Budgetary discipline or GDP growth…?

I told you that today I would deliver my comments on the “MOMENTUM” package which was released by Minister Albayrak last Friday. Here are the positive and negative opinions about the package:

But before all of that, I’d like to share my own opinion with you: The 30-billion worth package involves different export- and interest rate-oriented options. I chose to go with it I’ve always been a keen supporter of export-oriented approaches. However, each and every package released so far suggests a “To make things rights, we should grow the economy first” kind of model.

I put strong emphasis on two different approaches when I was commenting on this model on television:

1) First, let’s build a better budget, and then we can achieve a better growth.
2) First, let’s grow our economy. The budget will improve on its own.

Both approaches have their pros & cons. For instance, say that we started with budget first, this would definitely result in a higher rate of unemployment as a side effect while some of the services will stop due to shrinkage in public expenditure. This process might event lead to a government change on the grounds of “We fixed the budget but displeased the public”. But, it would be a real nice touch for the future generations.

I clearly remember that while I was serving for a professional organization, which is also a public entity, we succeeded in saving a considerable amount of money, creating strong funds despite harsh criticism. The organization I’m talking about used to spend money in the most outrageous ways, sell its assets free of charge, until that day. The fact that the administration was acting so courageously saving-wise was because they had a strong belief that no one would bother them before the end of their office. With strong willpower, we were able to create funds, equal to almost one-quarter of the budget.

While the administration was slowly becoming tired of this savings policy, I kept going relentlessly. The conflict about budgetary discipline and budgetary practices grew bigger. They were probably under huge stress because of the then upcoming elections, which resulted in backslide on budgetary discipline. So, this ever-growing disagreement between me and the administration eventually made me decide to submit my resignation. To cut a long story short, the administration does what should be done in the best possible way when there’s no election pressure. But whenever they become stressed about elections, they become no longer concerned about the budgetary discipline. Considering the never-ending election process in Turkey, I think we must admit that that is not a big surprise!

“Which model is better?”

Although according to the other “First, let’s grow our economy. The budget will improve on its own” model seem like the least risky option, politics-wise; only a few governments were able to achieve it in the world history. Admittedly, AK Party had taken over a pretty bad budget and a domestic debt/GDP ratio around 70% when it first came to power in 2002. We should also remember the increase in fund flows to Turkey along with the necessity of representing a new narrative to the world, the EU anchor, and revision in financial system, democratization, civil peace etc.

So, if the government supports the first model, the narrative that we offer to the world must be improved as soon as possible. A series of measures like achieving a high standard of living as required by the EU, transparency in financial system, eliminating suspicions about the elections, a wiser foreign policy etc. would help increase fund flows, which may lead to a higher rate of success for the “To make things rights, we should grow the economy first” model.

As I’m perfectly sure that no one will vote for the “First budget, then growth” model, I wanted to let you know the sine qua non of the first model before it’s too late.