At the crossroads…

As Fed’s latest minutes indicate that a rate hike might be expected in December, we witnessed the parity go up, causing USD/TRY to fall down in Turkish markets yet it stills remains strong above a level of 3.90.

In statements I have given to news agencies yesterday, I underlined that the reason for the recent rise in exchange rates is mainly our investor-repellent growth model rather than conjunctural reasons. And I added that a growth, incapable of generating employment and value-added activities may lead to unwanted results when combined with high inflation, and high exchange & interest rates.

“So it means that we have certain fragilities which seem fit to be used in plotting”. This was my answer to pressing questions about rumours that foreign powers are plotting against Turkey’s economic fragilities. To me, the main reason of this fragility is to be unable to create high value-added products and services through using or producing high technology. Government keeps providing support to sectors with low values per kilogram, which translates as they are throwing away money. Yet, unemployment rates remain high. So, we have to admit that despite Government’s best efforts, Turkey cannot achieve the desired outcome, neither politically nor socially or economically.

As a matter of fact, thanks to the lifesaver called “Credit Guarantee Fund” thrown to markets months ago, Government had then prevented fragilities resurfacing again. I think, from now on, Banks and Financial Institutions will grow more and more unwilling to provide loans and new troubles concerning checks payments may appear as Turkish Central Bank intervenes to squeeze lira.

In Turkey, a country where small capitals with high turnover rates play a dominant part in domestic economy, everything hangs by a thread; just like the principle of “He who cannot collect accounts receivable, cannot pay his debts either”.

Here is my suggestion: in order for incentive packages like the CGF can achieve its purpose, economic impact analyses should be carried out, expectations and realizations should be properly analysed prior and posterior to the launch of such incentive packages, which would surely make the next practices more successful. However, for now, it does not seem very likely for Government to inject huge amount of liquidity into the market.