New government's economic policy

Prime Minister Binali Yıldırım has formed Turkey's 65th government, which will take office after its program receives parliamentary approval. The new government is not expected to have a qualitative change in its economic program. It will highlight production-oriented actions, try to eliminate Turkey's current account deficit predominantly through foreign direct investments, and improve the international investment environment. As such, we can assume the Yıldırım government will focus on investments and production as well as the financial markets. The 62nd government program, which former Prime Minister Ahmet Davutoğlu read out at Parliament nearly two years ago, did not include major changes to the economy. Back then, I wrote in one of my columns that Turkey still had a chance to reach its 2023 objectives. In other words, Turkey can increase its per capita income to $25,000 and its export volume to $500 billion in the first quarter of the 21st century. I think Turkey must evaluate the time that passed since the 2015 elections as a good preparation period and must not introduce meaningless economic practices to curb growth as it did in 2012.

Let me reiterate that, as opposed to what some circles claim, Turkey's primary problem is not inflation but the fact that industry and export-oriented production does not run quickly and healthily. When Turkey overcomes this problem, inflation will start falling. Also, it must certainly switch to a new growth model, apart from the current monetary and fiscal policies, during the Justice and Development Party's (AK Party) strong one-party rule between 2015 and 2019.Nowadays I see many articles that attribute the AK Party's economic success to neoliberal monetary and fiscal policies, arguing insistently that it must move on this path. However, this is the total opposite of the truth. Thanks to President Recep Tayyip Erdoğan's initiatives, the AK Party attained success to the extent that it flouted these policies and won elections with the support of the middle stratum. The majority of these predictions, which I wrote nearly two years ago, have come true. I must voice as self-criticism that two years ago Turkey should have carried out reforms that could push global competition, provide incentives to technology-intensive sectors, improve the international investment environment and reduce bureaucratic transactions in the economy. However, Turkey has lost these two years. Now, the Yıldırım government will make up for this loss and put forward a new growth strategy.

Since 2002, the AK Party government has given rise to a strong middle class through the reforms that it launched, but which it failed to complete. Thus, the move from the poor to the middle class gained speed. However, inclusive, production- and investment-oriented growth policies, which brought the AK Party to power and which became concrete mainly under Erdoğan's leadership, could not be institutionalized. The economic policy, which considered only primary surplus to be a success in the fiscal area, and which aimed to keep inflation in the monetary area, was supposed to be an "official" policy as a whole. In order to overcome this policy, Erdoğan upheld a non-statist and completely outward-oriented economic understanding that supported small- and medium-size enterprises (SMEs), brought legal a guarantee to foreign investments and highlighted investments. As such, he criticized policies that aimed to ensure high capital inflow and reduce inflation depending on the high interest rates. Erdoğan's economic understanding, as opposed to claims, was a completely market-friendly policy that highlighted social justice and inclusive growth. However, Erdoğan's tendency could not be institutionalized.

Obviously, at this point, Turkey staggers in the economy and fails to take strategic steps that can bring a breakthrough. The root cause of all the basic problems, including low savings, high inflation, high current account deficit and chronic unemployment, are mistakes that are consistently made in monetary and fiscal policies.

Obviously, Turkey needs a radical change in its existing monetary and fiscal policies. We need to completely abandon the economic program that is a revised version of traditional International Monetary Fund (IMF) programs. Turkey faced such a program when Kemal Derviş took office as economy minister following the 2001 crisis. This program highlights control through the main instruments of interest rates and budget constraint in monetary and fiscal markets under the guise of stability and considers this policy to be the basic criterion of success. Such a policy ensured recovery for a certain period of time but did not lead to sustainable success.

Turkey needs an average annual growth of nearly 7 percent in order to achieve its growth targets over the next 10 years. It cannot maintain this growth depending on domestic consumption and imports. Therefore, as required by the dynamics of new global competition, exports must include more goods with high added value to make a greater contribution to this growth target. We see that even if we can achieve an average of 7 percent in growth through the existing programs, this rate makes basic problems, such as the current account deficit and high inflation, intolerable and unsustainable.

Obviously, industrial production alone does not make a country an industrialized one. A country needs to have its own production and product technology and keep the share of technology- and knowledge-intensive sectors above labor - and capital-intensive industries in order to be an industrialized country. So, in order to reach its 2023 vision, Turkey needs a new growth model that is based on high tech sectors with high added value, domestic savings and the rise of factor productivity. Also, it must adopt an economic understanding, which is completely outward oriented and which is based on production.

I will continue to write the basic headings of this program. Let me underline that we must start by changing the existing monetary and fiscal policies.