A mysterious passage in the Progress Report

The most-discussed document of the week has been the European Union's annual progress report on Turkey. As usual, its comments focused almost exclusively on politics, trying to assess whether the EU's ideas of democracy and human rights are being satisfied or not.
Is there a coherence in economic governance?  Readers, I believe, should be well aware of the criticism and praise for the report. But what about the economy? I cannot claim to have examined all the press, but at least in the newspapers I looked at, I did not find any comment on those chapters of the report concerning the Turkish economy. Thus, while searching for interesting topics for this column I thought that commenting on the economic section of the report would be a good idea. So, I carefully read the pages concerned with economic assessment but, at the risk of disappointing you, I could not find any striking comments regarding the Justice and Development Party (AK Party) government and the economy. All the report pointed out was the fragility of the Turkish economy because of the increasing current account deficit, which presents a risk of recession through capital reversal, and the document recommended structural reforms in order to make the Turkish economy more resilient. However, one mysterious passage that seems to be related to the consistency of economic governance drew my attention. I quote from the report: “The fragmentation of responsibilities between government bodies continues to complicate the coordination of budgeting and medium term policy-making. However, it seems that economic policies have not been affected by internal conflicts and tension in recent times. Overall, the consensus on economic policy essentials has apparently been preserved.” So, what problem is the report hinting at? Let's start by noting the key words: “fragmentation of responsibilities,” “complicate the coordination,” “internal conflicts and tension in recent times” and “apparently.” Is there a fragmentation of responsibilities between government bodies complicating the coordination of its economic policies? Apparently not, since Deputy Prime Minister Ali Babacan is in charge of economic coordination, the central bank is independent in its monetary policy and there is no conflict between Governor Erdem Başçı and Babacan. Nonetheless, since the last-minute rejection of the 'fiscal policy' by Prime Minister Recep Tayyip Erdoğan two years ago, which was considered a necessity by Babacan, we feel that there are two opposing approaches to the economy in the government: On one side, Babacan and Finance Minister Mehmet Şimşek, supported by the economic bureaucracy, defend an economic policy approach in line with the rules of a free-market economy integrated with the world economy, and on the other side we see others such as Minister of Economy Zafer Çağlayan defending a more pragmatic, one might say “populist,” approach. The critical point is that the prime minister seems to belong to this second camp. This internal conflict, which has existed at least since the elections of June 2011, has become an open argument in recent times. Erdoğan has from time to time criticized high interest rates, asserting that the best way to fight inflation is to lower them. As the central bank is fortunately independent, these remarks did not have any effect on its interest rate policy, but political pressure on the central bank continued to increase. However, when the Federal Reserve's chairman, Ben Bernanke, made his famous announcement of the end of monetary easing last May, while at the same time the Gezi Park protests in Taksim Square were coincidentally intensifying, hot money started to leave Turkey, pushing up the market interest rates. Erdoğan seized the opportunity by making an open attack against “the interest rate lobby.” His claims were so unconvincing that investors' confidence in the consistency of Turkey's economic policy began to erode. This dangerous development has been stopped in extremis by Babacan's efforts at a critical meeting in the Dolmabahçe office with the prime minister and other ministers with various economic responsibilities. A short communiqué stating that the rules of a free-market economy will be respected was published after the meeting, and the following day Başçı gave a press conference maintaining that the independence of the central bank was still intact. Well, as the Progress Report says, “the consensus on economic policy essentials has apparently been preserved.”