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Turkey’s end-of-year economic goals

Şevket ÖzügerginŞevket Özügergin

We are hearing news from economic management and politicians that they will give importance to the economy after the summer. We do not know what the new measures will be, but we can understand the government’s economic aims by the end of the year. Inflation will be reduced to single digits, the growth rate will be in the range of 5-5.5 percent, unemployment will be in single digits, exports will continue to increase, exchange rates will be reduced to a minimum, tourism revenues will be increased and interest rates will be increased later on. Undoubtedly, people from various sectors hope to see these promises become actual facts. But the important thing is to reach the actual goals.

Now, lets briefly go over these goals.

The annual inflation rate of 0.15 percent in July dropped to 9.79 percent from 10.90 percent. The year-end target is 8.7 percent. It is expected to drop to 6.4 percent by the end of 2018. The availability of appropriate conditional outsourcing from global capital markets has prevented exchange rate increases, limiting the exchange rate against inflation, which means that imports become expensive. The fact that the Central Bank did not cut interest rates in this period, applied the late liquidity window interest rate as policy interest rate and continued tight monetary policy helped to lower the inflation rate.

It is not known how long the appropriate conditions for capital markets will continue and how long the Central Bank’s strict monetary policy will last. Persistent low inflation will depend on the suitability of the external conjuncture as well as the increase in the value added product production and competitive power. Another determining factor is the Treasury’s domestic borrowing requirement, which is the level of the budget deficit. It is known that the budget deficit has risen steadily and the Treasury has increased the borrowing amount.

Growth rate was 5.1 percent in the first quarter of this year. Economy management expects growth of over 5 percent in the second quarter and over 7 percent in the third quarter and it will reach an average growth rate of 5-5.5 percent at the end of the year. However, there are expenditures of households and the public on the basis of their growth. So growth is not from production. The incentives given before the referendum last year and the Treasury guarantee, especially given to loans from credit guarantee funds, made the biggest contribution to growth. However, the effects of such incentives are temporary, and some problems may arise during their return and the Treasury may need additional resources. It is not easy to keep growing in accordance with the demand. The incentive system should be removed from the generality and transferred to a project-based system that was previously debated but not put into practice. The projects to be supported should be projects with high technology and production and must be export focused.

Economic growth is financed by large amounts of hot money. The hot money stake, which was 80.7 billion$ at the end of 2016, rose to 111 billion $ in July this year, which is an increase of 30 billion $. Hot money may continue to flow as long as the interest rate of the money the Central Bank has funded is kept high, as it is nowadays. However, it is not clear how long this policy will last. Moreover, it is estimated that the FED will be able to cut the liquidity from October and go for an interest rate increase. This can make it difficult to find outsourcing. Hot money is already a temporary and speculative resource. Healthy outsourcing is foreign direct investment. To this end, as we have always stated, it is necessary to make a number of inland reforms, including foreign exchange, normalization, law and education, in short, a safe, stable and profitable investment environment.

Exportation is one of the fundamental problems of our economy. From time to time public opinion is misguided. As a matter of fact, the export of 11,474 billion dollars in July was presented as a record. The increase compared to a year ago is the base increase which is caused by the natural deceleration in exports after the coup attempt. Otherwise, the exports in the other months of this year are above the July exports. The recent value of the euro over the dollar is also likely to be effective in this increase.

Exports will increase or decrease depending on the market conditions, foreign policy, regional security situation unless the exported goods are changed and the incentive system is reduced on a selective basis (products with advanced technology among the total exports is 4%).

It is pleasing that our decreasing tourism revenues, due to security problems and tensions that we have experienced in some countries in the past, began to rise again. However, it is seen that the tourist profile has changed and the newcomers spend less money in comparison to the past. Shortly, it is said that the number of affluent Western tourists are decreasing. The main reason is the unfavorable perception about our country, which unfortunately is widespread nowadays. This perception must be altered. Otherwise, developments in other sectors besides tourism will be limited as well. Normalization policy in our country, and an effective and compromising policy outside of our borders will be beneficial.

We expect and hope that the precautions that will be taken after the summer will be effective in turning the objectives into a reality.

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