BY MEHMET KAYA
SINCE YOU CALL YOURSELF A ‘COMPANY DOCTOR’, CAN WE SAY THAT YOU CARRY OUT YOUR STUDIES ON MACROECONOMICS AS A WHOLE USING YOUR FIELD EXPERIENCE?
Yes. This is exactly what I’m trying to do. In my early years as a bank inspector, I thought that troubled companies were often not well-managed. However, over time, when I started to observe the same mistakes in many of these problematic companies, I realized that there were macroeconomic problems rather than management mistakes and I focused my studies and research on this. If it wasn’t a trend, we wouldn’t have seen so many of the same mistakes.
THE RESULT I FOUND WAS:
The monetary and fiscal policy of our country was designed to bankrupt our businessmen, increase unemployment, and leave our state without tax income. Our country’s atmosphere, that is, its monetary policy, is poisonous, and our country’s soil, that is, its fiscal policy, is a swamp. Our people suppose that the atmosphere they live in is normal, and they should probably tolerate this. In reality, monetary and fiscal policy has been consciously designed in order for our entrepreneurs not to make a profit, people to be unemployed, and the state to be constantly in debt. This situation makes our country politically unstable, socially restless, economically undeveloped, and psychologically stressful.
The beginning of this fiction dates back to our anchoring in the Western Bloc with the Marshall Project in 1947, the pressure of the Soviets, and finally the 1952 NATO process. Our country lost its military and economic independence after this. Our country’s economy and human resources have been designed as spare wheels to help Europe, which was destroyed in the Second World War, to stand up. While agricultural machinery was given to our country to meet the food deficit in Europe, domestic production of these machines and spare parts was not allowed. When Europe became sufficient in food, this support was cut. Then our country’s resources began to be used in the field of mining and raw materials, but not a single advanced processing mining facility was established. Our existing industrial facilities are left inoperable, our aircraft and automobile production initiatives have been blocked. When Europe transferred the mining business to other countries, it began to suffer from a shortage of people to work and Turkey was used as Europe’s source of unprofessional and unqualified workers.
Our country’s political economy was designed as a mandate, military and commercial, for the U.S. and as a raw material and human resource market that transformed into a hot money and commercial market for Europe. We had to endure the political and economic persecution of the U.S. and Europe due to the fear our politicians had of the Soviets from 1950 on. For whatever reason, all heavy industry facilities in our country were established by the Soviets, which was known as an enemy!
Today, it is the low exchange rate high-interest rate policy that colonizes our economy.
As a result of this policy, the manufacturing industry in our country is collapsing, our country is drowning in imports, our people are unemployed, our businessmen are unprofitable, and our state is tax-free. The low exchange rate high-interest rate policy leads to demand inflation by increasing the government’s debt, as well as cost inflation by increasing the current account deficit. It causes the revenues of the nation and the state to flow to the domestic rentier with high interest and to the foreign rentier with hot money. As a result, all social and political parties in our country are engaged in an endless blind fight to which they can’t generate a solution.
I can ask a question to prove my convictions. Why are all the heavy industry and military technology facilities in our country always established after we have issues with the U.S. and Western countries? Because as soon as we free our hands from the straitjacket through these conflicts, we do what should be done. “Hold on guys, this street is a dead-end,” I have been saying since 1994, but no one has listened.
I was not the only one to draw attention to this. Kemal Kurds, (economist and former finance minister who died in 2011), Oktay Yenal, (a world renowned Turkish economist who worked for World Bank for many years), and Sadun Aren (economist and politician), who have all passed away, shouted as much as they could about this dead-end street. However, neither the paralyzed nation nor the politicians nor our enslaved economists heard them either. Ege Cansen, who is still alive, also talks about this.
THERE IS A BROAD THEORETICAL FRAMEWORK FOR THE KEYNES AND HAYEK DEBATE IN YOUR FACT SHEET. WHY DID YOU FIND THIS THEORETICAL FRAMEWORK APPLICABLE TO TODAY’S CONDITIONS IN TURKEY?
You must first diagnose a problem in order to solve it. We need to understand whether the problem arises from a cause, or whether it has a purpose. Otherwise, the treatment we will apply to eliminate the problem may make the issue inextricable. I tried to show those who claim that they approach the economic problems in our country scientifically what their references think about this issue. There is no need to make inventions for the economic life of our country, only research is needed. Solving fabricated problems does not help the country.
The economic problem in our country does not have reasons, but it has a purpose. This purpose is for the U.S. and Europe to keep our market as one to be exploited. While this purpose is obvious; the methods of Keynes, who urgently prescribed unemployment to prevent communism from coming to his country, and Hayek, who tried to understand the dramatic consequences of high inflation in his country, will not be sufficient for Turkey. As a matter of fact, the adaptation of Keynes’ theories to life caused a new crisis called stagflation, which drowned all states in debt, and fell out of favor in the late 1950s and early 1960s. Hayek’s theory has also been in the field since the 1980s, but drowned individuals and companies in debt by the end of the 1990s.
These two great thinkers tried to explain the causes of the economic crises they experienced in their own countries and to produce solutions for them. However, there is no reason for the economic crisis in our country, rather it serves a purpose. So, let’s not try to solve the crisis with global theories. What we need to do first is to understand this purpose and means by which the crisis was created. Only then can we focus on the outcomes of the economic crisis, such as unemployment. In addition, these thinkers cannot contribute adequately to the globalizing world and fully financed economies of today. Issues continue, especially in developed countries. Undoubtedly, there are many phenomena that these masters have captured and explained, and we have learned a great deal from them. However, they can’t create a solution to the economic problem in our country. Therefore, we should not be distracted by the ideas of these thinkers.
THE MAIN DISCUSSION IN TURKEY IS GIVING PRIORITY TO PRODUCTION, MAINLY MANUFACTURING IN AREAS THAT HAVE DRIVEN THE CURRENT DEFECIT. WHAT ARE YOUR VIEWS ON THIS?
Conservative politicians have ruled our country since 1950. There have always been two stalemates facing these politicians. The first is the welfare demand of the voter base, and the second is the insufficient opportunities and capabilities of the country. Whenever they tried to increase the possibilities and capabilities of the country, they were constantly beaten, either by coups or economic crises.
The political life of conservative politicians was not enough to create strategic change. This situation continued until President Recep Tayyip Erdogan. Under the leadership of the President, the AK Party has strengthened the tactical infrastructure of our country in 19 years. I guess that he has decided that it is time to take off the straitjacket that was put on the economy after the Second World War, based on the possibilities and capabilities he has built. I also support this.
HOW WILL THE APPLICATION OF THIS MODEL AFFECT THE ECONOMY? WHAT MIGHT BE THE CONSEQUENCES?
This strategic change in the roadmap of the economy will initially increase the exchange rate due to its function, which will increase inflation and reduce the purchasing power of some of the people.
Another reason for the acceleration in the increase in exchange rates is the desire to save in foreign currency. This is quite normal in the current economic conditions. We should use the foreign exchange deposits to support exports. We should not change into TL via Swap and use it domestically. We need to generate cash through exporting companies.
With a change in strategy in the economy, the mechanism will work as follows. The strategic goal is to increase employment and permanently reduce inflation. The tactical target is to pay TRY 200bn of interest for the budget and foreign debt and to generate as much foreign currency liquidity as possible. The budget is already running a primary surplus, paying 50-60% of the interest rates. The primary surplus needs to be increased in order to deal a decisive and short-term blow to demand-side inflation. For this, reducing expenditures while increasing budget revenues will be a tactical move. However, in our country, the budget is not where it needs to be. For this reason, while the reduction in budget expenditures should be minimal, the rate of increase in revenues should be higher.
The second reason for inflation in our country is the current account deficit. The current account deficit raises the demand for USD, resulting in an increase in exchange rates. The fact that our manufacturing industry is 42% foreign-dependent causes this to be reflected in inflation rapidly.
Reducing TL policy rates will drive out foreign hot money in our country. However, dollarization will increase due to the fact that there is a dual currency in our country and foreign currency fulfills all the functions of money. This will increase long-term interest rates on TL loans. This is an expected result of the new strategy. While the increase in the exchange rates increases the dollarization, there is a decrease in the TL supply. It prevents increasing consumption or investing in the domestic market by borrowing TL. Since exchange rate increases raise medium and longterm TL interest rates, investment is only realized if the exchange rate increase is above TL interest rates. This reduces domestic demand and contributes to the program by increasing export-oriented investments. During the 19-year AK Party period, USD 14tr in GDP was produced and USD 3.5tr of this was spent on investment. USD 1.5 tr of this amount is machinery and equipment investment. In a country whose population has increased by 20 million in the last 20 years, investment in construction is mandatory. Today, the U.S. that it will spend USD 1.5tr in five years to renew its aging infrastructure. While AK Party invested USD 3.5tr, it only increased the country’s debt by USD 318bn. This rate is also very good and leads to a permanent increase in exports, unlike with IMF programs. Necessary machinery and equipment investment has been made and we have no capacity problems for production. The developments here will also increase the number of workers and their income in the export-oriented manufacturing and tourism sectors. Thus, our workers and exporting companies, who always pay the highest price in the IMF program, will be the primary winners in this new strategy. The increase in income here will increase the income of the state. This will enable the state to make social expenditures without borrowing, and our civil servants and retirees will be among the first to benefit from this development.
The hot moneymakers who benefit most from the IMF program will be replaced by our citizens, who keep their deposits in foreign currency, though not as much as they do. With the increase in the exchange rates, these citizens will be able to protect themselves against inflation, but their earnings will only be as much as the difference between inflation and the increase in the exchange rate. If we can direct their income increases to domestic market-oriented expenditures, not import-oriented; our country will be much more profitable. If their consumption shifts to imports, the special consumption tax should be increased further and a larger share of disposable income should be allocated to tax.
In summary, all segments of our country will benefit from this program. It will be seen that the strategy change with tactical and political measures will reflect positively on all segments of society within six months.
A HIGH EXCHANGE RATE INCREASE MAY PREVENT THE EXPLOITATION OF THE COUN˹ TRY’S RESOURCES WITH HOT MONEY. BUT, WHEN WE CONSIDER THAT 70% OF TURKEY’S IMPORTS ARE RAW MATERIALS, IT MEANS THAT WE ARE STARTING TO SEE THE EFFECTS OF DIRECT COST INFLATION RIGHT NOW. WHAT DO YOU THINK ABOUT THIS?
Stabilization programs have a cost. We have done it many times before and after the program, our country slid back even further. The aims and intentions of those who made these programs were not to improve the economy but to cause permanent damage. As the current account deficit decreases and goes into surplus, inflation will not be able to go higher. The faster we implement tactical applications that support this strategy, the faster we will progress. With this assumption, I think we will see all positive results by June 2022. As a matter of fact, Moody’s talked about the improvement in the balance of payments in its latest statement and confirmed this situation. In January 2022, the rating agencies’ view of our country will become even more positive. However, these organizations also gave positive points to the fake paradise created with hot money, so we should focus on increasing our employment, not their rating. Less of economics is mathematics, more of if it is expectation, hope, emotion, and trust. If we can manage these factors, improvement will be rapid.