Albayrak certain of meeting Turkey’s 5 percent growth goal: Are you?
As economies come to a halt due to the global coronavirus pandemic, both central banks and governments have been trying to coordinate in order to revive a global economy that will begin to enter a recession.
Predictions for growth in 2020 have swiftly fallen below the recession range of 2.5-2.7 percent, and are in the range of 1.3-1.5 percent. Expectations of sharp stagnation have also been highlighted.
With such a serious downturn on the table, the U.S. Federal Reserve’s $700-billion assistance package, as well as the European Central Bank’s 820-billion euros package, are reflections of central bank efforts to maximise liquidity and keep the banking sector functional.
However, this time, in contrast to the 2008 financial crisis, monetary precautions must be supported immediately with fiscal measures. The Canadian and French governments’ decisions to compensate individuals’ lost wages during the quarantine have been swift, effective decisions that match the structural differences of this crisis. Of course, when it is unclear where the pandemic will lead, even these precautions have not yet been effective in calming the markets.
Unlike in 2008, we are not faced with a crisis that has jumped from the financial markets to the economy. Quite the opposite. This time the uncertainty is due to the fact that the neo-liberal economic order’s sudden transition to a vegetative state will hit financial markets, stage by stage.
This means that to prevent permanent damage, it is clear that preserving the liquidity of financial markets is important and the actual targets should be the individuals making up the economy. Since this crisis spreads from individuals to companies, companies to the banking system, and the banking system to the financial markets, it does not resemble any historical crises.
The government in Turkey also similarly announced its expected assistance package.
Before the government announced its fiscal measures, the central bank held an emergency meeting last week to lower the one-week repo policy rate 100 more basis points to 9.75 percent and opened liquidity channels.
Since inflation is at 12.4 percent and the economy grew 6 percent in the last quarter of 2019, it is not easy to comprehend what good will come from making real interest rates more negative in this structurally unique crisis.
It is possible to interpret the move to lower interest rates as using COVID-19 to justify the continuation of cuts that have been implemented since July 2019, to attain President Recep Tayyip Erdoğan’s much-desired single-digit inflation levels.
It is of course critical to ensure liquidity. But the fact that liquidity is a privilege offered to banks that support the government’s 5 percent growth rate, demonstrates that the government is missing the mark.
It is clear that Erdoğan’s government is instrumentalising public spending as a shortcut to reaching its growth targets and struggling to comprehend the reality that the global recession has already started and Turkey cannot escape it.
The government is avoiding the fact that the pace of growth in Turkey’s economy in the first quarter of this year will be reversed as the economy contracts, and that the swiftly falling value of the Turkish lira will create a new inflation and private debt problem.
This view is widespread among government leaders, as evidenced by the so-called “Stability Shield” fiscal plan announced last week.
Designed as a shield from the economic harms of COVID-19, this fiscal package, consisting of 21 clauses and worth 100 billion liras ($15 billion), is entirely focused on the business sector. This was confirmed when Treasury and Finance Minister Berat Albayrak announced that the plan was prepared in close consultation with the business world.
Albayrak said sectors affected the most would be tourism and trade. He also spoke of “squeezes in currency flow in trade areas, and problems in workflow”, adding that the goal is to open a three-month window to prevent liquidity issues. This three-month window refers to tax breaks that companies will get, which Albayrak said amounted to between 50 billion liras and 60 billion liras.
Meanwhile, the central bank will fund the system with an appropriate interest rate. If you lose income, you will be able to get credit with interest. Questions of how these sums will be paid are not currently being addressed by the economic leadership.
Good; but is it effective?
First of all, tax payments are only being delayed, in other words firms losing significant business and income will have to complete these payments in three months. To put it another way, the government is not giving up income. Bearing in mind the fact that small and medium-sized businesses will be most affected by this sudden, deferred payment requirement, they may not have the income to meet these costs when the time comes.
As for the structural differences of this economic crisis, they have been almost entirely ignored in Turkey’s fiscal package.
The package puts aside the fact that this crisis originates with individuals and then moves to companies and the financial system. There are only attempts to temporarily ease problems for the business sector. Other than the measure to pay retirees a minimum of 1.500 liras per month to boost consumption, the rest of the proposals basically amount to providing masks and disinfectant. There are no references to the projected fall in employment.
Ultimately, the measures contained within “Stability Shield” and Albayrak’s announcements demonstrate how the government’s surreal approach to managing the economy, divorced from reality, continues unabated. It gives cause for concern.
Albayrak’s prediction that he currently sees no risk to Turkey’s economy indicates that the upcoming economic tsunami will unfortunately engulf large swathes of society with no support.
After all, the ruling party in Turkey has announced that it does not have any concerns about attaining goals of 5 percent economic growth and inflation of 8.6 percent this year. But we, the citizens of this country, see how economic life has been paralysed by the COVID-19 outbreak, and are full of concerns about paying rent, buying food, and meeting our children’s needs.