Editor’s Note: Hande Firat is very close to Erdogan and is one of the few columnist/journalists who retained some credibility. Her lengthy article is noteworthy because it probably reflects how the Palace thinks about the economy.
After the election, all eyes were turned to the new economy management without exception.
Today I wanted to review what has happened in the economy for the last two months. But as I do this, I will look at both the half-full and the empty side of the glass. However, I will deal with the issue not on a technical level, but in a way that we can all understand. Let’s look at the good news first…
FOREIGN INVESTORS MEET AGAIN WITH TURKIYE
* As soon as Treasury and Finance Minister Mehmet Şimşek and CBRT President Hafize Gaye Erkan took office, a plan was drawn to rein in inflation, which seemed to have been left to its own devices. Annual inflation, which is estimated to be 58 percent at the end of the year, is projected to be 33 percent by the end of 2024.
* Foreign investors saw that the methods, plans and programs of the economy management were realistic and met Turkey “again” after many years. After the Gulf visits, the first investor meeting organized by JP Morgan was held in Istanbul.
ECONOMY MANAGEMENT PREPARES FOR ROAD SHOW
* Mehmet Şimşek will meet with important names at the investor meeting to be held by Goldman Sachs in the USA in September. I’m guessing London will be watching closely.
* In other words, the economy management is preparing for the road show. Regardless of where they are held, these meetings are where Şimşek feels at home with questions coming from the pages he studied.
INCREASING RESERVES
* The FX reserves of the CBRT are rising by several billion dollars every week. The increase in reserves, which are considered as a kind of “ammo” for both the CBRT and the national economy, increase confidence in Turkey. Şimşek signaled that reserve build-up will continue in line with market conditions last week.
* The current account balance gave a surplus of 674 million dollars in June for the first time after 20 months. There may be a return to the deficit again in the following month, but it is understood that the effects of the measures taken will gradually show their effect. The improvement in the current account balance is critical for the fundamental balances in the economy.
FOREIGN SHARE IS INCREASING IN BIST
* BIST is constantly breaking new records with foreign inflows. The foreign share is increasing a little more every week. Demand for initial public offerings have now reached incredible proportions. As the confidence in the capital markets increases, book building is announced for the public offerings of two or three companies every week.
* Maybe it was overlooked, but data releases by TURKSTAT, which have been questioned by various experts from time to time, now get full marks by market players. Analysts and economists, who scrutinize each figure, say that the data has been quite consistent for the last few months.
CREDIT RATING UPGRADE IS ON THE AGENDA
* In the past weeks, I have said that a rating increase may come to the fore. Moody’s recently published a report. Along with some warnings, it drew attention to the successes of the economy management, giving the preliminary signals of a rating increase. Credit rating agencies are definitely doing a great injustice with the ratings they give to Turkey and keeping the country in the so-called “junk” area. I believe they will get rid of this error.
* For their own credibility, Turkey’s ratings must be quite high. If our credit rating rises to the level we deserve, inflow of funds into Turkey will amplify while the cost of loans to be obtained by banks, companies and, for example, municipalities will decrease significantly.
THE EMPTY SIDE OF THE CUP
Now let’s see what’s on the empty side of the glass…
- THE MOST BASIC PROBLEM IS CONTROLLING INFLATION
* Although steps have been taken to control inflation, which is the most fundamental problem, the figures are still high. Şimşek said that inflation will be high for the next few more months due to the stabilization decisions taken (meaning the tax hikes). Many experts express their expectation of CPI at 60-65% at the end of the year. It is not really easy, but the rapid decline in inflation is of great importance for the continuation of the credit extended to the economy management.
IT HAS BEEN DIFFICULT FOR COMPANIES TO FIND CREDIT
* It has become very difficult for companies to access credit. Rates are still high. In order not to break the growth and production momentum, credit channels should be used more actively, perhaps through selective loans.
* It is necessary to avoid policy actions that will lead to increased unemployment. Of course, I am making this note knowing the fact that the economy administration has already closed the door to credit expansion.
* There will be a period when the profitability of some companies will decrease. It is extremely critical that SMEs that cannot access credit are not becoming “zombies”.
INCREASES IN TAXES AND OIL PRICES BITE HARD
* When the increase in the exchange rate and oil prices are added to the tax increases, the fuel price hikes, which can occur several times a week, both hurt and cause serious political reactions. It must be admitted that this is a new avalanche of problems.
PROBLEMS TO BE RESOLVED IN THE MEDIUM TERM
- Foreign trade deficit and the financing problem in the current account balance must be resolved permanently in the medium term.
* The economy administration continues its measures, with a quota for gold imports. It is seriously critical to increase exports to get rid of these restrictions.
While looking at all the measures, it is obvious that the goal is striking a balance. Once the balance between stability and job creation is broken, returning to the same point is a difficult and laborious process. Probably from the second half of 2024, we will start to breathe easily. To tell the truth, the economic policy in recent years was not compatible with the world we live in, and if we accept the fact that you cannot set the rules in a game where you are not the ref, the steps we take will have a price.
MISTAKES TO AVOID AT ALL COST
Now, at the point we have reached, I have to say that we are approaching a dangerous turning point again as part of my responsibility. Before the election, the Nation Alliance made generous financial promises to everyone, whether it was workers, civil servants, or companies. The People’s Alliance adopted some of these in order not to be left behind.
The local elections to be held in March will take place in a different environment for the Nation Alliance, which has just lost the election and is disbanded. Winning is no longer an option but a necessity. CHP or IYI Party will make a commitment to win elections with all that is left of their energy. This time, the People’s Alliance enters the election with an advantage. Here, the People’s Alliance should not resort to pork barreling.
ATTENTION TO CONCERNS
* Such a concern is also expressed in the Moody’s report I mentioned above, which says it is in the “wait and see” mode.
* Are the recent gains permanent or temporary? This is the fundamental question for the markets.
* On the other hand, if progress in the economy since the beginning of June will have to be squandered for March local elections, it will be a great loss for Turkey.
* There will be neither be any means to return to the beginning, nor a citizen who will be patient with this, nor an economic administration that will make society believe in a better future. I say that the window of opportunity is still open, and neither the government nor the government should close it imprudently.
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