From the moment when exchange rates started to rise suddenly yesterday, I had to deal with endless questions all night long, almost up until midnight. As I have witnessed similar events before, I gladly shared the following facts with people who bombarded me with questions:
- First of all, Turkish nation has always been and will always be open to any changing situation
- Dollar-denominated losses will be compensated with high interest rate after a while
- The prices and costs regarding the income-expenditure relationship between the households and businesses will maintain balance in time
- Consumption will sharply increase again if exchange rates start to show a stable trend for almost 2 years
- Car sales will improve but any improvement in real estate sales may take longer than expected
“How do you know all this?” you might ask. Obviously, I’m speaking from experience. 1994 and 2001 devaluations left Turkish people deal with dollar-based poverty, but a significant number of people have become wealthy over the course of years due to exchange rate stability. The fact that everyday citizen started to buy more and more properties through their own savings as well as personal borrowing did not go unnoticed either. Please don’t get offended. You know what they say: You have to be cruel to be kind.
“Supply of funds is essential…”
Here’s another fact: demand grows as the price of certain goods and services keeps rising. This phenomenon is called “regressive demand curve”. In other words, sharp increase in prices can lead consumers to a mind-set of “I should buy this right away!” To put it simply, when people get concerned over the possibility that prices may rise in the future affects demand. That is the same reason why additional tariffs on imports contribute to a rise in inflation. I explained this phenomenon countless times to the Ministry of Economy. My efforts, however, were sadly left ignored. Some even said, “Inflation will not go any higher just because we helped exports improve”. But the truth is that cost of living and inflation grew larger when everyday citizen was left to deal with heavy tax burden, which was implemented in the first place to protect certain companies in domestic market. Current account deficit data released yesterday shows that Turkey’s current foreign trade policy has utterly failed.
Nevertheless, my guess is that Turkey’s current mega projects will continue to accelerate Turkish economy if the problems I mentioned above do not get any worse. Although I was completely against such reckless use of funds, I cannot deny that this misuse has also led to a multiplier effect. But, we should take effective steps to attract funds. If not, one day we may even miss the “manageable” circumstances I mentioned above.