Rating Upgrade and Beyond…

 
Credit rating agencies had advised Turkey to do the following prior to the latest rating increases:
 
- Replenish foreign exchange reserves
- Maintain budget discipline
- Have a realistic monetary policy
- Continue to fight inflation
 
Turkey had improved some of these issues while, for the rest, it was working to improve them in good faith. That’s why a rating upgrade was not unexpected.  
The markets were already anticipating it.
 
The problem is that, as I have said many times before, Turkey’s economic policy does not match the goal. However, it is orthodox compared to previous policies, therefore, it is considered suitable, for now. Today, the soft spot of the country’s economic policy is Turkish Statistical Institute and the fact that Turkish lira is not permitted yet to float freely, which causes the public’s trust in   inflation and other macroeconomic data to decrease while slowly bringing the pressured USD to TRY exchange rate to the edge of eruption again.  
 
Although the primary deficit increases at a slower pace than last year, it is an undeniable fact that government spending exceeds inflation, indicating a higher increase in government revenue compared to the previous year. Otherwise, the primary deficit would not be slowing down. The objective of budget discipline should be to ensure that government spending does not surpass the inflation rate. However, the Government’s new saving policy, which has recently passed by the Parliament, seems unlikely to meet expectations.
I sincerely wonder how a policy designed to help investors make big profits by putting pressure on exchange rates will facilitate a permanent inflow of funds.
 
Perhaps they are thinking that people will eventually buy this nonsense and be on board with it. But the reality is that foreign direct investments will not increase unless the structural problems affecting our economy, our justice system, investment environment, and domestic and foreign policies are ameliorated.
 
My concern is that the Central Bank team may be replaced again when the government realises that this policy is bound to make everything worse. Next, we could see a return to unorthodox methods. I’m afraid things may get out of hand, just like it happened with the Turkish Football Federation elections. I just hope we won’t resort to another controversial so-called solution while trying to correct a mistake.

Prof. Alkin