The new political game

In my Monday column (“Opposition candidate can win”), written just before the announcement of Ekmeleddin İhsanoğlu as the opposition's joint candidate, I argued that Prime Minister Recep Tayyip Erdoğan can be challenged and possibly defeated in the election for president of the republic only if the two main opposition parties, the Republican People's Party (CHP) and the Nationalist Movement Party (MHP), present a common candidate who will be able to garner the votes of some supporters of the Justice and Development Party (AKP). The largest majority of the opposition now has such a candidate.

Mr. İhsanoğlu is not only a good candidate for Çankaya as respects his personal attributes, but also his candidacy makes it possible to change the political game in Turkey. The former head of the Organization of Islamic Cooperation (OIC), Professor İhsanoğlu is known as a prominent expert on Ottoman history in academic circles. His attitude toward the Turkish republican tradition and secularism clearly shows that he cannot be considered a politician who belongs to political Islam. When speaking to the Cumhuriyet daily on Tuesday, İhsanoğlu said he was upset by criticism claiming that he is against secularism and bears hostile feelings toward Atatürk. “I feel very sad when I hear such assessments. Rejecting Atatürk and the reality of the republic and its gains would be a huge mistake,” he said.

İhsanoğlu must be seen as subscribing to the Ottoman tradition of the Hürriyet ve İtilaf Fırkası (Freedom and Accord Party), whose political line was, by the beginning of the 20th century, based on a constitutional democracy and on the conciliation of Islamic values with individual liberties. This party constituted the backbone of the opposition against the İttihad ve Terakki Fırkası (Party of Union and Progress), which represented Turkish nationalism and positivism with Jacobin practices in the political fight. This main political fault line has been around during the republican era; the CHP represents the Union and Progress tradition, while various center-right parties represent the opposite tradition, starting with the Terakki Perver Cumhuriyet Fırkası (Progressive Republican Party), which was banned and closed down by the CHP government in 1925.

So, one should not be surprised by the fact that İhsanoğlu's candidacy provoked furious debates within the CHP. The Kemalist wing of the party, representing the Union and Progress tradition today, strongly opposes the choice of İhsanoğlu, and claims that it has been betrayed by the chairman of the CHP. At the same time, this risky choice for CHP leader Kemal Kılıçdaroğlu should be considered a major move aimed not only at seriously challenging Mr. Erdoğan and his presidential ambitions but, at the same time, opening the way for a reconciliation between the two historical political traditions that may enlarge the entrenched electorate of the CHP through possibly attracting the support of conservatives. Nevertheless, this opening may also provoke the departure of Kemalists from the party. The result of the election will be a crucial turning point since it could drastically change the course of Turkish politics. If Mr. Erdoğan wins, Turkey will experience a de facto presidential regime, which is likely to deepen the existing political fractures and finally destabilize Turkey. If Mr. İhsanoğlu wins, not only will an actual authoritarian drift be stopped but, at the same time, the chance to make a new democratic Constitution based on a compromise will be increased.

Can Mr. İhsanoğlu win the election? Yes, but this depends on the answers to three critical questions. No doubt, İhsanoğlu will gather the support of a very large majority of the MHP electorate, and those of the two small Islamic-rightist parties, the Grand Unity Party (BBP) and the Felicity Party (SP). This support will guarantee him a vote share of above 20 percent. The critical question is what will be the voting behavior of the CHP electorate, which constitutes about 25 percent of the total electorate. If an important part of them – say, for example, 30-40 percent -- decide to boycott the ballot box and if İhsanoğlu is not able to bite into the AKP's electorate, Mr. Erdoğan may win right at the first round. So, this is the second critical question. However, I believe İhsanoğlu is probably the best candidate able to get the support of some non-core AKP electors.

I think if the share of CHP voters refusing to make a choice between Erdoğan and İhsanoğlu remains rather limited, and if İhsanoğlu succeeds in winning over even a modest part of the AKP electorate, the winner will be decided in the second round. Here, we come to the third critical question. What will the attitude of the pro-Kurdish Peace and Democracy Party/Peoples' Democratic Party (BDP/HDP) -- presenting its own candidate in the first round -- be in the second round? It is up to İhsanoğlu to convince this party that he will not be an obstacle to a democratic solution of the Kurdish problem. 

Ortak adayın şansı

Bugün yazmaya değer önemli ekonomi konuları vardı. Örneğin, Erdem Başçı’nın Konya sunumunda sergilediği dik duruş ya da Irak krizinin ihracat ve petrol üzerinden Türkiye ekonomisine vereceği muhtemel tahribat yazılabilirdi. Ama siyaset tüm ağırlığıyla gündeme oturdu. Ümidi kesmek üzereydim ki CHP-MHP muhalefeti ortak bir aday çıkarmayı başardı.

Ekmeleddin İhsanoğlu

            Cumhurbaşkanlığı seçimi gündeme girdiğinden bu yana muhalefetin ancak ortak adayla seçime ortak olabileceğini tereddütsüz savundum. Ayrı adaylarla Tayyip Erdoğan’ın seçimi ikinci turda kazanacağı gün gibi aşikardı. Bu öngörünün gerekçelerine dönmeye artık gerek yok. CHP-MHP yönetimi Ekmelettin İhsanoğlu’nu aday göstererek doğru bir hamle yaptı. Ama aynı zamanda risk de aldı. Tayip Erdoğan aday olur da -bu artık o kadar kesin değil- seçimi açık ara kazanacak olursa CHP’nin ulusalcı kanadı bu başarısızlığı Kılıçdaroğul’na pahalıya ödetebilir.

Samimi oy-Stratejik oy

            Seçim yazınında oy davranışları konusunda iki önemli kavram vardır: “Samimi oy” (sincere voting) ve “Stratejik oy” (strategic voting). İlk kavram seçmenlerin hiç bir siyasal hesap yapma zorunda kalmadan birinci tercihleri olan adaya vermelerini tanımlar. İkinci kavram ise seçimin siyasal sonuçlarının öne çıktığı durumlarda seçmenin birinci tercihi yerine istediği siyasal sonucu doğuracak adaya oy vermelerini tanımlar.

10 Ağustos’da da genel olarak sol, sosyal demokrat ve kemalist çevreler böyle bir seçimle karşı karşıyalar. İhsanoğlu, Osmanlıdan bu yana islamcı aynı zamanda da meşruiyetçi, o zamanın ölçüleriyle demokrat ve liberal bir damarın temsilcisi olan Hurriyet ve İtilaf geleneğinin - Cumhuriyet döneminin ilk yıllarında Terakkiperver Cumhuriyet Fırkası ile devam etmiştir- bir temsilcisi olarak tanımlanabilir. İttihat ve Terakki geleneğine mensup bir bölüm CHP’linin İhsanoğlu seçimine büyük tepki göstermesi bu bakımdan şaşırtıcı değil. Buna karışılık İhsanoğlu’nun Erdoğan’ın otoriter tavrını giderek sorun olarak görmeye başlayan AKP’nin bağımsız seçmenlerinin desteğini alabilecek en iyi adaylardan biri olduğuna kuşku yok.

İhsanoğlu kazanabilir

İhsanoğlu seçimi kazanabilir mi? Evet kazanabilir. Biraz seçim aritmetiği yapmak iyi olur. AKP 30 Martta ülke genelinde yüzde 43 oy aldı. İlk adımda bu seçmenlerin tümünün Erdoğan’a oy vereceklerini kabul edelim. Yabancı ülkelerdeki seçmenlerin ağırlıklı tercihleri bu oy oranının bir puan kadar artacağını gösteriyor. Eder yüzde 44. CHP seçmenin bir bölümü seçimi boykot edecektir. Bugün için tepki geniş görünüyor ama seçime doğru giderek azalacaktır. Her beş CHP seçmeninden biri sandığa gitmezse, ki bu 5 yüzde puan eder, Erdoğan’ın oy oranı otomatik olarak yüzde 46’yı geçer. HDP adayının yüzde 6-7 oyu olduğunu varsayarsak İhsanoğlu’nun potansiyel oy oranı yüzde 47-48 çıkıyor.

İhsanoğlu bu potansiyel orana ulaşabilir mi? Bunun için CHP seçmeninin yüzde 80’ninin, MHP, SP ve BBP’in de firesiz desteği gerekiyor. Bu son üç partinin seçmenlerinden az da olsa bir bölümün sandığı gitmeyeceğini, küçük bir bölümünün de Erdoğan’a oy verebileceğini düşünebiliriz. Ama çok büyük bölümü İhsanoğlu’nu destekleyecektir. Bu da İhsanoğlu seçiminin isabetinin bir başka kanıtıdır. Bu ilk hesap birinci turun başa baş geçecebileceğini gösteriyor. Oysa İhsanoğlu AKP seçmeninden kesinlikle oy alacaktır. Ne kadar oy alır kestirmek şimdilik zor. Bir puan bile alsa bu oy kayması iki aday arasındaki farkın iki puana çıkması anlamına gelir.

Sözü uzatmayalım. Eğer İhsanoğlu seçimin iktidar mücadelesi olmadığı, “fiili başkanlık” zorlaması ile parlamenter rejime saygılı istikrar arasında geçeceği, her türden bireysel özgürlüklere ve hukuk devletine sahip çıkacağı, sahip olduğu denetim yetkisini etkili kullanacağı mesajını iyi verebilirse, seçimi daha ilk turdan kazanabilir.   

Monetary policy debate is over for a while

Last Saturday in my piece “The prime minister is not convinced,” I asked “What will the next episode look like with the profound disagreement over monetary policy?” I said in response: “The first critical revelation will be the publication of the [gross domestic product] GDP figures for the first quarter on June 10. If the growth rate is well below 4 percent, one can expect a harsh reaction from the prime minister.”

Well, we received the figures on Tuesday. GDP growth for the first quarter reached 4.3 percent on an annual basis, surpassing expectations. Indeed, Deputy Prime Minister Ali Babacan and Turkish Central Bank Governor Erdem Başçı recently declared that the growth rate would be close to 4 percent but below. Similarly, our last forecast at the Bahçeşehir University Center for Economic and Social Research (BETAM) was 3.7 percent.

Prime Minister Recep Tayyip Erdoğan stated the same day that this growth performance was achieved thanks to the confidence shown in the government by businessmen, workers, farmers, etc. despite the “attempts at destabilization.” The prime minister seems to be quite happy with the growth performance even though it is not as high as he desires. Thus we may expect a break in the monetary policy debate since economic growth of over 4 percent allows unemployment to fall slightly and public expenditures to increase modestly without jeopardizing fiscal discipline. Moreover, growth in the first quarter being led mostly by exports as I detail below reduced the current account deficit (CAD) to some extent. Finally, the balanced growth claimed by the Treasury and the central bank is under way, at least for the moment.

How did GDP growth outperform forecasts? The explanation is not too complicated: The increase in exports was much higher than expected. The analysis of demand items from quarter to quarter (see BETAM's research brief “Türkiye ekonomisi dış talep ile büyüdü” [Turkish economy grew with external demand] published on June 10) shows that both private consumption and investment decreased in the first quarter compared to the last quarter of 2013; the former by 0.5 percent and the latter by 2.8.

There is no surprise with regard to domestic demand. The exchange rate shock (the rapid and sizable depreciation of the lira) followed by an interest rate shock caused the expected adverse effects on consumer durables and investment. Two items saved growth in the first quarter: net exports and public spending. Exports increased by 7 percent while imports fell by 2.4 percent. Thus net exports contributed 2.6 percentage points to quarterly growth that reached 1.7 percent. Let me note that the growth rate from the third quarter of 2013 to the fourth quarter was limited to 0.9 percent. The second item that accelerated GDP growth in the first quarter was public expenditures, which grew by 4.8 percent, contributing 0.8 percentage points to growth.

There are now two critical questions regarding monetary policy. First, how will the central bank react to this growth performance? Second, will economic growth continue to perform as it did in the first quarter? No doubt, the growth performance in the first quarter has reduced the political pressure exerted on the central bank. This will allow the central bank's Monetary Policy Committee (PPK) to limit its expected interest rate decrease at its next meeting on June 24. On the other hand, the recent monetary loosening measures taken by the European Central Bank gave the Central Bank of Turkey additional room for an interest rate decrease without provoking an exchange rate shock. Thus, we may expect a relatively sizable but not adventurous reduction in the policy rate, actually at 9.5 percent. Personally, I would agree with a drop of 0.75 percentage points.

As for the future of economic growth, we may be moderately optimistic. According to leading indicators, an increase in both private consumption and investment is perceptible in the second quarter since the lira recovered from most of its losses and market interest rates have been relaxed to some extent. European recovery is ongoing, which is good news for Turkish exports. The revival of domestic demand will increase imports but we can still forecast a positive contribution of net exports to growth, albeit to a lower degree.

However, one must note the appearance of a last-minute risk on this front. Mosul, where an oil pipeline transports Arab as well as Kurdish oil to Turkey, has fallen under the control of radical Islamists fighters. Turkey's second-largest export market after Germany is now under threat. With the exception of this new risk, I believe a growth rate of around 4 percent this year seems reasonably attainable. This may be sufficient to calm Mr. Erdoğan down. 

İhracat ve kamuyla büyüme

Büyümenin gidişatı hiç bu kadar siyasallaşmamıştı. Geçtiğimiz günlerde Başbakan’ın Merkez Bankası’nı şiddetle eleştirmesinin temelinde ekonomik büyümenin olduğu açıkça ortaya çıkmıştı. Başbakan yardımcısı Babacan ve Merkez Bankası başkanı Başçı ilk çeyrekte büyümenin yüzde 4 yakın, aynı zamanda da dengeli olduğunu savunuyorlardı. Betam’da yüzde 3,7 tahmin ediyorduk.  Buna karşılık iki kritik seçimin yaşanacağı bir dönemde yüzde 4’ün altında bir büyümenin Başbakan’ı kesmediği de sır olmaktan çıkmıştı. Merakla beklenen 1. Çeyrek büyüme oranı sonuçta yüzde 4,3 çıktı. Beklenenin üzerinde gerçekleşen büyüme Babacan ve Başçı’ya rahat nefes aldıracaktır.

Tüketim ve yatırımda gerileme

            Büyümenin halen nasıl geliştiğini anlayabilmek için yıllık değişim yerine çeyrekten çeyreğe değişime bakmakta yarar var. Geçen yılın son çeyreğine kıyasla GSYH yüzde 1,7 büyüdü. Bir önceki çeyreklik büyüme yüzde 0,9’du. Büyümede yavaşlama beklenirken bu hızlanma açıklanmaya muhtaç. Aslında TL’nin ilk çeyrekte uğradığı büyük değer kaybı ile yükselen faizlerin öngörüldüğü gibi özel tüketim ile özel yatırımları azalttığı görülüyor. Bir önceki çeyreğe kıyasla özel tüketim yüzde 0,5, özel yatırımlar da yüzde 2,8 gerilemiş durumda. Bu iki kalem büyümeyi 0,9 puan aşağıya çekmiş. Aynı zamanda yine beklendiği gibi firmaların belirsizlik ortamında stok boşalttığı gözlemleniyor: Stok azalması büyümeyi 0,7 puan düşürmüş (Betam, “Büyüme değerlendirmesi”). Buna karşılık büyümeye en yüksek katkıyı  yüzde 7 oranında artan ihracat 1,9 puanla, ardından da yüzde 4,8 büyüyen kamu harcmaları 0,8 puanla yapıyor.

Orta vadeli program bu yıl için yüzde 4 büyüme öngörmüştü. Aynı zamanda Program büyümenin dengeli olacağını, bu sayede cari açık oranının düşmesini, işsizliğin de ılımlı ölçüde azalmasını öngörüyordu. Tüketim ve yatırımdaki düşüşler programa tam uygun değil. Ancak net ihracatın 2,6 puanlık katkı ile büyümeyi sırtlaması iyi haber. Bu sayede cari açık oranının ilk çeyrekte yüzde 7,9’dan 7,4’e, altın hariç oranın ise yüzde 6,5’ten 6,3’e gerilediğini tahmin ediyoruz. Bu düzeyler halen yeterli değil ama piyasa tansiyonunu bir miktar düşürür.

Faizler gevşer

Bundan sonra ne olur? Kurun istikrara kavuşması ile birlikte faizlerin gevşemesinin dayanıklı tüketimi ve yatırımı bir miktar destekleyeceğini tahmin ediyorum. Avrupa’da ılımlı canlanma devam ediyor. Avrupa Merkez Bankası’nın para politikasını gevşetmesi bu canlanmayı destekleyecektir. Bu çerçevede ihracat artışının devam etmesini bekleyebiliriz. Canlanan iç talep ithalatı yeniden artışa geçirse de net iharcatın büyümeye katı yapmaya devam edeceğini kestirebiliriz. Sonuç olarak bu yıl büyümenin yüzde 4’ün biraz üzerinde gerçekleşmesi ve dengeli olması mümükün görünüyor. Yıl başında yaptığım yüzde 3,5’luk tahminin biraz düşük kaldığını belirtmeliyim. Yüzde 4’ün üzerinde bir büyüme işsizliğin artmasını da önleyecektir.

Böyle bir büyüme rejimi Başbakan tarafından yeterli görülür mü? Yanıtı zor bir soru. Bununla birlikte Merkez Bankası üzerindeki baskının hafifleyeceğini tahmin edebiliriz. Avrupa Merkez Bankası’nın hamlesi Merkez Bankası’na faiz indirimi için alan yaratmıştı. Büyümenin beklenenin üzerinde çıkması da bu indirimin makul düzeyde tutulmasını kolaylaştıracaktır. Bu ayki Para Politikası Kurulu’nun makro ekonomik dengeleri zorlamadan politika faizini 75-100 baz puan düşürmesi mümkün görünüyor. Bu kez Başbakan’ın nispeten sınırlı bu indirime fazla itiraz etmeyeceğini düşünüyorum. 

The rise of the middle class

Growth of the middle class in developing countries is considered by political scientists to be the backbone of democracy and economists consider this growth an important factor that drives economic development, since the enlargement of the middle class allows for both an increase and diversification in consumption.

Recent research by Joao Pedro Azevedo from the World Bank that has not yet been published but was presented last week by the author at the Bahçeşehir Center for Economic and Social Research (BETAM) offers new insight regarding issues of poverty and the middle class in Turkey.

Azevedo's paper ("Pathways to the Middle Class: How have reducing poverty and boosting shared prosperity helped?" a joint work with Aziz Atamanov) studies the evolution of income growth and income distribution from 2002 to 2011 based on government Household Budget Surveys (HBS) statistics. In line with Word Bank standards, the authors define three groups across income distribution: The poor have an income of less than $5 per day, those with an income between $5-10 per day are considered vulnerable, and, finally, the middle class earns more than $10 per day. Incomes in Turkish lira were converted to US dollars using the World Bank's scale of purchasing power parity (PPP) for 2008. The study contends that not only the evoluton the groups’ shares but also transitions in both directions.

The proportion of the poor in the total population in Turkey was 43 percent in 2002. This figure declined to 22 percent in 2011, while the proportion of the middle class rose from 20 percent to 40 percent. The vulnerable segment remained at around 37-38 percent. This is certainly a remarkable achievement in terms of poverty reduction and middle class growth, but it is not as bright a picture as our rulers try to convince us it is. Indeed, a comparison with Central and Eastern European countries shows that Turkey performed better than some countries like Croatia, Serbia, Georgia, Armenia, the Czech Republic and Hungary, but worse than countries like Romania, Bulgaria and Poland in the period 2006-2011.

As for the transition dynamics, they provide interesting insight regarding movements from one group to another. The data indicate that 41 percent of the poor moved out of poverty during the period and became members of the vulnerable category. None were able to jump straight to the middle class. Middle class category growth was the result of transfers from the vulnerable group to the middle class; 40 percent of the vulnerable category entered the middle class. Only 1 percent of the vulnerable group fell into poverty and no middle class individuals experienced the high income losses that would have pushed them down to poverty. It is also worth noting that only 2 percent of middle class individuals fell into the vulnerable group. These findings indicate that the decrease in poverty as well as the growth of the middle class was the result of a smooth process of increasing per capita incomes from the bottom to the top. Turkey did not experience strong volatility during the period of sustained high economic growth -- close to 6 percent on average -- during the period 2002-2011.

The striking feature of Turkey's poverty reduction achievement is that it was mostly due to an increase in per capita income rather than a redistribution of income. According to the paper's authors, 89 percent of poverty reduction in Turkey came from economic growth; in Latin American countries, the contribution of growth to poverty reduction has been limited to 47 percent, with the remaining 53 percent being the result of income redistribution. This comparison demystifies the "successful" redistributive policies claimed by the ruling Justice and Development Party (AKP).

Another interesting finding of the study appears when poverty reduction is analyzed according to various types of income. There are three major contributors to poverty reduction: an increase in real wages -- particularly the minimum wage increase in 2004, the increase in employment and pensions. The contribution of social assistance lags well behind these three majors contributors.

What can be drawn from the findings of this recent study in respect to the political economy? At first glance, I might assert that during its first decade of rule the AKP was able to enlarge its electoral base -- which reached 50 percent in the general elections of June 2011 -- mostly due to pro-poor and pro-middle class economic growth. However, given the fact that this growth was based on domestic demand fueled by foreign loans which led to a very high and unsustainable current account deficit, the limits of pro-poor growth might have been reached. Relevant income data for the last two years is not available yet, but we already know that the growth rate declined abruptly to 3 percent because of strict control of private consumption. We can predict that it will likely be quite difficult to reduce poverty and to continue the growth of the middle class in the context of a low growth regime without strong redistributive policies.

(Published in Todays' Zaman, June 10, 2014)

The prime minister is not convinced

Last week we witnessed a furious debate over monetary policy (see my piece “The fault line under the central bank,” May 30).

A profound disagreement has clearly appeared between Prime Minister Recep Tayyip Erdoğan, supported by his inner circle, on the one side and the central bank, supported by Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Şimşek, on the other. It is obvious that the prime minister completely disagrees with the current monetary policy. He firmly believes that high interest rates are the cause of inflation and that there is no link between interest rates and the exchange rate. Moreover, Mr. Erdoğan is afraid that the current level of interest rates for loans prevents investment while Economy Minister Nihat Zeybekçi claims that high interest rates undermine growth and employment.

Deputy Prime Minister Babacan and Finance Minister Şimşek tried to calm Prime Minister Erdoğan down through various statements, claiming that the central bank's independence constitutes a critical element of macroeconomic stability. Turkish Central Bank Governor Erdem Başçı then made a presentation on Monday to the Cabinet. After the Cabinet meeting, government spokesman Bülent Arınç stated clearly that the government had defended in the past and will continue to defend in the future the independence of the central bank. After this official engagement, I believe one of the critical items of the debate has now been clarified: There will be no change in the central bank law as was requested by some counselors close to the prime minister. We might speculate that the prime minister has been convinced that changing the central bank law by introducing new clauses to either restrict its policy independence or add growth goals beside price stability as its mission would be a very dangerous step forward regarding investor confidence.

Nonetheless, the prime minister does not seem to be convinced about the monetary policy based on the arguments of Governor Başçı in his presentation. Indeed, he declared a day later that he does not believe the current policy is positive and desires new steps to be taken very soon with respect to interest rates.

On the other hand, Governor Başçı's defense in his presentation can be summarized into five points: 1) If a strong interest rate increase is not implemented (by the end of January), expectations of the exchange rate and inflation will worsen, pushing the long-term interest rate up even more; 2) Do not worry, inflation will start to decline and we will proceed with interest rate cuts accordingly; 3) Real interest rates are about 2 percent -- Mr. Erdoğan had previously claimed that they are at 4-5 percent -- and they are no higher than the real rates prevailing in emerging markets; 4) Gross domestic product (GDP) growth is currently close to 4 percent and, moreover, is balanced; and 5) The current account deficit (CAD) is decreasing thanks to balanced growth.

Needless to say I fully agree with Mr. Başçı. The economy is going through a necessary adjustment period. Reducing both inflation and the CAD require strict control over domestic demand as well as a stable exchange rate. However, Mr. Erdoğan is basically concerned about economic growth. He is not happy with a rate of under 4 percent even though it is balanced, which is, in fact, the main official goal of the economic governance headed by Deputy Prime Minister Babacan. Mr. Erdoğan is right as well since GDP growth of under 4 percent would not be sufficient to reduce unemployment and increase public spending. He needs a booming economy in electoral periods, all the more since Justice and Development Party (AKP) votes are on a decline as evidenced by the electoral outcome of the local elections on March 30.

What will the next episode look like with the profound disagreement over monetary policy? I think the prime minister will wait for a few months in order to observe the basic economic figures. The first critical revelation will be the publication of the GDP figures for the first quarter on June 10. If the growth rate is well below 4 percent, one can expect a harsh reaction from the prime minister. The second critical item will be the evolution of inflation. It is expected to decline from June onwards. This would allow the central bank to reduce interest rates to some extent. The recent monetary loosening measures taken by the European Central Bank gave the central bank additional room in this respect. But one doubts the size of interest rate cuts would satisfy Mr. Erdoğan. The fight over monetary policy is not over.

Başbakan ikna olmuş gibi durmuyor

Geçen hafta son derece sert geçen bir para-faiz politikası tartışması yaşadık. Başbakan Merkez Bankası’nın faiz politikasına acımasızca yüklendi. Buna karşılık Başabakan Yardımcısı Ali Babacan ile Maliye Bakanı Mehmet Şimşek Merkez Bankası yönetimine arka çıktılar. Gün yüzüne çıkan derin görüş ayrılğının ne gibi sarsıntılara yol açacağını merakla beklerken geçici olduğunu düşündüğüm bir ateşkes ilan edilmiş gibi duruyor.

Büyüme düşük gelirse...

            Pazartesi günü Merkez Bankası Başkanı Erdem Başçı Bakanlar Kurulu’na sunum yaptı. Çıkışta Başçı pek renk vermedi. “İyi geçti, enflasyon da düşecek”  demekle yetindi. Bakanlar kurulu toplantısının ardından Hükümet sözcüsü Bülent Arınç Hükümet’in merkez bankası bağımısızlığını her zaman desteklediğini ve desteklemeye devam ettiğini söyledi. Yasada değişiklik Hükümet’in gündeminde yoktu. Geçen hafta Başbakan’ın yakın çevresinden Merkez Bankası yasasının değiştirilmesi gerektiğine dair pek çok sözlü ve yazılı beyana şahit olmuştuk. Arınç Hükümet adına konuştuğuna göre bu taahüdü ciddiye almak durumundayız.

Başbakan ısrarlı

Sanırım Başbakan Hükümet’in mevcut ekonomi politikalarını savunan kanadı tarafından yasa değişikliğinin ateşle oynamak olacağına ikna edildi. Ancak, bu  “başarı” mevcut para politikasının doğruluğu konusunda Başbakan’ın ikna olduğu anlamına gelmiyor.       Nitekim dün Başbakan  Başçı'nın faiz konusundaki yaklaşımını asla olumlu bulmadığını ve hemen yeni adımların atılmasını temenni ettiğini, bu işin ancak böyle çözüleceğini açıkça beyan etti.   

Bu  gelişmelerden benim anladığım, Başbakan’ın fazla beklemeye niyetli olmadığı ve Merkez Bankası’ndan kısa sürede “ciddi” faiz indirimi talep ettiği. Başbakan  yasal değişiklik yapmak zorunda kalmadan Merkez Bankası yönetiminin kendi istediği doğrultuda hareket etmesini ısrarla istiyor. Geçen haftaki yazımda belirttim. Bana göre Başbakan’ın Merkez Bankası yönetimini kendi görüşlerine ikna etmesi olanaksız. Nitekim Başçı yaptığı sunumda mevcut para politikasının doğruluğunu savundu.

            Başkan Başçı temelde 5 şey söylüyor: 1) Yüksek faiz artışına gitmeseydik kur - enflasyon beklentileri bozulacak ve uzun vadeli faizler bugünkünden daha yüksek seviyede oluşacaktı. 2) Merak etmeyin enflasyonda düşüşe paralel olarak faizleri adım adım düşüreceğiz. 3) Reel faizler yüzde 2 civarında. 4) Büyüme yüzde 4’e yakın seyrediyor ve dengeli gidiyor. 5) Bu sayede cari açık düşüyor.

Esas sorun düşük büyüme

            Peki Başkan ne demişti geçen hafta? İki noktanın altını çizelim: 1) Enflasyonu düşürmek istiyorsanız fazileri düşürün. Kur ile faizlerin alakası yoktur. Sunumda Başçı aksini ispatlamaya çalıştığına göre Başbakan’ın beklediği gibi “hemen yeni adımlar” atmayacak. 2) Reel faizler yüzde 4-5 düzeyinde bu faizlerle yatırım yapılmaz. Başçı’nın sunumunda reel faizin en fazla yüzde 2 olduğunu, ve bize benzer ülkelerden daha yüksek olmadığını açık seçik ortaya koymasına rağmen Başbakan ikna olmuşa benzemiyor. Belli ki daha düşük reel faiz istiyor.

            Esas sorun, sürekli anlatmaya çalıştığım gibi mevcut büyüme düzeyinin Başbakan’ı kesmiyor olması. Yüzde 4’ün altında bir büyüme ile seçmen desteğinin az çok eriyeceğini biliyor. Oysa gelecek genel seçimlerde AKP referandum çoğunluğunu elde ederek başkanlık sistemini getirme hedefinden vazgeçmiş değil. Başabakan ekonominin bir an önce canlanmasını istiyor. Başçı “büyüme yüzde 4’e yakın merak etmeyin” demeye çalişıyor ama Başbakan’ın bayağı merak etttiği anlaşılıyor. Köln konuşmasında büyümenini yüzde 4’ün üzerinde olduğu müjdesini vermişti. Gelecek hafta ilk çeyrek büyümesi açıklanacak. Rakam düşük gelirse Başçı’nın başının bayağı ağrayacağını kestirebiliriz. 

The fault line under the central bank

Last week we witnessed the consequences of a pre-existing fault in our economic governance.

A profound disagreement on monetary policy appeared clearly between Prime Minister Recep Tayyip Erdoğan, supported by his inner circle, on one side, and the Turkish Central Bank, supported by Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Şimşek, on the other. The battle over monetary policy raged for the whole week.

The prime minister opened fire in an interview with a journalist last Sunday, in which he expressed harshly his discontentment with the interest rate level, which he believes is extremely high. Erdoğan belittled the Monetary Policy Committee's (PPK) recent decrease of 0.5 percentage points in the policy interest rate (the one week repo rate). "Are you kidding? You raised the rate five points at once [in January of this year], and now you are reducing it by half a point,” he said, adding that the bank “needs to get its act together.” The prime minister continued his acerbic criticism on Tuesday when addressing deputies of the Justice and Development Party (AKP).

He made it clear that the central bank has been unsuccessful in fighting inflation since the inflation target (5 percent) is continually missed. According to Erdoğan, high interest rates are the cause of inflation, rejecting standard economic theory, which says the opposite. Moreover, he claimed that there is no link between interest rates and the exchange rate, defying not only a basic principle of open economy macroeconomics but also the lessons from the Turkish economy's experiences in the past. In his speech he could not stop himself from exclaiming to the central bank's management, “That's enough now!” I think he could not be more explicit in demanding the resignation of the governor of the central bank.

However, Turkish Central Bank Governor Erdem Başçı said in Lisbon on Monday that domestic interest rates should be higher than rates in international markets “to control loan growth” as an implied response to Erdoğan. The central bank also made clear in its last inflation report (in April 2013) that it sees room for a gradual lowering of interest rates but will stay tight until there is an improvement in the inflation outlook. The recent decrease of the policy rate by 0.5 percentage points must be interpreted in this context. Let me recall that I defended a limited loosening of monetary policy before the meeting of the PPK (see my column “Turkish lira is rapidly appreciating,” May 13). Deputy Prime Minister Babacan and Finance Minister Şimşek tried to calm the crisis with various statements, claiming that the central bank's independence constitutes a critical element of macroeconomic stability and stating that the central bank is on the right track. But I do not think their efforts will be sufficient to put out the fire.

The prime minister's attitude makes it clear how uncomfortable he is with the principle of the central bank's independence. This is not the first time we have heard Erdoğan ranting about monetary policy, but this time I think the consequences at stake are quite serious. Either the AKP government has to change the central bank law that provides policy independence to the central bank or change the bank's management and nominate new management that shares the ideas of the prime minister on how to conduct monetary policy. The reactivated fault will move and cause an earthquake in the future, but the timing is difficult to predict, as is the case in geology. The prime minister and his inner circle are not happy at all with the ongoing low economic growth, which is around 3 percent at best. As I noted in my last column, this growth is not enough to guarantee a victory in the next general elections to be held within a year. Erdoğan has complained that high interest rates prevent investment. "It's a pity, it's a sin. Will there be any investment in a country with such rates?" he questioned.