Erdoğan cannot dodge economic fallout with vanishing son-in-law - Babacan
Turkish President Recep Tayyip Erdoğan cannot avoid responsibility for the economic mess the country has found itself in through the disappearance of his son-in-law, former Treasury and Finance Minister Berat Albayrak, said Ali Babacan, Turkey’s former economy czar.
Ali Babacan, who now heads the rival Democracy and Progress Party (DEVA), said Erdoğan had made himself the president of the country while remaining the leader of the governing Justice and Development Party (AKP), meaning he must explain to the nation how the economy got into the troubles it is in.
Babacan slammed Erdoğan for his unorthodox views on interest rates, which led the central bank to keep borrowing costs low and at the same time spend tens of billions of dollars unsuccessfully defending the lira.
Albayrak resigned on Nov. 8, the day after Erdoğan dismissed and replaced the central bank governor. He hasn't been heard of since. On Nov. 6, the lira had slumped to a record low against the dollar. The central bank’s new governor Naci Ağbal hiked interest rates by 4.75 percentage points to 15 percent on Thursday.
Here follow comments made by Babacan, who is credited with successfully completing an International Monetary Fund reform programme in the 2000s, at a press conference on the economy on Friday:
“Have you realised that your thesis that you have been defending for years is wrong and that has allowed the central bank to increase the interest rates? Or did the central bank make this decision despite you? Now that you have declared that you are pleased with the current central bank administration, with whom you increased interest rates together, do you think of asking for recompense from the people who were previously the finance minister, the central bank governor and who worked in the past economy administration and bureaucracy?
“With the disappearance of your relative, whom you appointed as minister, the responsibility of this heavy price paid by our nation does not evaporate or disappear. You are the one who chooses to be a party president, that is, a partial president. In this system, you are in charge, but you are also responsible. You owe an explanation to our citizens as a requirement of your political responsibility. We would like to remind you of that again.
“Economic growth rates in our country are falling, unemployment is rising to unprecedented levels, the cost of living is biting hard, the budget deficit is increasing exponentially, the Treasury's debt is rising rapidly, the central bank's reserves are falling to high negative levels...
“I would like to address Mr. Erdoğan, who said “interest is the cause, inflation is the result” until a few days ago and approved the increase of interest to 15 percent with yesterday's decision.
“Mr. Erdoğan, in February 2015 you implied a betrayal by the administration of the central bank of that period, by saying: "Selling your homeland is possible with high interest rates, high inflation, mismanagement, and wasting the resources of the country and the nation.
“You said in December 2017: “The main reason that causes inflation is interest”. In March 2018, you said: “The father and mother of inflation are interest, let those who do not know this know.” You said in May 2018: “The lower the interest, the lower the inflation.” Again, you threatened the institution, which should have been independent, and the head of that institution, after the central bank’s decision to hike the interest rates in September 2018.
“Before the June 24, 2018 presidential elections, you used the following expression: “Give authority to this brother, then you will see how this interest is dealt with.” This is also a phrase you used just before the party leadership election the same month.
“If your thesis is correct, that is, if the interest is the result of inflation, yesterday's increase in interest rates is expected to give a result that increases inflation. If your thesis is correct. Thus, inflation is expected to rise after yesterday's interest rate decision.
“Yet the central bank says the opposite. It says “I raised the interest rate so that inflation would decrease”. It says, "I will keep the interest rate high and I will continue this policy until I get inflation under control."
Babacan made the following economic policy recommendations:
1. The public procurement law, which has been amended around 190 times, should be brought in line with its original purpose. In this context, the exceptional procurement procedures such as "negotiated tendering" or "direct procurement" should be removed from the general procurement procedure, and all tenders should be made open and based on equal opportunities.
2. All institutions should be open to the audit of the Court of Accounts.
3. A fiscal rule should be implemented to ensure budget discipline.
4. The Wealth Fund, which has become a black hole, must be closed.
5. Necessary steps should be taken regarding some public-private cooperation projects, another black hole, and mistakes should not be repeated.
6. Kanal Istanbul, which will consume large financial resources and become a rent project, should be removed from the agenda.
7. Domestic borrowing in foreign currency and gold should be stopped.
8. A legal arrangement should be made stating that the central bank governor can only be dismissed according to the provisions of the bank’s laws. If you constantly hold a threat like the sword of Damocles at the central bank governor and say, "If you don't do what I say, I'll throw you out tomorrow", that central bank is not independent, Babacan said.
9. The central bank should publish its net foreign exchange position in a transparent and accessible manner. Complex methods should not be required to calculate net reserves. The central bank should put it clearly so that those who do not know can learn. Especially the possibility that the people and the person at the top of the state do not know this is a dire picture in itself.
10. Forcing public banks to lend for political considerations should stop.
11. The asset ratio (aktif rasyosu) should be removed.
12. The Turkish Statistics Institute should be turned into a fully independent institution and its institutional capacity should be strengthened. Correct data should be disclosed to our people and markets. Real data, not make-up data, should be shared with our people.
13. Regulations that will ensure the transition to rule and institution-based economic management and strengthen the institutional capacity of that management should be implemented rapidly.
Babacan also made wider recommendations for the economy and political system:
1. A strengthened parliamentary system of government.
2. The rule of law and judicial independence must be fully established.
3. Barriers to freedom of expression should be removed.
4. Human rights violations should be prevented.
5. Participatory and pluralist understanding of democracy should prevail.
6. A public administration dominated by rules, the understanding of corporate governance and competence should be introduced.
2. State intervention should be replaced by fair competition, favouritism by equal opportunity and productivity-based growth should replace rent-based growth.
8. A strategy of "strong, sustainable and inclusive growth" should be put into practice.
9. Prudent monetary, exchange rate, fiscal, borrowing and financial policies should be rendered institutional and permanent and macroeconomic and financial stability should be made sustainable.