Turkey’s President Recep Tayyip Erdrogan on Friday announced a series of ‘economic reforms,’ but these do little to address the issues needed to restore growth and curtail inflation.
Erdogan’s rhetoric, in recent months, has gone back to lauding low interest rates, at a time when near 16 per cent inflation has combined with sharp increases in food prices to make life difficult for a large part of the population.
“The essence of our study is to grow the economy on the basis of investment, production, employment and export. We will increase our potential growth by increasing productivity in production,” Erdogan said in a televised speech announcing the ‘reforms.’
“Erdoğan fails to grasp that the main problem for the Turkish economy is his government’s failure to move away from investing in a subsidised construction sector towards focusing on ways to increase output across the economy through transparent and effective economic reform. He is failing to initiate change because he is aware that the ruptures that were already emerging in the economic circles he had established around his governing Justice and Development Party (AKP), based on the use of state resources, would intensify,” writes Turkish economist Güldem Atabay.
In fact, Erdogan’s reforms did not directly address inflation in terms of monetary policy. Rather, a “Price Stability Committee” has been set up which is to force merchants to reduce prices. A previous committee of this type intended to control food prices (the “Food and Agricultural Products Markets Monitoring and Evaluation Committee”) has proven almost entirely ineffective.
Turkey badly needs increased foreign investment. To attract it, special incentives are to be provided to make the investment attractive, and reducing bureaucracy to facilitate investment.
Unfortunately, this policy does not address the low value of the Turkish lira, which is currently at about 9 to the euro. Investors are not likely to invest where the value of the national currency is unstable. The fact that Turks are keeping about $50 billion in foreign currencies, and that the central bank’s forex reserves are now stuck at a negative $40 billion are not likely to inspire investor confidence.
Then, a new law will establish digital banking in the country. It is supposedly based on a different concept from digital banking already in existence.
With the implementation of the Istanbul Financial Center project, which is expected to be completed in 2022, efforts will be made to make it attractive for international financial institutions to operate here. The basis of the work will be the legal regulation regarding the Istanbul Financial Center, which will be presented to the Turkish Grand National Assembly in a short time. A particularly generous incentive mechanism will be set up here.
An attempt will be made to offer Islamic financial instruments as an alternative to those of the West. This is intended to attract investment from the Moslem world.
There are also measures intended to reduce government spending, and a tax break is to be provided for 850,000 small businesses (barbers, plumbers, carpenters, etc.)
Erdogan recently announced measures to ‘safeguard human rights’ that left observers unimpressed. These ‘economic reforms’ have the same effect.