https://arab.news/pffna
In the aftermath of last month’s general elections in Turkiye, all attention was naturally focused on the political outcome, but an equally important subject is how the economy will be managed as a result of the elections.
This month’s appointment of Hafize Gaye Erkan as the governor of the central bank served as a turning point in the country’s fiscal policy. She has a brilliant educational and professional background. She completed her doctorate studies at Princeton University. She worked for Goldman Sachs in the US for nine years. While she was working in the First Republic Bank, she was promoted to the post of CEO. On June 8, she became governor of the central bank of Turkiye. If President Recep Tayyip Erdogan does not interfere with the rules of a transparent market economy, the new team may improve Turkiye’s economy, even if some bitter pills may have to be swallowed.
The first concrete step taken by Erdogan’s new government was in the field of interest rates, with the central bank last week almost doubling the country’s key interest rate from 8.5 percent to 15 percent. Paradoxically, this was a subject that Erdogan was previously furiously opposed to. He had developed a theory that stated: “The interest rate is the cause and inflation is the result.” Few economists believe in this theory. Rising and falling interest rates are the result of complicated interactions in the free market, but Erdogan persistently continues to back his thinking.
On his way back from Baku, Azerbaijan, this month, Erdogan said: “We accepted that Finance Minister Mehmet Simsek, together with Mrs. Hafize Gaye Erkan, the newly appointed governor of the central bank, would quickly implement the required measures.” He carefully avoided giving a carte blanche to Simsek because he does not want to legitimize interest rate rises.
Last Thursday, the new team of Simsek and Erkan announced the official interest rate increase. The real interest rates are still higher than the 15 percent figure. However, Simsek said the difference between the real and the official interest rates would be reduced as time goes by.
Even this figure is far from being realistic. The real figure must be somewhere around 25 percent, but the new team of decision-makers seems to be determined to bring the real rate closer to the political figure with frequent adjustments.
The interest rates float according to the rules of a free market economy. Finance Minister Simsek said during his first public statement that Turkiye had no choice but to return to “rational ground” to ensure predictability in the economy, which means stability, trust and sustainability.
Despite unpromising predictions, the Turkish economy has proven in the past to be resilient to a very large extent. With better management, it has the potential to be revitalized.
The minimum monthly salary in Turkiye is €520 ($568). Only three countries in Europe have lower minimum salaries than this, namely Serbia (€460), Bulgaria (€398) and Albania (€297). Turkiye also has a relatively skilled labor force. Therefore, if the country’s economy is properly managed, it has the potential to overcome some of its economic problems. Erdogan is a leader who is capable of persuading his people to swallow bitter pills from time to time.
The Turkish economy has proven in the past to be resilient. With better management, it has the potential to be revitalized.
Yasar Yakis
Four deputy ministers have been appointed during the last week. One of them is a political appointee, or a party commissary, who will act as a watchdog and supervise the recruitment and transfer of personnel from one department to another. The three others are professionals in the economic field with various backgrounds.
In the last five years, four finance ministers have been replaced, while three governors of the central bank have been dismissed in the last two years. Such practices discourage bureaucrats who want a challenge from accepting important posts. They also fail to provide the business community with the trust that is essential for a stable economy.
Because of Erdogan’s insistence on his questionable theory on interest rates, the Turkish economy suffered an enormous transfer of money from petty capital holders to big capital holders. When the interest rate was fixed by the central bank at 8.5 percent, the economic operators who needed money had to pay the difference between the political and the market rate.
The outgoing governor of the central bank coined the epithet “heterodox” for the practices of the central bank, without the economic actors understanding exactly what it meant. In encyclopedic terms, heterodox means “not conforming with the accepted standards.” Therefore, the former governor must have meant that an amalgam of various rules would be utilized to guide the country’s economy.
One of the major vices of democracy is that it forces political leaders to promise the moon. With the forthcoming local elections in Turkiye to be held in March 2024, political leaders on both the government and the opposition sides are almost bound to promise high salaries, while the economic decision-makers will try to dissuade them from making unrealistic promises.
If Simsek remains in his post for a few years, Turkiye may overcome some of its economic plights. However, miracles should not be expected.
• Yasar Yakis is a former foreign minister of Turkiye and founding member of the ruling AK Party.
Twitter: @yakis_yasar