Whenever I say that things are not going well or whenever I warn about an economic decision, people immediately want me to offer solutions instead of criticising. For years, I have been making suggestions about how to solve Turkey’s economic problems to individuals, institutions and decision makers on YouTube, Instagram, Twitter, and LinkedIn. I also write columns about it.
Those who look at my instant suggestions about instant developments say to me, “You see what’s happened now?” months later I offered that suggestion. Whenever I hear that reaction, I cannot help but smile. People, who do not read my writings in detail or regularly, see my old articles and think that I have written them recently. new ones in line with the suggestions. There are also those who send direct or private messages on social media and ask questions that require pages full of comments. This morning’s article will hopefully address most of the questions on everyone’s minds…
- We won’t get out of this turbulence without a proper monetary policy: Both interest rates and exchange rates cannot be controlled at the same time. If the government attempts to do that, it will have to control capital movements as well. Currently, it seems that it is not politically possible to change the interest rates. Therefore, in order for FX rates to calm down, TRY must be turned into a “desired” currency. But FX rates will not calm down unless the Central Bank stops funding banks through Open Market Operations (OMO). It is necessary to give a message to the private banking sector by increasing the Weighted Average Cost of Funds (WACF). “TRY must become a sought-after currency so that foreign currency will cease to be popular among investors.” In short, since it is not possible to control capital and hike interest rates, it is necessary to cut Turkish lira supply in order to help market interest rates rise and the foreign exchange rates to calm down.
- Foreign currency-indexed or foreign currency payments must end: Foreign currency payments made especially to Public-Private Partnerships (PPP) must be stopped. Becoming indebted in foreign currency was a risk that contractors have taken deliberately. The fact that they are hedging that risk through government funds must be ended now. Because we all pay the price for it. The Central Bank’s reserves, almost all of it, are created through swap arrangements. Considering this fact, I could easily say that these payments made to contractors are highly likely to cause a rise in exchange rates, very soon.
- Inflation-indexed bonds: Tansu Çiller tried this in 1994 and Kemal Derviş in 2001. Tansu Çiller said that the government would pay the interest in cash, but the costs have been quite high for Çiller because she had not initiated structural reforms. But Kemal Derviş did not said no to structural reforms, so the result was highly successful. After inflation and interest rates, the exchange rates too have calmed down. So today, inflation-indexed bonds can alleviate the burden caused by FX rate-protected Turkish lira deposits. Inflation-indexed securities owned by banks can be exchanged for new ones, but while doing all these, the government will also need to introduce new practices, that is, “reforms”. Since it is not possible to start a clean slate with the EU or the US as NATO tensions increase, it is necessary to come up with a reform package that will address the economy or domestic politics. Otherwise, the supply of new inflation-indexed bonds will not yield the anticipated economic result. Everyone wants to be protected against exchange rates, not against inflation. Given the fact that the declared inflation rates are not very reliable, when introducing these new securities, the government will also need to do something revolutionary, something that will recover people’s trust. Otherwise, we will pay the same price that we did in 1994…
- Yield from FX rate-protected deposits: The fact that the interest paid for FX rate-protected Turkish lira deposits is kept at 17% unnecessarily increases the exchange rate difference. If this rate is reduced to around 20%, this burden will be shared more fairly between the Treasury and the banks. Also, the maturity period should be cut down to one 1 month so that the inflation can be brought under control gradually. What the government must do is to multiply the options so that individuals and organisations do not remove money from the system. Otherwise, depositors will buy foreign currency again with some of this money at the end of maturity.
- Accelerate public offerings: Despite everything, domestic investors’ appetite for stocks continues. So, Capital Markets Board of Turkey (SPK) must use this interest and accelerate public offerings. There are too many IPOs waiting in line. BIST is the only instrument that can prevent the foreign currency demand of medium and large individual investors. SPK must be encouraged and urged to take action to help meet the funding needs of companies and increase investors’ interest in TRY-denominated assets.
- Prevent foreign currency-indexed pricing: In real sector and commercial life, it has become a habit to sell goods and services for prices quite higher than inflation and foreign exchange rates. In the past, buyers were stronger, now sellers have the upper hand. In today’s Turkey, sellers expect immediate payment, not to mention that they price their products and services by taking future risks into account, which makes it more and more difficult to reduce inflation. We need a mechanism that regularly monitors the invoices issued for goods and services in terms of quantity-price compatibility. It is not possible to monitor all the invoices in the market, but they can be kept track of through documents submitted to the banking and financial system. This constant price increase trend is not caused mainly by high costs. If the Central Bank supplies less money to the market and the Government conduct regular audits to identify exorbitant prices on invoices, Turkey can break the stubbornness of inflation.
Unfortunately, people’s tendency to stockpiling is increasingly growing. Food and grocery retailers are trying to take measures to stop this, but so far, they have not been quite successful. Recently, I was a at supermarket, buying 4 boxes of a product, the cashier lady said, “Let me ask my manager for a minute if you could buy four of these”. Apparently, there was a government restriction on that product because some people were buying it from different supermarkets in Istanbul and sell it for an exorbitant price. Something must be done to prevent opportunism. Perhaps, a credit card alarm system that will alert the cashier (or the website or the mobile application if you’re buying online) whenever someone is trying to buy more than the allowed limit. These are only some of my suggestions.