Short quick passes in tight spaces or Pyrrhic victory?

The fact that exchange rates have first started to climb sharply and then fallen back to its previous level on Wednesday, March 20, raised a lot of eyebrows. First, let’s check the feasibility of the recent efforts made to prevent exchange rate rise:

But, first we need to ask ourselves this question: “Why did sudden exchange rate rises lead to panic in Ankara?” I feel like I need to make some basic necessary explanations as this report is addressed to foreigners as well as Turkish people.

Exchange rates rises in Turkey result in numerous changes to parameters, including an increase in inflation rate and cost of living, which inevitably gives the impression that the economy administration is failing to do its job. As a matter of fact, both arguments are true. Usually, issues like “Foreign dependency, lack of saving, value added, inefficiency, unproductivity” are taken lightly when things go well in Turkey, when things start turning sour, however, problems are not handled properly under the pretext of having other priorities. Even though caused by international incidents, the real reason underlying exchange rate rises is structural problems in economy.

Accordingly, the Government finds itself compelled to resort to quick solutions such as reducing TRY liquidity when exchange rates start to rise or starting investigations on people who buy foreign currency or delivering threats to people who are commenting on these problems.

“Swap: What does it even mean?”

As opposed to my colleagues who tried to explain CBRT decision on swap transactions in a quite technical manner, I will provide you with a simpler and clearer explanation: Central Bank is acting like a doctor who squeezes their patient’s throat, leaving the patient unable to breathe because he fails to lower the patient’s fever . CBRT says, “Look! Patient’s fever drops!” but the truth is, the temperature is going down since patient’s vital functions are weakened. But why is CBRT doing that?

The reasons I mentioned above lie behind such strange behaviour. That is to say, the administration uses a very high-cost and unsustainable method for the administrators would not allow the “the government can’t manage the economy” comments keep increasing just before the elections. This actually is a way to punish those who have open TRY positions. Those who had to short sell TRY during Friday’s panic did close their positions by selling dollar as a result of CBRT decisions because closing positions with a TRY interest rate higher than %300 could have caused a bigger disaster.

Is this a Pyrrhic victory? Was this victory not worth winning because we have lost so much in winning it? I can’t know for sure. The only thing I know is that this can’t going on for too long. If the government doesn’t take preventive measures about Turkey’s fragilities soon, exchange rates will just keep increasing.

A hasty implementation of economic reforms without putting the structural reforms in place would bring nothing but failure. I wonder which of the following would bring more foreign capital: “Tax reforms” or “Judicial reforms” I’ll let you meditate on this.

In short, only the countries, where individuals are treated fairly and equally before justice, laws and institutions, can achieve progress and prosperity. Let’s remember that. Achieving GDP growth is easy. Anyone can do that. But unfounded growth comes with a big price.

You might as well say, “China and Saudi Arabia didn’t enforce structural reforms” The answer is simple. We are neighbours with Europe, not with Mongolia or Yemen. If you’re so interested in living in those places, no one is forcing you to stay.

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