Reckless and Unaccountable Spending Must Come to An End
As the CBRT makes efforts to keep exchange rates below inflation continue, it has also lost another $10 billion from the FX reserves. There are concerns as to whether this policy will remain unchanged even after the elections.
To get rid of the inflation, it is not sufficient to just try to bring exchange rates under control or and raise the policy rate. In addition, the government must reduce its spending to negative territory in real terms, outstanding payments to the contractors of mega projects must be halted for a while, and taxes imposed on essential goods and services must be lowered, not to mention an effective surveillance of the market. Limitations should be placed on unfair customs charges and practices that financially damage the producers in the retail market.
It is easy to make giant constructions and erect huge buildings. The money that the government spends to maintain these structures are a huge waste. The government is not expected to make profit, it at least should be able to create efficiency and effectiveness. Municipalities, ministries, agencies, autonomous institutions… They all keep expanding in a way that requires the hiring of more and more staff, which results in an enormous consumption. Let alone the inflationary effect of this lack of responsibility, increasing taxes to finance this insane spending and forcing banks to buy bonds lead to further deterioration in pricing behaviour. And then the government claims that inflation is caused by external shocks, whereas in fact it is the government itself that triggers higher inflation.
The personnel management in government is extremely costly. Billions of dollars are spent on the maintenance of government buildings and vehicles, not to mention the fringe benefits and subsistence allowances. There is also the “KKM” burden invented to keep exchange rates from climbing further and the fact that the CBRT is selling foreign currency from reserves. Each of these costs and expenditures is a blatant proof as to why inflation remains high. Unashamedly, TurkStat constantly changes its calculation techniques in order to cover up this situation. The public no longer trusts in government data as it does not provide an accurate picture of the Turkish economy. The wages that have been increased recently above the CPI projected in the MTP once again showed that the government is not willing to deal with the causes of the inflation.
The private sector companies are no different either. They always try to make others pay the price for their own mistakes and that is why they constantly ask for trade or tax privileges. They are trying to ease the ‘boomerang effect’ they are experiencing today because they did not demand proper regulations that would benefit everyone when they had the opportunity. Many companies, which grew very quickly, are just beginning to understand how much competence it takes to employ thousands of workers in large facility buildings. Since many of them lack capital, they feel obliged to provide unconditional support to anyone or anything that can help reduce their borrowing costs from abroad.
As a matter of fact, there is little difference in terms of method between the current Central Bank management and the former one. Foreign currency is being sold from reserves again, and it is no other than the honest, hard working people of this country pay the price for this ineptitude. Just because sometimes the Central Bank publishes a little more realistic or hopeful projections, just because they pay lower cost of borrowing from abroad, market actors continue to support this failing economic policy.
Businesses should take positions according to the rising inflation and exchange rate trends. This way they can pass through the post-election period with the least damage possible.
