Central Bank cannot consider IMF warnings

IMF’s Turkey report published last week created a tremendous impression this time because it was the report that possessed the most criticism and warnings in recent years. We do not have a binding agreement with IMF anymore but this report holds harsher warnings than the reports when we had an agreement.

In the meantime, the EU Progress Report is due to be announced on Oct. 16 and is expected to be one of the toughest reports lately. 

It is not certain what kind of a political answer will be given to the EU Progress Report or to what extent the expected regulations will be implemented. Responding positively to the criticisms and expected policy changes of the IMF report is not awaited, at least not in the coming few years. 

This is because the IMF’s criticisms with regard to economics is toward policies that will help the government win more votes during the election times, even though it is not mentioned so. Therefore, it is not possible for the government to consider the IMF’s warnings in the forthcoming two-year election period. 

The most negative part of the issue, I believe, is the general perception that, besides the fact that the government cannot take such decisions, the Central Bank, which looks like an independent structure, can also not make the necessary decisions. This is because the Central Bank works like an agency of the government and has arranged its policies for the government to get more votes. The IMF says the global conjuncture will be hard for developing countries like us; an exit will be experienced in countries like Turkey that feel the need for foreign sources, and therefore Turkey needs to be cautious. Hence, the IMF asks for the slowing down of growth that has become linked to the domestic demand and says the public expenditures should be decreased. Besides, the organization says the structural cautions should be re-prompted, the savings ratios should be increased, and precautions to permanently decrease the current deficit should be taken. 

I do not believe it is possible for the government to take such measures in such an era. 

Key decision: interests 

The IMF report states that the Central Bank should focus on its main job, fighting inflation, and though inflation has started to increase, the implemented policies would not be sufficient to combat it. 

In this respect, the report underlines how the Central Bank should increase the interest rates, starting from the weekly repurchase agreements, how it should simplify the monetary policies that have become complex and it should return to the classic monetary policies. 

However, the Central Bank implements a policy just the contrary to what the IMF proposes by saying “I will also fight the rate without changing the interests,” and is determined to proceed with complicated methods like the interest corridor it had started implementing in the time of crisis. 

In other words, the Central Bank’s current monetary policy it applies to help the government may lead to a loss of balance in the medium to long period, just as the IMF warned. Despite this, it is almost impossible that the Central Bank will change its policies, due to the government’s pressure.