Some political and economic models have emerged successful after having gone through historic courses. While some of these models are well-known and tested, Turkey continues to engage in 10-year error and trial processes, learning only too late from its mistakes.
The best example of this can be found in the manifesto of the newly established Democracy and Progress Party’s (DEVA). It is almost identical to the party manifesto of the Social Democratic party founded 20 years ago.
The ruling Justice and Development Party (AKP) came to power 17 years ago. Ali Babacan, who was amongst the party’s founders, served as the state minister in charge of the treasury between 2002 and 2007, as Foreign Affairs Minister between 2007 and 2009, as deputy prime minister in charge of the economy between 2009 and 2015. Babacan was active in the government for 13 years. Between 2015 and 2018, he served as an MP.
While managing the economy between 2002 and 2007 was relatively easy, political problems arose after 2009, a more authoritarian line was adopted, the rule of law was neglected, the judiciary turned political, democratic rights were restricted and economic problems began to accumulate. Babacan took part in this process.
“Unless Turkey becomes a country that actually abides by the rule of law, there will be no first-class economy or democracy. Without the rule of law, Turkey joining the world’s 10 first economies will remain a dream,” Babacan had said in March 2012. Still, he kept his ministerial position for another three years.
The first chapter of the DEVA party program is “Liberal, Participatory and Pluralistic Democracy,” suggesting it is one of the party’s top priorities.
The party program merely reflects what Turkey has done wrong for the past 10 years, laying out what should be corrected. While some might argue the party’s programs is new, it little less than a personal, on Babacan’s part, and institutional-level self-critique. But Babacan has yet to express this openly.
Turkey can only correct its mistakes through social consensus and reconciliation. It will not only have to be a one-time consensus but will have to involve a grand renewal of the principles, institutions and rules governing our political life.
DEVA’s party program features straightforward chapters that all segments of society would agree on. That is because they are fundamental issues the opposition block has been voicing for more than 10 years.
Protecting the individual against the state
The program, perhaps for the first time in a right, central, conservative disposition, indicates a stance to “protect the individual’s freedoms against the state,” emphasizing this belongs to the field of justice and thereby prioritizing the individual: “The most important reason the judiciary exists is to protects the rights and freedoms of individuals against the state. The judiciary is equipped with the shield of independence as a requirement to guarantee the rights and freedoms of individuals, deliver everybody their rights and reach just decisions. This privilege granted to the justice system is aimed at providing justice.”
Other lines the economy are remarkable: “As a party, we believe that at the basis of the social uneasiness and economic crisis in our country lies the unstable structure of our judicial system, which is far from being reliable and being predictable. We believe that in the stable environment provided by law, insecurity and uncertainty will decrease, production and investment decisions will be reached without fear and with confidence, thus accelerating our development process.”
The party program points out the independence of the Central Bank and other regulatory and supervising bodies would be strengthen institutional capacities. It is also said that greater independence should be granted to TÜİK as that would increase the credibility of its statistical data.
The Turkey Wealth Fund is disrupting the integrity of the public financial management, the program said, at the same time pledging to end these structures that are off-budget and free of audit.
Of course, they also pledge not to resort to tax and premium amnesties. The party program indirectly says the BDDK arrangements are not implemented in an equal and transparent manner to public and private banks in the banking sector. This will not happen, they promise. There is also a pledge to prevent the intervention of the government and the BDDK – through practices against legislation – in the decisions and administrations of banks.
The party program explains that public banks will be prevented from disrupting the competition within the sector. These banks will be stopped from doing business with political pressures. Appointments to top managerial positions in public banks will be done within the framework of objective capability and merit criteria, the program emphasized.
But remembering that Babacan was once in charge of those banks, and that stacks of cash were found at the houses of those who ran them, it remains uncertain whether he has learned a lesson.
Fiscal rule anchor
Babacan’s unfulfilled desire, the “fiscal rule” theme also features in the program. He had made preparations to start the practice of fiscal rule in 2010, until Prime Minister Erdoğan shelved this. Now, it is in the DEVA party program.
Another outstanding topic is about the practices concerning the Public Private Partnership (KOİ) over projects such as bridges, highways, airports and city hospitals that contain certain contingent liabilities. The burden they will bring to the general budget is not explained transparently.
The party program said they would issue a framework legislation on this matter. The KOİ model, they say, will be based on the principle of limiting them only to projects where the beneficiaries are able to finance themselves.
It is also emphasized that stakeholders will participate in the feasibility studies of such projects; equality, transparency and competition would be increased in public tenders and these projects would be open to independent auditing. Moreover, it states that information such as the burden these projects bring to the budget, the scope of the guarantees given, their justification and expiration dates will be shared with the public regularly.
The effort of “trivializing the issues” demonstrates the stance of Turkey's economy administration of “intervening on the symptoms and not on the issues.” It is the effort to sooth the society, to narcotize them by saying, “If you do not know, have not heard of it, if you do not care, then you are happy.”
Our economy administration wasted billions of cash foreign currency of the Central Bank and public banks just to maintain a self-styled economy policy and to keep the foreign exchange rate at a certain level. It is a pity that now, this economy management, with its collapsed economy policy, is resorting to the monetary tightening of the Central Bank.
Unlike what those in Ankara who are managing the economy believe, 51 percent of the economy is not psychological perception, it is trust. Empires of fear do not generate trust.
Those who are ruling the country are spending so much energy on blaming vague foreign powers for all the wrong and bad management. If they could have channeled this energy to understanding the problems of the country, then we would have gone a long way and truly would have made these “foreign powers” envious of ourselves.
Turkish Treasury is “printing” forex bonds to create additional foreign currency for its own operations. Public banks, on the other hand, are spending their cash foreign currencies and replacing them with forex bonds the Treasury is printing.
For a long time, Ankara had eroded foreign currency reserves worth near 100 billion to hold the rate. Now, it has come to the end of the road. It has spent its last penny and left the rate to the markets. Thus, the “unheard of” invented exchange rate regime has collapsed.
Can the forex loss in Turkey be recovered without sending the bill to the public? If first signs of the establishment of political normalization, democratization and rule of law emerge in a powerful way in Turkey, then the “shrunken” foreign currencies will come back to the system.
If the ruling Justice and Development Party (AKP) sees an increase in erosion of their votes and the increased possibility of losing power in a possible election then it would "use all the ammunition till it is finished" for their own political continuity. But this would indeed mean leaving a “gigantic wreckage” for the citizens of the country.
The trend in that started just before the presidential elections in 2018 and accelerated after the elections changed the chemistry of the economy in Turkey. Private sector in Turkey was restricted in every aspect. From pricing to sourcing, to investment licenses, all regulatory higher bodies worked to make the entrepreneurs feel that ‘the party state’ was watching them at every step.
A currency, that is losing value and is not the good money to its own citizens, cannot be the good money of another country. Most probably those who declared they have switched to the Turkish Lira in Syria will be doing their payments in Turkish Liras and - even if it may be only a few pennies - they will keep dollars to store the value of their accumulation.
No matter how long or short the COVID-19 crisis lasts, a broad range of working masses, but especially the unskilled labor force will be the ones exceedingly affected. They will lose income and their jobs. As a result, inequality will spread on a mass scale and poverty will soar.
Ankara thinks it can obtain stability through the sale of foreign currency from the “back door,” which erodes reserves. Ankara has also resorted to bans and restrictions on foreign currency, but these are actually very old tools from the 70s.
The economy management in Ankara may have this thought of stopping the devaluation of the Turkish Lira by wounding the lira’s convertibility but actually it also damages the debt capacity of the Treasury.
What would we have included if we wanted to write a guideline for those who have the wish to intervene in foreign exchange rates but who do not have the adequate experience, but at the same time want to do it right? Taking into consideration today’s circumstances in Turkey, here is a list.
In those countries where it is presented as they have a “floating exchange rate regime,” if their central banks are intervening at the exchange rate, the name of this in economy literature is “fear of floating.”
Since the COVID-19 crisis erupted, Turkish Central Bank’s reserves fell nearly 20 billion dollars. Now, the thought of “Can there be a swap line opened from the U.S. Central Bank Fedreserve ?” is in question.
Turkey was caught with the coronavirus outbreak at a time when it was weak structurally. Just like in the COVID-19 epidemic, the underlying disease story is the story of those problems in economy which were “swept under the carpet” for a long time. Turkish government's economy policies after 2018 were based on bans, limitations and covering up of the symptoms rather than resorting to necessary steps to solve the problems.
Even though its name is “floating exchange rate regime,” the current one in Turkey can only be called “commanded foreign exchange regime.” Some may object to that and suggest “managed floating rate regime.” If it was the latter, then the Central Bank would have openly done it. Everybody would have been informed of a rate regime which has targets, a framework and a system. But we do not know anything about this “dystopian regime.”
Talking about Turkey’s economy is like a stand-up show. Turkey’s Central Bank is as independent as the Fed, says the Finance Minister. This comparison can be uttered because of the mood created in Ankara where the government commands the economy. But even in regimes of command economic, there is interdict and logic.
Politicians may have an inclination to regard the Central Bank as a “cow of the government to be milked.” But it is logic blowing that those who have undertaken CB jobs have rolled up their sleeves and personally worked for that.
In the last two years, the economic policy team governing in Ankara that has been intervening on prices, interest and exchange rates with an iron fist has cost banking executives their jobs for making their own trade decisions in an open market. Turkey is supposedly an open market economy, but Ankara has been nudging market players under the table to the point that the market is “open” only in theory.
Both the consumption and investment data in the third quarter show a tendency toward “exhausted growth” in the private sector. I wrote at the end of October that this is the picture of weak, anemic growth. The economy is out of energy. With the economy in this weak and feeble state, Ankara cannot carry the country politically to 2023.
The "orchestrated" issue on the agenda last week was an effort to form public opinion about punishing comments on economy by jail sentences and monetary fines. Stories in newspapers were followed by a speech by Economy Minister Berat Albayrak the next day, who wanted to lay "thought infrastructure" for this.
Russia's strategy is quite clever; it continues to accumulate reserves by using dollar and euro for its exports while using ruble for one third of imports. By receiving 7-8 percent of its net foreign trade in ruble, it creates demand for its currency at the same time.More so, Russia is trying to recruit Turkey as a customer for its Russian made SWIFT alternative SPFS and again homemade credit card system MIR.
The three-way wheel of the Turkish economy, which depended on the flow of foreign capital, domestic credit growth, and household consumption, has stopped. It seems like the politicians running the country in Ankara couldn't find the answer to "What awaits the Turkish economy in 2020?"—since they undertook a military operation in Syria to get back the votes they lost due to the economic crisis.