Turkish economy is far from crisis
The U.S. dollar, which is the most commonly-used reserve currency in the world, last week decelerated relative to the currencies of developing countries. However, the dollar gained value against all 16 major currencies during the first two days of this week, when Federal Reserve Bank of Atlanta President Dennis Lockhart said it was "a real option" to raise interest rates in June, and Federal Reserve Bank of San Francisco John William stated he would support such a move during the next U.S. Federal Reserve (Fed) meeting in June if the economy maintained its current trend. What is interesting is that the Fed authorities whose statements led to a rise in the dollar do not have the right to vote during this year's Federal Open Market Committee (FOMC) meetings. This indicates that this is a game played when the currencies of developing countries gain volatility against the dollar, the basic reserve currency. It is thought that this will negatively affect market visibility and trigger crisis dynamics in these countries. The environment of political uncertainty, which is artificially manufactured in developing countries, is expected to lead to financial crises like those in the 1990s. Let us note that things are different now, and take a look at Brazil and Turkey at this point.Brazilian President Dilma Rousseff's rule is under fire these days. Perhaps, it was too little too late when Rousseff realized the extent of this attack and the concomitant judicial coup. Brazil made great strides under the leadership of both Rousseff and former president Lula da Silva. The Brazilian economy gave rise to a strong middle class similar to that in Turkey, and improved the imbalanced income distribution to a great extent. Financial markets also achieved relative stability. Following the 1998 crisis, Brazil exited from the fixed exchange rate regime and switched to a free exchange rate regime in 1999. This move made a great contribution to the emergence of a new outward-oriented and competitive industry, and the Lula government settled the Brazilian economy on solid ground that would not be shaken by political ups and downs. Despite falling commodity prices and shrinkage in the global economy, the Brazilian economy does not produce domestic crises like in the 1990s. On top of that, despite all kinds of domestic plots aimed at the Rousseff administration, the Brazilian economy maintains its gains and is hardly affected by this chaos. The impact of domestic developments on the economy remains marginal compared to global challenges.
This also describes Turkey, which also switched to a free exchange rate regime after the 2001 crisis and laid the foundations of a new and robust economy starting with the financial sector. The Turkish economy was settled on more solid ground in 2008 when President Recep Tayyip Erdoğan avoided signing a standby agreement with the International Monetary Fund (IMF), and instead pointed to a new and unique development path. This led Turkey to take major permanent steps in basic sectors such as defense and energy, and to create its own resources and technology. Thanks to this solid ground, the Turkish economy differs positively from the crisis of developed countries and continues to progress despite the EU crisis and the ongoing civil wars and terrorist attacks in the Middle East. The Turkish economy no longer collapses in crises on the excuse of political turbulences, unlike in 2001. Let us remember those days to see this reality. Before the 2001 crisis, the Central Bank of the Republic of Turkey (CRBT) switched to a nominal anchor practice in exchange rates on Dec. 9, 1999. In other words, it accepted a system that included a price commitment in exchange rates.Indeed, this system was a sort of currency board practice. In short, the local currency was fixed on a strong currency, which was the reserve currency of that time. Such that when there was a demand for foreign exchange from abroad, you would sell your currency based on this fixed exchange rate to avoid allowing "foreigners" to lose. The central bank would be able to expand credits only when net exchange flowed in. That is to say, it was not possible for the central bank to regulate the banking system and direct its resources. Do you think this was an independent central bank? On the other hand, it should have had strong foreign exchange reserves and purchased basic reserve currency continuously. The basic reserve currency, which was the British pound when the currency board practice emerged in the 19th century, is now the U.S. dollar. Indeed, we are quite familiar with the mechanism in the currency board system where we see an exchange rate determined by non-market conditions, high interest rates, an overvalued local currency, continuously high debts as well as rising imports and declining exports. Also, we see a rotten banking system that facilitates plunder and an imitated industrial infrastructure that is dependent on foreign technology.
This was how developing countries like Turkey were robbed for many years. This robbery mechanism in Turkey peaked during the 1994 crisis, the coup of Feb. 28, 1997 and the process that led to the 2001 crisis. Following the 2001 crisis, Turkey entered a period when it liquidated the political structure that operated this robbery mechanism. Even though this was a historic opportunity, Turkey could not achieve a completely corporate success, which would not take Turkey back to old days, despite hard efforts made by Erdoğan, then-prime minister at that time. Turkey's avoidance of the 20th standby agreement with the IMF under Erdoğan's leadership in 2008 was a milestone, as Turkey began returning the aforementioned mechanism, especially after 2012. Nevertheless, the point Turkey has reached today is very important, and the Turkish economy bears objective conditions required for a new growth and development path. Certainly, Turkey will take more resolute steps toward this end. We owe our economy, which does not produce its own crises, to the strong political will displayed in 2008. This economy, beyond any doubt, is a completely outward-oriented and competitive one which observes fair income distribution and guarantees private investments. Our stable and visible economic path is far from producing crises.
This also describes Turkey, which also switched to a free exchange rate regime after the 2001 crisis and laid the foundations of a new and robust economy starting with the financial sector. The Turkish economy was settled on more solid ground in 2008 when President Recep Tayyip Erdoğan avoided signing a standby agreement with the International Monetary Fund (IMF), and instead pointed to a new and unique development path. This led Turkey to take major permanent steps in basic sectors such as defense and energy, and to create its own resources and technology. Thanks to this solid ground, the Turkish economy differs positively from the crisis of developed countries and continues to progress despite the EU crisis and the ongoing civil wars and terrorist attacks in the Middle East. The Turkish economy no longer collapses in crises on the excuse of political turbulences, unlike in 2001. Let us remember those days to see this reality. Before the 2001 crisis, the Central Bank of the Republic of Turkey (CRBT) switched to a nominal anchor practice in exchange rates on Dec. 9, 1999. In other words, it accepted a system that included a price commitment in exchange rates.Indeed, this system was a sort of currency board practice. In short, the local currency was fixed on a strong currency, which was the reserve currency of that time. Such that when there was a demand for foreign exchange from abroad, you would sell your currency based on this fixed exchange rate to avoid allowing "foreigners" to lose. The central bank would be able to expand credits only when net exchange flowed in. That is to say, it was not possible for the central bank to regulate the banking system and direct its resources. Do you think this was an independent central bank? On the other hand, it should have had strong foreign exchange reserves and purchased basic reserve currency continuously. The basic reserve currency, which was the British pound when the currency board practice emerged in the 19th century, is now the U.S. dollar. Indeed, we are quite familiar with the mechanism in the currency board system where we see an exchange rate determined by non-market conditions, high interest rates, an overvalued local currency, continuously high debts as well as rising imports and declining exports. Also, we see a rotten banking system that facilitates plunder and an imitated industrial infrastructure that is dependent on foreign technology.
This was how developing countries like Turkey were robbed for many years. This robbery mechanism in Turkey peaked during the 1994 crisis, the coup of Feb. 28, 1997 and the process that led to the 2001 crisis. Following the 2001 crisis, Turkey entered a period when it liquidated the political structure that operated this robbery mechanism. Even though this was a historic opportunity, Turkey could not achieve a completely corporate success, which would not take Turkey back to old days, despite hard efforts made by Erdoğan, then-prime minister at that time. Turkey's avoidance of the 20th standby agreement with the IMF under Erdoğan's leadership in 2008 was a milestone, as Turkey began returning the aforementioned mechanism, especially after 2012. Nevertheless, the point Turkey has reached today is very important, and the Turkish economy bears objective conditions required for a new growth and development path. Certainly, Turkey will take more resolute steps toward this end. We owe our economy, which does not produce its own crises, to the strong political will displayed in 2008. This economy, beyond any doubt, is a completely outward-oriented and competitive one which observes fair income distribution and guarantees private investments. Our stable and visible economic path is far from producing crises.