Avoid taking actions that are inconsistent with people’s economic logic

Güngör Uras, who has passed away recently, mentioned my father in his May column. In his 1985 paper, Mr. Erdoğan Alkin summed up certain approaches that might bring great harm to the economy:

  1. Trying to decrease interest rates with top-down decisions.
  2. Try to stop exchange rate adjustments.
  3. Reversing the softening in the Law Regarding the Protection of the Value of Turkish Currency.
  4. Imposing harsh bans on imports again.
  5. Trying to reduce inflation by prioritizing the production.
  6. Trying to reduce inflation in a heartbeat.
  7. Trying to improve income inequality in a short period of time.
  8. Unemployment will not be reduced anytime soon.
  9. To think that Foreign trade deficit can brought down anytime soon.
  10. Trying not not borrow borrow loans.
  11. To conflict with the IMF.
  12. Taking actions that does not sound economically logical to the people.

I clearly remember that Professor Erdoğan Alkin used to say things with his tongue in his cheek, especially when I misbehaved. “Look Emre, you are a smart boy”, he would say to make me understand that I was acting foolishly. Although he would never yell at me, he would always use an assertive and decisive tone of voice.
As far as I understand, he meant to say, “Look, you are intelligent people. So, why don’t you act like it?” to the then politicians… and never abstained from delivering the necessary warning as he thought that Turkey would face the abovementioned risks in the future.

“Be wise and act wisely”, he used to say…

As of yesterday, third item in the list has become a reality. The Exchange Rate Regime would almost go back to the pre-liberalization era.

We have faced troubles before concerning the first and second items in the list, which means we made terrible decisions when we were dealing with exchange rates and interest rates.

Professor Erdoğan Alkin was right about the Item 8. We are failing to reduce unemployment. I must sadly say that no one has listened to his warning in the item 5. Turkey wanted to reduce inflation by further focusing on production. It just did not pan out. Our failure has also confirmed the truth of the item 6.

We are fooling ourselves thinking that no one is noticing the downward spiral but since 2014, the Government has been implementing greater bans and restrictions on imports as indicated in the 4th item on the list. In the meantime, the 9th item was confirmed since, in spite of import barriers, Turkey’s foreign trade deficit has widened, let alone narrowing down. This horrible outcome was mainly caused by the wrong decision-making of the then-Ministry of Economy.

But we did really well when it comes to the item 10. We became a champion of borrowing, let alone repaying our loans. Private Sector broke borrowing records.

The only item on the list I disagree with is number 11 as I believe that institutions like the IMF have lost their innocence and credibility starting from the end of the 1990s. Let us not forget that it was the IMF itself who offered the formula that triggered the 2001 financial crisis in Turkey. The exchange rate regime imposed by the IMF placed the country right in the middle of a financial crisis and since that day everything has changed in Turkey.

The item 12, on the other hand, should be avoided at all costs. But unfortunately, our worst fears may become true. The amendment made to the Law Regarding the Protection of the Value of Turkish Currency yesterday caused raised eyebrows. People are now suspicious whether the Government will continue to take such drastic actions.

The amendment to the Decree No. 32 must be withdrawn urgently. If not, deteriorating market conditions will become incurable.

Professor Erdoğan Alkin and Professor Güngör Uras… God rest their souls…