While Traveling Across Turkey…

Dear friends, the journey I started from Istanbul for the signing events of my book Re-Introduction to Economics continues with Kocaeli, Balıkesir, Bursa, İzmir, Adana, Gaziantep. The next stop will be Istanbul İstinye Park D&R this weekend and Alanya D&R on 11th of May.

When I talk to my readers who come to the book signing events, I see that the high costs of living are a major problem for them. The unstoppable rise in house prices and the fact that opportunists are exploiting the current economic situation in Turkey to hike their prices for profit are among the most frequently complained issues. In my previous book “Exit from Economics”, also published by Destek Publishing, I offered a criticism of the current system and the critical decision makers. “Re-Introduction to Economics”, on the other hand, is a book in which I address directly to citizens of all ages and from all backgrounds.

It would be unfair to say that Turkey’s economy administrators never listen to my suggestions. Occasionally they ask my opinions about certain practices. I already express my positive or negative criticisms in such a way that they do not stop taking account of my opinions. Since I know the mood of those who hold critical positions in the administration, I do not want them to become completely introverted. I treat friends who come to signing events in the same way. I try to answer their questions in the sincerest and most genuine way possible. I try to soothe their worries. Because panic always prevents good decision making.

However, no one asked my thoughts about the FX Protected Turkish Lira Deposits. If they did, I would say “Don’t do it. Instead, issue super-premium bonds”. Because short-term solutions do not solve long-term problems. I would also strongly suggest them to stop being so stubborn about interest rates. At this point, letting the monetary policy and the Central Bank’s key policy rate do their thing would be a lower cost effort. Well, what’s done it’s done. Now we have this Inflation-indexed securities puzzle in our hands.

“What are the pros and cons of issuing inflation-linked bonds?”

This is one of the questions I get all the time. Whenever someone asks me this, I say to them, “Well, let me call some experts first”. Here’s the information I gathered so far:

  • If such an instrument is launched with a very high tender offer, it may cause an escape of deposits. We may suddenly see deposit interest rates of 35% or 40%. It may therefore be necessary to test this thought technically with an initial tender.
  • If the purpose here is to convince the citizens who want to protect themselves against foreign exchange rates or address the needs of those who have put their money in FX rate protected TRY deposits, it is necessary to provide them with a set of rules accordingly. Only in this way can the short-term burden on the Treasury be mitigated.

As far as I gather, there are two goals here: The first one is to prevent the citizens from turning to foreign currency, and the second is to reduce the short-term burden on the budget created by FX rate-protected deposits and/or extend it to the long-term. Based on this, it might be useful to offer several different instruments: the maturities may be different, the coupon payment dates may be different, or the target investor may be different.

Bankers are leaning towards the idea of a trial offering of around TRY 200 billion this stage. According to them, higher sums might lead to further escape of deposits from banks. As a result of this, loan rates may come near the inflation rate, in which case, Turkish economy would come to a standstill.

In short, experts find it reasonable to seek opportunities to issue inflation-linked bonds. However, as I mentioned above, they say everything must be done in accordance with the goals.