A Suggestion for Getting Out of the Economic Crisis

Turkey, in the last 15-20 years; It has taken many important steps in infrastructure investments, health, education, tourism and humanitarian aid and has achieved significant successes in terms of development and economic growth. As a result of these positive developments, the human development level of the Turkish people has increased, and the poverty rate has decreased from 44% to 18%. Turkish society has transformed into an upper-middle-income nation.

The Turkish people bought the great expectations for Turkey to reach the position it deserves in the world political scene in line with its 2023 and 2071 targets and to continue its planned moves towards development and economic growth with a strategic determination in order to become a regional power and a great economy.

The longing for a growing and developing Turkey was shared by all members of the society. It has become the common opinion of everyone that the developing and growing Turkish economy functions as the main locomotive in the realization of this aspiration.

The combined effect of national and global factors, including July 15, has led to a low performance, especially in Gross Domestic Product (GDP), which has contracted since 2016. The positive upward trend in the Turkish economy slowed down. The growth model based on investments financed predominantly by foreign capital tended to collapse in 2018 and Turkey faced an economic crisis.

With the transition of Turkey to the presidential system following the 2018 elections, the rapid and centralized decision-making process was activated. The Central Bank prevented high inflation in the country by gradually increasing the interest rates from 13.5% to 24%.

Meanwhile, under the leadership of the FED, monetary easing was made to keep the economies alive and this situation relieved the Turkish government. Access to global capital has become relatively easy again. The economy administration, which was following a weak Turkish lira policy to encourage exports, had the opportunity to reduce the interest rates to their previous levels, and a slow recovery was recorded in the Turkish economy, similar to the global economy. As before, the government reduced taxes to encourage rapid growth, introduced subsidies for businesses and loan guarantees for the private sector. The Central Bank stabilized the exchange rate and began to recover reserves.

On the other hand, with the global damage caused by the pandemic that came to the agenda in 2020, there were breaks in the supply chain. Before the global economy could fully recover, relations between Russia and the Western World began to strain in Ukraine. This security and energy supply crisis, which emerged before the problems caused by the epidemic were completely eliminated, brought the end of the liquidity and low interest policy that developed economies put on the market. With the rise in the prices of various critical goods, especially oil, inflationary effects emerged around the world. Dollars in circulation began to return to the United States. The Turkish economy administration, which was greatly affected by this, had difficulty in finding 'hot money' that it could use to subsidize the economy. He had to give up his low tax and low exchange rate policy. Thus, in mid-December 2021, there was a depreciation of more than 100% in the Turkish currency. Inflation skyrocketed. With the exchange-protected deposit application, the increase in foreign currency was temporarily controlled. Subsequently, the consequences of the Russian attack on Ukraine on February 24, 2022 deepened the economic crisis both in Turkey and in the world.

Thus, Turkey has come to the end of the economic order it has been maintaining with its low exchange rate/interest policy. In an environment of low interest rates, high exchange rates and high inflation, a high growth policy seems unlikely. Moreover, the fact that the course reminiscent of the chronic economic crises of the old Turkey has come to a close, has shaken the trust of the Turkish people, who set sail for great horizons, in the economy management.

It seems inevitable that great destruction will occur in the entire economic system. Turkish and foreign investors became timid. It has become difficult to take risks and invest. Turkish people tended to cut their expenditures, and the high cost of living resulted in financial difficulties. The Turkish economy lost momentum and started to shrink. External borrowing costs have increased significantly. In this environment, inflation tended to become chronic. Despite the increase in exports, it was not possible to get rid of the high foreign trade deficit. Inflation, cost of living, contraction in production and increasing external debt burden etc. factors led to the expectation of the public that the economy administration would put into effect an urgent program.

In the current situation, it does not seem possible to get results with only monetary policies. It has become obvious that inflation, which tends to become chronic, cannot be managed and economic growth cannot be achieved without structural reforms.

For this, first of all;

• Reinforcing the public's confidence in the management of the economy (forming an economy cabinet including the country's leading economists),

• Preparing the stabilization program of the economy cabinet and discussing the new plan in front of the public, finally reaching a national consensus on the economy management,

• Indexing the Turkish currency to the US dollar,

• Transition to a balanced budget structure for the fight against inflation and stability,

• General price adjustment (price tags, wages, salaries, taxes, contracts and financial assets) and financial and banking deregulation,

• I think that it should be aimed to switch to an export-oriented development model (incentivizing production, increasing competitiveness, attracting foreign capital, etc.) and achieving macro stability.

Economic problems affect all of us, we need to develop a joint solution together.