Lately, whenever we meet Zeynep and Metehan, the first question they ask is; what about the dollar and interest rates? My answer is of course not a rate. My answer is short, “If I were the CBRT Governor, maybe I would give a rate, but I am not”.
The public has not been in this situation recently. For many years, the public has been locked into prices, that is, the realizations of interest rates, exchange rates and inflation rates. Because the citizens of this country have been taught that “the price mechanism solves economic problems”. Hence the public’s bewilderment. Because the government, which believes in the price mechanism, has been intervening in prices since 2019. The government first accused grocery stores of stockpiling, then opened sales outlets, intervened in rents, determined the rates of rent increases itself, told the CBRT to cut interest rates, and when the economy entered a major crisis, it said to increase interest rates this time.
The ordinary citizen is puzzled. They ask themself what happened. Then they look to the economists as a connoisseur. Almost all of them applaud the rise in interest rates and find these decisions “rational”. Then the citizen asks himself another question. Why doesn’t the inflation rate fall even though interest rates are rising? The answer comes from the relevant minister that the inflation rate will fall in 2028. The citizen asks another question with fear. Why is it that in other countries the inflation rate drops to 3 percent in 1-2 years, but in our country it is the opposite? They do not hear the answer because there is no answer.
Worse than my black comedy paragraph is still happening. Citizens cannot even ask questions. The unqualified education they receive is not enough for them to even ask questions, or they are afraid. Because whatever they say may lead to their arrest for “immediately inciting the public to hatred and hatred”. They give up. They target economists.
They ask the questions to economists. Most of the economists shout in chorus, like the choristers in Carl Orff’s “Carmina Burana”, “Have faith in the market mechanism and political power”. The citizens believe, but I am sure they echo the question that Queen Elizabeth II of England asked the economists at the London School of Economics during the 2008 crisis: “Why didn’t you foresee the crisis?” The Queen was answered about a month later by a group of academics.
In Turkey, it is not possible for the public to get answers to these questions from pro-establishment economists (!!). Economists who are not part of the chorus can give the answer. Let us try to answer some questions as one of them.
-The functional breakdown of the budget perpetuates the budget deficit. The results of the January 2024 budget are a clear indicator of this. In January, the budget deficit increased by 367 percent compared to the same month of the previous year and reached TRY 150.7 billion, while the non-interest budget balance increased by 172 percent to TRY 29.6 billion.
-The share of interest expenditures in budget expenditures was realized as 15.7 percent. The amount of interest paid in January alone amounted to TRY 120 billion . The increase in interest expenditures means less resources to be allocated to education, health and pensioners.
-The public debt stock was TRY 6.7 trillion as of December 2023. TRY 3.2 trillion of the debt stock is domestic debt. Public banks hold 39.7 percent of the domestic debt stock. In other words, public banks are working for the Treasury as before the 2001 crisis. This situation deteriorates the balance sheet quality of public banks.
-The state’s continuous borrowing at high interest rates makes it difficult to finance industry and agriculture. This has a negative impact on production. The lack of production growth is also a source of supply-side inflation.
-The government thinks that demand is the source of inflation. In its policies to reduce consumption, it considers the consumer as homogeneous. This not only reduces the effectiveness of monetary policy but also distorts income distribution. Possible credit card restrictions, which are currently on the agenda, should be implemented within the framework of heterogeneous monetary policy.
-The Social Security Institution is at the point of bankruptcy, the ratio of active employees to retirees has fallen to 1.4. This ratio cannot be raised without increasing employment. Employment will not increase with current tax and premium levels. On the contrary, unemployment will increase even more in the coming months.
-The public sector is not reducing its current expenditures. It does not even intend to do so. Urban rent is not taxed. Taxes have fallen on the consumer. In January 2024, 61 percent of total tax revenues came from indirect taxes. This tax structure increases inflation and distorts income distribution.
-Foreign investment is not coming. They find the country insecure. In 2023, excluding real estate sales, foreign investment is around TRY 1 billion.
-The government has earned USD 70 billion from privatization in the last twenty years. Despite this, the budget deficit has not decreased and borrowing has increased. Therefore, instead of privatization in certain sectors, the state should adopt statism.
-Roads, bridges and hospitals built through public-private partnerships should be nationalized. In addition, privatized enterprises in the energy, telecommunications and petrochemical sectors should be re-nationalized. This would also be beneficial for the private sector. Because the price policy to be followed by the public sector will reduce input costs.
-The public sector is unable to invest. It has poured resources into the construction sector for two decades. Despite this, it could not solve the housing problem. The housing problem can be solved by building social housing.
-In order to overcome the shortage of qualified labor, education should be handed over to competent teachers, not to sects.
The list can be extended. The rest will come later.
After reading all this, I hope you will turn a deaf ear to the chorist economists.
