism of Türkiye’s economic management, asking a critical question: if Finance Minister Mehmet Şimşek’s program is failing, what is the alternative? Despite imperfections and political constraints, Ash argues that the current policy framework has delivered meaningful stabilization and that abandoning it could reintroduce systemic risks.
Rising Criticism of Economic Management
In recent weeks, criticism of Türkiye’s economic program has intensified across segments of the domestic media. Much of the focus has been directed at Mehmet Şimşek, with claims that his policy framework has fallen short.
Ash notes that similar campaigns were previously directed at former central bank governor Naci Ağbal, whose eventual dismissal proved highly destabilizing for the Turkish economy.
While acknowledging that Şimşek’s policies are not beyond criticism, Ash emphasizes that the broader context—including political constraints and external shocks—must be taken into account.
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Policy Trade-Offs and Early Choices
Ash argues that tighter monetary policy should have been implemented more aggressively at the outset of the current program to curb inflation more quickly. However, he notes that policymakers opted for a more gradual approach to avoid a sharp slowdown in economic growth.
This trade-off—between growth and inflation—is a common feature of political economy. The result, in this case, has been higher and more persistent inflation than might otherwise have occurred under a more aggressive tightening cycle.
Headwinds Beyond Policymakers’ Control
According to Ash, Şimşek’s program has faced multiple challenges that were largely outside policymakers’ control:
- A sharp foreign exchange adjustment following the 2023 elections
- Political uncertainty linked to the Ekrem İmamoğlu case
- Adverse agricultural and climatic conditions
- Structural inefficiencies in the services sector
- Escalating geopolitical tensions, including the U.S.-Iran conflict
Despite these headwinds, the program has delivered a number of key outcomes.
Notable Gains in Stabilization
Ash highlights several achievements under Şimşek’s tenure:
- Inflation reduced from above 70% to just over 30%
- The FX-protected deposit scheme (KKM) largely unwound
- Foreign exchange reserves nearly doubled to above $200 billion
- External financing needs fully covered
- The Turkish lira stabilized on a more predictable depreciation path
- Dollarization pressures eased
- Borrowing costs declined, with credit ratings moving onto a positive trajectory
- Fiscal deficit brought closer to 3% of GDP
- Public debt maintained below 30% of GDP
He argues that few observers in early 2023 would have expected such progress within a relatively short timeframe.
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Fiscal Discipline and Tax Enforcement
A key pillar of the program has been improved fiscal discipline, driven in part by stronger tax collection and efforts to combat informality.
Ash notes that increased use of technology and stricter enforcement by tax authorities have boosted revenues and strengthened public finances. While politically unpopular, these measures represent a significant structural improvement.
Debate Over Exchange Rate Policy
The Central Bank of the Republic of Türkiye’s (Central Bank of the Republic of Türkiye) decision to defend the lira using foreign exchange reserves has sparked debate.
Some economists argue that allowing the currency to depreciate—similar to the approach taken by Egypt—would have been more appropriate. However, Ash contends that Türkiye’s vulnerability to energy price shocks makes such a strategy risky.
A weaker lira could have triggered a sharper inflation pass-through, particularly given still-elevated levels of dollarization. In this context, the central bank’s decision to treat the oil shock as temporary and avoid destabilizing inflation expectations appears justified.
Competitiveness Concerns Mount
Exporters have raised concerns about the real appreciation of the lira, driven by persistent inflation. Türkiye is increasingly perceived as an expensive destination, both for locals and foreign visitors.
Ash reiterates that the solution lies not in currency depreciation but in structural reforms. A more aggressive early tightening could have reduced inflation faster, thereby limiting real appreciation pressures.
The Key Question: What Is the Alternative?
Ash’s central argument is that critics of Şimşek have yet to present a credible alternative.
Calls for faster rate cuts, looser monetary policy, and a weaker currency risk undermining stability. Such a shift, particularly in the current geopolitical environment, could lead to a sharp depreciation of the lira and a renewed surge in inflation.
Replacing Şimşek, Ash argues, would likely erode investor confidence and reverse the gains made over the past three years.
Structural Reform as the Only Sustainable Path
To address Türkiye’s competitiveness challenges, Ash emphasizes the need for accelerated structural reforms, including:
- Deeper economic integration with Europe
- Leveraging defense industry cooperation
- Education reform to improve workforce skills
- Agricultural reform to stabilize food prices
- Energy efficiency measures to reduce import dependence
- Continued efforts to formalize the economy
He also notes that broader institutional reforms—such as strengthening rule of law and improving the investment climate—remain important.
Türkiye–Europe Relations: A Strategic Imperative
Ash concludes by stressing the importance of stronger cooperation between Türkiye and Europe.
Given rising geopolitical risks and shifting global alliances, Türkiye’s strategic role—as a NATO member with significant military capabilities—has become more critical. Revitalizing economic ties, including a modernized Customs Union, could benefit both sides and support Türkiye’s reform agenda.
Source: Timothy Ash, pls visit Ash’s blogsite for many excellent articles
