What will be ‘new normal’ for Turkish economy after elections?

The Turkish economy has been entering into another election period with a lot of uncertainties coming from both inside and outside. The question is what will be “new normal” for the country’s economy in the post-election period as something really needs to be change immediately to move forward.

Market players and business representatives have underlined a need for a “strong government” for months to enable the country’s recent tumbling economy to rebound again. Before the June elections, this “strong cabinet” referred in some circles to the continuation of a majority government by the Justice and Development Party (AKP). This changed immediately after the June elections, after which no single party could take the required votes to establish a single party government and some people have quit saying “coalitions are so bad.”

Let’s remember to what this strong government refers to when the country’s economy still has some time to flourish again. This, however, does not mean it will last forever. 

A new “strong” government is expected to mainly back the economy to a reform process again, as was the case in the first half of the 2000s. I picked this date up as we have actually barely seen further reforms, especially after 2007. In May 2001, the Banking Regulation and Supervision Agency (BDDK) initiated a comprehensive restructuring program for the banking system. Other reforms consisted of a large profit tax cut and a simplification of tax legislation. A number of state enterprises were privatized. Several crucial steps were taken to guarantee the independence of leading economic institutions, including the Central Bank. Last, but not least important, a series of steps were also initiated to improve the judicial system in a bid to attract more foreign direct investment (FDI) into the country. 

In a period of high liquidity party in global economy, such crucial steps in line with Turkey’s robust reform agenda, enforced by leading international economic organizations, gave yields along with some positive steps in foreign policy, which enabled Turkey to foster closer economic and trade ties with its neighbors. Only between 2002 and 2007, the Turkish economy grew by 6.7 percent on average. Thanks to a tight fiscal policy, public debt started to decline in 2005. 

I feel as if I talked about something that happened centuries ago. Turkey has reached a critical point at which the independence of leading economic institutions is being questioned. Many politicians have been talking about an urgent need to improve the country’s educational system and to increase productivity levels, which are the lowest across almost all OECD countries, but it is a big question whether any steps to offset these problems are taken. 

As many economy figures have voiced, Turkey does not have more than its solid fiscal discipline. 

In addition to the continuation of the fiscal discipline and the backing of a comprehensive reform agenda again, the new government must offset deep problems in the country’s judicial system and media freedom as nobody can claim these are has been in a good position for a while. 

Capital goes where it feels safe and secure. And people spend money when they have confidence for the future. The consumer confidence index in Turkey, however, dropped to 58.52 in September, its lowest value since January 2009, the period when the global financial crisis had the greatest impact, amid political uncertainties, market fluctuations and security concerns, according to the latest official data. Amid many uncertainties and huge loss in the Turkish Lira’s value, the economy could not even enjoy any possible effects of the recent oil plunge in past few years.

Escalating security concerns have made things worse since the June elections. One of the best comments about the country and its economy might have been made by a leading businessman last week. Anadolu Group’s Chairman Tuncay Özilhan said Turkey had seen a substantial transformation in the last 10-15 years, enabling all social segments to take advantage.

“These gains, however, are under risk now…It is not easy to cope with that much trouble,” he said.

As he underlined, it is not easy to cope with all that trouble for all of us. The new government, a majority cabinet or a coalition cabinet, needs to be a strong one to relieve even some of these troubles from our shoulders at a time when we’ll start to see further negativities in global markets, where the high liquidity party is over. Otherwise, the coming new normal will not be a good one.