Turkey ‘needs to fortify its wings, to fly faster’

ISTANBUL - Anatolia News Agency

Despite positive mid-term indications, Turkish markets still suffer from economic volatility, the economist says.

If Turkey wants to fly, it needs to work on strengthening its wings, the World Bank’s Turkey chief economist has said, referring to ongoing discussions between the heads of the Turkish government and the Central Bank over what Turkey’s growth speed should be.

“Turkey needs to do some work in order to reinforce its wings for the plane to fly fast,” Chief Economist Marina Wes has said, backing the Turkish Central Bank’s balancing policies.

In late January, Central Bank Governor Erdem Basçı stated the economy had “disembarked from a plane and was travelling on the highway” following a soft landing last year.

“Turkey won’t reach its 2023 goals through the highway, we need to fly,” Prime Minister Recep Tayyip Erdoğan had said in a response critical of Başçı. The minister was backed by Turkish Economy Minister Zafer Çağlayan in several statements.

Both Çağlayan and Erdoğan, whose government has built its reputation on strong economic growth over the past decade, have picked up on Basçı‘s analogy in recent weeks and implied the government should get the final say in the issue as the governor is “only an officer of the state in the end.”

“The Turkish Central Bank is legally independent and we don’t recommend this be changed,” Wes also said, clearly touching upon the independency issue.

Wes expressed her support for the Central Bank’s protective managing of capital inflows and their potential impacts on asset prices by saying these tight measures were necessary for rising markets like the Turkish market unlike the loose money policies of developed countries’ central banks. She asserted that despite the current cautious reactions of both the Central Bank and the Banking Regulation Board, including the ones over required reserve ratios, the reserve option mechanism, proves to be working fine but the challenges have not been overcome and the cautious policies should be kept.

Despite the positive growth expectations for the Turkish economy, she said Turkey’s volatility would persist as the investment risks endure and the country’s dependency on foreign funds remains as a source of fragility. It seems like Turkey’s growth will continue to be more volatile compared to other countries that have been granted the same points by rating institutions, she said.

Wes instructed the country to gear up its export competitive power and to accelerate the necessary reforms for attracting direct investments to be able to eliminate the volatility risks, as the necessary adjustments to be done in order to bolster up its wings to fly faster in other words.

By saying necessary reforms, she implied implementing the Commercial and Capital Markets codes and adopting the employment program aimed at increasing the elasticity of the labor force markets. Raising domestic savings is also important to defeat foreign capital dependency, she said.