Tough for PM to convince foreign capital

Prime Minister Ahmet Davutoğlu allocated this week to efforts for foreign capital. He is aiming to draw serious foreign capital by explaining the “action plan” to them. The reason for this is that in order to sustain the stability in economy in such a critical global period, there is a need for foreign capital more than any other time. 

Turkey will be able to reach the growth rates it needs only if it succeeds in attracting more capital than other emerging countries. Otherwise, with the effect of regional and domestic political risks, in the case that foreign capital withdrawal continues, the growth target set as 4 percent will be very difficult to meet. 

For this reason, Prime Minister Davutoğlu explained the action plan at the beginning of the week to British investors and asked them to invest in Turkey, then continued his efforts for foreign capital by attending the Davos Summit.  

In his speeches to investors and on TV channels, Davutoğlu tried to convince the audience that the dangerous trend in foreign exchange rates and inflation, even though it was a problem, was somehow natural and that the situation would improve as reforms would be implemented.  

Despite this, as far as we understand, the government is trying to put the “EU anchor in economy” again on the showcase. However, it is now very difficult to recreate the full EU membership excitement by only opening a couple of chapters, as it happened in the old times, and this is seen by foreign capital. 

We will soon be able to see how effective Davutoğlu’s answers will be before foreign investors, after he said changes in the constitution would not pose risks, that the exchange rates were increasing at the same level of other emerging countries, that there would not be any problems with incoming tourists and that the raise in the minimum wage would not affect inflation too much. 

Inflation threat 

In my opinion, it is very difficult for Prime Minister Davutoğlu to be credible with only these arguments. The global period is already difficult and a more convincing story is needed to attract foreign capital. 

To be credible, one should know that it is no longer enough “to maintain fiscal discipline” For the reform program, especially in terms of quality, not words but practice will be scrutinized.

In this context, foreigners are questioning whether the Central Bank that Davutoğlu says is “independent” actually has independence.  If the government is sincere in fighting inflation, then the Central Bank should start acting. If it does not, then it does not seem possible to convince the foreign capital with the words, “The Central Bank is independent.”

An inflation rate that will climb to two digits and increasing concerns related to the Central Bank’s independence will not allow foreign capital to arrive in Turkey, even though the action plan contains correct measures.