professor Dr. Özgür Orhangazi drew attention to the social crisis

Kadir Has University, Faculty of Economics, Administrative and Social Sciences, Head of the Department of Economics Prof. Dr. Özgür Orhangazi, noting that Turkey is at the beginning of a process of increasing and expanding impoverishment, said: “We will start talking about a social crisis that this impoverishment will deepen in the next period.”

Emphasizing that there is no easy way out of the situation in which Turkey is dragged, Prof. Dr. We spoke with Özgür Orhangazi about the latest developments in the economy.

– Where will inflation lead, what kind of risks do you foresee?

Exchange rates have been the main determinant of inflation in the Turkish economy. The main reason for this is the dependence on imported inputs, mainly energy. Big companies, on the other hand, can raise prices without sacrificing their profitability. Combined with the depreciation of the Turkish lira and the expectation that this loss will continue, even Turkstat’s inflation has surpassed 70%. Those who think that the rapid rise in prices will not stop, and especially those with credit facilities, increase demand by pushing their consumption forward rather than buying them more expensive tomorrow. High energy prices around the world, supply problems, etc. When that factor is added to that, we can predict that inflation will remain higher for a while, and beyond a certain point, this process will become a little self-fueled.

– Considering the cost of living, what kind of days do citizens expect?

Unfortunately, we have entered a period where inflation will remain high for a long time. On the other hand, wages do not increase in the same way. Employees have long since lost their bargaining power. From this point of view, Turkey can be seen at the beginning of a process of increasing and expanding impoverishment. In the next period, we will start talking about a social crisis that this impoverishment will deepen.

Working poverty is a topic that has been talked about for a long time, but I think that working poverty in this period will reach another dimension, especially in large cities, as it includes workers with a relatively higher income level, unlike in previous periods.


– What are the waiting days for the business world on the production side?

We see that companies are going through a very profitable period. In the last period, the revenue of large companies in general increased with inflation and, on the other hand, the fact that they were able to finance their working capital with very low interest rates contributed to their profitability. Companies that have broad access to credit and can export profit from the policy of low interest rates and high inflation. However, this does not seem sustainable. In an environment where domestic demand will shrink and risks will increase, growth will also suffer. Corporate sector foreign currency debt is the biggest risk factor. Even the current situation requires that external financing be sustained.


– How accurate are the measures taken to reduce the rate?

Currency-side risks depend entirely on capital movements and the evolution of the current account deficit. The structure of the Turkish economy has become such that economic growth cannot take place without an external deficit. In addition, the US Fed’s interest rate hike in recent days and the monetary contraction by shrinking its balance sheet from this month have increased risks not only for Turkey, but also for all countries in a similar situation. The rollover rate of both the private and public sector high debts in Turkey will also have an impact on the exchange rate. It seems there is not much that can be done to reduce dryness. There will no longer be a period of borrowing from outside at a cheap cost.


– Turkish CDS premium is on the rise. Do you expect a problem with external debt and loan payments?

Last time I checked it was level 847. To understand how high this is, we need to remember that it was around 240 points even during the 2008 global financial crisis. The fact that CDS is so high means that the costs of borrowing abroad are also very high. For example, if interest rates on loans abroad are around 1.5%, this creates a foreign currency borrowing cost of around 10% for Turkish institutions.

Both new loans and debt rollovers have become very expensive. The first effect will be seen for companies that invest with foreign currency loans. We can expect these companies to avoid investments for a while. We can expect some foreign debts to be attempted to be paid when due, which will create additional demand for foreign currency and raise rates.


– To what extent do recent steps affect problem resolution?

All recently announced packages are measures to save the day and put off major issues for a few days. It is doubtful that they can even do that. No action was taken to resolve any issue.

– What are the most painful problems in the Turkish economy?

Undoubtedly the most painful problem is the growing poverty and the sharp decline in the purchasing power of the masses. There is no administration that intends to develop a solution to this problem. External financing is necessary for Turkey to continue to grow and pay back its external debts. However, this is very difficult. There is no confidence in economic policies. In this environment, there is a new risk of exchange rate shock. If that happens, the low interest rate policy needs to be reversed, but now very, very high interest rates will be needed. In that case, the economy will shrink sharply, unemployment and poverty will increase even more.

It should be borne in mind that the economic policies implemented in the 2000s and the first half of the 2010s are at the root of many problems experienced today. There’s no easy way out of the situation we’ve been dragged into. Miraculously, we cannot go back to the first half of the 2000s or 2010s. The orthodox resolution of such situations often involves the IMF. We know that the government categorically rejects the IMF, but even if such a path is chosen, it will not prevent the increase in unemployment and impoverishment, on the contrary, it will feed it.


– What are your forecasts about growth at the end of the year, unemployment, interest rates, current account deficit?

The Turkish economy has not been able to create adequate jobs for a long time. We call this “jobless growth”. Recently, poverty has been added to this. “Impoverished Growth” Turkey has combined the two most unhealthy growth methods. We are facing a growth that at the same time does not create jobs properly and impoverishes.

The Turkish economy has not been able to grow without a current account deficit for a long time. The current account deficit in the first four months reached 21 billion dollars. As growth continues, we can expect the current account deficit to remain high and we will continue to face currency problems. A very unstable period awaits us.

Leave a Comment