The annual cost of currency-protected deposits to the budget will exceed 200 billion TL

professor Dr. Oğuz Oyan emphasized that when monetary policy tools are used in the opposite direction, the administration of the economy is pressured to produce ineffective and expensive medicine by secondary avenues, adding that “amen” is considered an “amen to the impossible prayer”, as determined by exchange rates and interest rates together.

Explaining that the Palace and the administration of the economy did not consider fighting inflation a priority, Oyan said: “The AKP government’s policies that prioritized economic growth could have been achieved without causing such price and exchange rate distortions. Now that train has run away,” he said. We spoke with Oğuz Oyan, who is also a former CHP MP, about the latest developments in the economy.

– Turkey’s risk CDS exceeded 900 points. Can foreign investors now have confidence in Turkey?

The increasing fragility of the Turkish economy undoubtedly undermines the confidence of foreign investors. The most important problem is that Turkey’s external debt and current account deficit have increased tremendously. It is difficult to sustain interest on loans of 12% in dollars as libor plus risk premium/default, when one takes into account that the total debt due in a year and the current account deficit will reach 230 billion dollars.

At these costs, a loan itself is of a country/company default nature. If a default occurs, despite high CDSs (that is, even if they have already paid Turkey for the risks), foreign powers will be trumpeting their receivables (as seen in the Demirbank bankruptcy) and holding the country’s administration accountable and having the capacity to collect their debts. receivables as if there were no risks.


– Where will high inflation and cost of living in Turkey end?

President Erdoğan can say that “the cost of living is a bigger problem” to trivialize inflation, but he cannot predict where it will lead: then you will increase your income above inflation! While the State directly determines the salaries, pensions and minimum wage of civil servants/employees, it indirectly affects all salary/income levels. In addition, it can interfere with fiscal policies, support for agriculture and distribution relationships.


– The economy is going through a very difficult period, new measures are announced every day, to what extent do they affect the solution of problems?

Minister Nabati succinctly admitted that the palace and economic administration did not consider the fight against inflation a priority. It is true that the AKP government’s policies prioritizing economic growth could have been achieved without causing such price and exchange rate distortions. Now this train has run away. When the tools of monetary policy were used in the opposite direction, the management of the economy was forced to produce ineffective and costly solutions by secondary routes in the shallow area that remained. However, in an open economy, it will be open to all kinds of shocks when saying “amen to the impossible prayer”, such as determining the exchange rate and interest rates together. If you didn’t learn this from the 1994 crisis, you will have the wisdom to learn from the three currency crises you created and personally experienced after 2018.


– What are the most painful problems in the Turkish economy at the moment, what are the steps to be taken towards a solution?

Structural problems of the Turkish economy, deindustrialization and technological backwardness in the AKP period; growing external dependence on industry, agriculture and energy; low saving capacity; It is mediocrity that limits the adaptability of the workforce to advanced technology.

At this point, there are three “in the system” options: 1) a tough IMF program for 2000-2008; 2) 2008-2015 IMF-style discipline without IMF; 3) Transition to capital control regime (which may include external debt consolidation). The latter is not even a leftist program, but it is an option without the IMF. Turkey has no real choice but to rethink its distribution and production, first and foremost publicity and economic independence.


– We saw that the measures taken to lower the exchange rate did not work, what kind of risk will there be on the exchange rate side?

We have seen that the policy of keeping the exchange rate at certain intermediate levels instead of lowering it has high costs in the rapid dissolution of CBRT reserves. In an open economy, no amount of reserve can be sufficient to stop exchange rate shocks and replace the interest rate instrument.

The burden of the KKM, which was introduced to maintain exchange rates, in the budget is already 37.2 billion TL and this expenditure was made without any legal basis. The allocation of TL 40 billion in the supplementary budget is definitely insufficient; Furthermore, if the income tax and corporate tax exemptions for exchange rate differences and the KKM costs assumed by the CBRT are added together, the total annual cost would exceed TL 200 billion.

In addition to maintaining exchange rates, partial exchange controls applied to increase the supply of foreign exchange (obligation to partially convert export and tourism earnings into LT; excess foreign exchange for companies prevents their access to TL loans…) difficult solving the problems. It would not be surprising, however, that Turkey is required to complete capital controls.

The tendency of the economy’s foreign trade relations to produce larger-than-expected deficits (external trade deficit of US$51.4 billion in the first six months; current account deficit of US$28.1 billion in the first five months) also obscures this framework and fuels rising exchange rate risks. While the economy’s ability to generate foreign exchange income is eroding, the spending front, especially imports, is growing. As a result, it seems inevitable that growth and imports will slow down in the second half of the year.


– The growth rate in the first quarter is difficult to sustain due to resource issues. The effects of the global recession will also limit growth. It is unthinkable for the government to raise interest rates on the way to elections – except for a currency shock.

The problem is more dimensional: while historical impoverishment is experienced for reasons such as inflation, real wage collapse, unemployment, domestic terms of trade to the detriment of the farmer, a deep and rapid distribution shock is created through sweeping cash transfers/ wealth for the capital.

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