Circumstances not quite suitable for reforms

The new government has submitted the temporary budget to parliament. It is also making the last preparations on the reforms. Statements are expected in a couple of days. 

Deputy Prime Minister Mehmet Şimşek said the fiscal discipline anchor would continue and EU and reform anchors would be added on top of it. Consequently, an expectation has formed that the reform program and economic measures included in them will be radical measures. We will have the opportunity to see, through these statements, the government’s vision, particularly for the economy for the new term. However, for the implementation of an ambitious reform program, we have to say that there are serious difficulties in terms of suitable domestic and external circumstances.  

With the effect of the latest employment data, global markets are quite sure the U.S. Fed will hike rates in mid-December. For this reason, abstention is strengthening toward emerging countries like Turkey. At this point, some analysts state that after the Fed’s rate hike, the situation will be tough emerging countries because of capital outflow. Some other analysts, though, estimate that after a short while an inflow to those countries will restart. We will have an opportunity to test which one is true soon but it is almost certain that when the Fed’s rate hikes starts, a strong reaction will occur. 

After this stage is overcome, capital will obviously be much more selective. In other words, distinctions among emerging countries will be inevitable. In this process the steps the countries take and the domestic and external circumstances they have will be influential in attracting capital. 

Economic preferences 

At this stage, it seems probable Turkey will undergo some difficulties. Before anything else, geopolitical uncertainties and risks have taken the place of the uncertainties experienced before the elections. We were under risk anyway due to our location in the region; this risk was overblown with the shooting down of the Russian plane. Not only an increase in the probability of hot combat, but risks created by the cutting of trade with Russia and a probable cut in natural gas now create serious concerns in the markets. 

Alongside with this, because of troops sent to Mosul, we have a new crisis with Iraq and the outcome of this crisis is now curiously awaited. 

I think the risks we experience geopolitically may increase extensively after the start of next year. Turkey is now taking a position in the region together with coalition forces but it has been continuously demonstrating contradictory stances. We can say these unique stances will come to an end when the U.S. and Russia act together in the new year, accept a transition in Syria with President Bashar al-Assad and accelerate their fight against the Islamic State of Iraq and the Levant (ISIL). This might mean that Turkey will find itself in a fait accompli, not be able to carry out isolated stances anymore and have to confront terror face-to-face. 

Besides these political negativities, I think, the implementation of reforms can be added as well as the current difficulties in decision-making in the economy such as “not being able to clarify economic preferences and the wish to do everything all at once.”