Istanbul Chamber of Industry (ISO) hosted the Minister of Treasury and Finance Mehmet Simsek at the first assembly meeting of the year. In his presentation to the industrialists, Minister Simsek made a wide range of presentations, from the fight against inflation to ensuring price stability; from reducing the current account deficit to the supports provided to industrialists.
Minister Şimşek said that the anti-inflation program “is not a temporary fad” and addressed industrialists: There is no reason for pessimism; if you want a miracle, I don’t have it…
“In the coming period, there will be fiscal and incomes policy to support selective credit and quantitative tightening. I believe that Turkey will not struggle against the gravitational force of inflation. The only condition is that the program will be implemented with patience and determination. This program has political ownership, it is not a passing fad” Simsek said.
Underlining the protectionist measures being more frequently used in not only in goods trade but also investments and services, Simsek said the following on the medium term plan: “With this global background, we have a program (MTP) that we actually started implementing at the beginning of June. I said on the first day that this program will be in line with international norms. We will not reinvent the wheel. It will be rule-based for predictability and transparent in accountability.”
Underlining that the program has some basic objectives and that the main objective is price stability, Simsek said, “Without it, we cannot talk about predictability and macro financial stability. Financial stability is the priority and foundation of this program. Otherwise, there will be no qualified, sustainable industry as you desire. Without this, there will only be illusion, temporary periodic gains. There is a precondition for permanent, sustainable high growth, and that is price stability… This definition is not new… Inflation needs to come down to low single digits permanently.”
Gold demand still very high
Referring to the necessity of predictability for macro financial stability, Minister Simsek emphasized that price stability is very important for this and pointed out that resources should be channeled to qualified industry and productive areas instead of speculative areas. At this point, referring to the gold imports last year, Minister Simsek said, “Last year, USD 29.9 billion of gold was imported only because of the demand of citizens. This is a very significant amount. Here, it was not seen as an effective use of resources, but as a protection against inflation.”
The program has political ownership
“Price stability is a sine qua non for a fairer distribution of income,” Minister Simsek said, adding, “The framework of the disinflation program is simple. We are not trying to reinvent the wheel. It is as international norms are. We will do the same as the US and the EU do.” Referring to the discussions on ‘whether it is possible to fight inflation and grow at the same time’, Minister Şimşek said, “The tension between growth and inflation was mentioned. There is no such tension. Even if there is a tension, it is short-term, cyclical, not a permanent tension. For sustainable high growth, inflation must fall. Unstable and unqualified growth is when inflation is high.” Explaining that tightening was introduced to support the program, Minister Simsek said, “In the coming period, there will be fiscal and incomes policy to support selective credit and quantitative tightening. I believe that Turkey will not struggle against the gravitational force of inflation. The only condition is that the program will be implemented with patience and determination. This program has political ownership, it is not a passing fad.”
Industrialists conveyed their demands to Mehmet Şimşek
- Establish a new generation development bank with the capacity to finance a truly industrial policy.
- Simplifying the tax legislation, which has become increasingly complex with numerous regulations over the years.
- A complete overhaul of the VAT legislation and its transformation into a form that does not burden industry and production.
- The accumulated VAT receivables, which have turned into an ‘industrialist tax’, can be used as collateral in public transactions, especially in Turkish Eximbank loans.
- A tax system that reveals the past performance of companies in all areas should be established. This system should be used as the main reference source for additional benefits to be provided to companies, from incentives to tax amnesties, visas to financing.
- A healthy labor force planning should be implemented.
- A serious reform of our investment incentive system is necessary. Flexible models should be created according to the shortcomings, opportunities and needs of each sector.
- Eximbank credits should be reviewed in terms of limit, maturity and collateral.
- The obligation to exchange 40 percent of exporters’ foreign currency should be gradually reduced and reset within a reasonable period of time.
- The upper limits of the tax brackets for wage incomes, especially the first two brackets, should be increased at higher rates.
ISO President: The real test in the second half
Regarding the economic outlook, ISO President Erdal Bahcivan pointed out that as of the last month of 2023, the ISO Turkey Manufacturing PMI has been in the contraction zone for 6 months without interruption, and said that the data points to weakness in demand and does not offer strong optimism for the coming months. Stating that although the slowdown in domestic demand has not yet reached the desired extent in terms of inflation targets, there is a widespread expectation that growth will remain below the 4 percent MTP target this year, Bahcivan said, “In the first months of 2024, we will see a deterioration in the course of monthly inflation again due to the effect of the minimum wage hike and tax adjustments, and probably annual inflation will reach a new peak of around 70 percent towards the middle of the year. So it is clear that the real test will begin in the second half of the year.”