Inflation Fight Cannot Be Half-Portion…

Last week, the Economic Management made a statement saying, "In July, the foreign investor inflow was quite high." However, information flowing from news agencies throughout the day revealed why this statement was made. The data for July may have been good, but now we are in mid-September, and developments are not very positive. If you’d like, I can share some of these in succession:

According to the Central Bank of Turkey (CBRT) data, non-resident individuals had a net selling of $50.6 million in equities, adjusted for market price and exchange rate movements, in the week of September 6. Thus, the total amount of shares sold by foreigners has reached $2.8 billion in the last five months.

According to Banking Regulation and Supervision Agency (BRSA) data, there was a decline of 19.7 billion TL in currency-protected deposits in the week of September 6. This marked the slowest decline in the last 10 weeks.

Again, according to CBRT data, non-residents' foreign currency deposits increased by $847 million in the week of September 6, adjusted for parity effects. While foreign currency deposits decreased by $251 million for individuals, an increase of $1.1 billion was recorded for corporate entities.

Lastly, net reserves excluding swaps, which fell below $20 billion in the week of August 29, declined from $18.5 billion to $17.4 billion in the week of September 6.

All this shows that investors have begun to secure themselves in light of the fact that the Central Bank of Turkey (CBRT) will eventually join the interest rate cuts initiated by the Fed, due to the sharp slowdown in growth and the ineffectiveness of the prescription intended to deliver desired outcomes. For this reason, we heard last Friday that some funds were in touch with officials in Ankara asking, “Is there a danger regarding your term?” I don’t know how satisfying their responses were. We will try to understand by looking at the market.

It is evident that foreign funds are asking this question not to introduce new money but because they are concerned about the fate of the existing capital. Now let’s return to the main issue.

Turkey is not seeing the desired benefits from the policy of high interest rates and low exchange rates; however, both local and foreign parties are making significant profits. Nonetheless, we seem to be approaching the end of this situation. I believe the economic management will abandon stubbornness and, under political pressure to maintain their positions, will be willing to continue fighting inflation on a calmer and longer path. Otherwise, names will change again. This is not a situation that anyone currently desires.

My objection has always been this: Continuing to fight inflation without discipline in the public sector by merely reducing private consumption and investments is wrong. If the critical decision-makers cannot be persuaded to do the right job, the duties are not being fulfilled correctly. The fight against inflation cannot be done like half portion. The fault lies with those who do not ensure the job is done, but the person who insists on remaining in the chair is complicit in the fault.

For this reason, I cannot agree with some of my colleagues’ comments that "they have no other choice; you are criticizing for nothing." If they realize they cannot fulfill their duties and produce too many side effects, instead of being stubborn, they could say, “They didn’t let us work,” quietly walk away, and return to their old lives. I can say this comfortably because I have done so three times myself. I realized that my efforts were one-sided, the work I did was being framed as "not done," and I understood that the conflict was futile, so I returned to my rightful place. This is why the personnel in those institutions still embrace me with affection today. They understood I left to protect the institution rather than exhaust the personnel because I couldn't convince the decision-maker. The reputation of the institutions I worked for has always been more important than my personal reputation. This is why I criticize some of my colleagues in decision-making positions.

Many of my current colleagues, who hold very important positions, also came here for similar reasons, leaving their positions and associated advantages behind. We approach this with a high ethical understanding. Of course, we make mistakes, but we remind ourselves of these mistakes every day to avoid repeating them. Therefore, when others point out these mistakes to us, it does not break our hearts.

In short: In 2025, everyone seems to be okay with an inflation rate between 25% and 30%, along with growth between 3% and 3.5%. As long as the economy doesn’t cool down further. It would be beneficial to correct any wrongs.

Prof. Alkin