Minister admits: problem is not foreign attacks but distrust

“Turkey’s economy suffers because of the foreign attacks.” That was the prominent discourse of President Recep Tayyip Erdoğan and the ruling Justice and Development Party (AKP) for years. They instrumentalized this discourse to give an account for problems in domestic politics, stating that the attack of the West caused the issues. However, that discourse no longer serves the government since Turkey needs foreign investments. 

It was the first time the investors heard from the official sources that the problem was rooted not in the hostility of the foreign powers but the distrust in economic policy in a 7-hour-meeting of the new Minister of Treasury and Finance Nureddin Nebati held on December 11 attended by prominent names from the business and finance circles.

Nebati told investors that there is no outside attack, but there is a problem of distrust; sources at the meeting told YetkinReport on the condition of anonymity.

Executives of private and public banks and representatives of business institutions such as TÜSİAD, TOBB, MÜSİAD, Foreign Economic Relations Board (DEİK), Turkish Exporters Assembly (TİM), and International Investors Association (YASED) were at the meeting.

Farewell to the discourse of hostile foreign powers?

At the meeting held with about 40 participants, Nebati also stated that the government needs the support of investors and banks to overcome the trust problem. 

It is too early to tell how the new Treasury and Finance Minister’s transition to the discourse of trust will resonate with the AKP and Presidency as the enmity of the foreign powers has been the basis of their public discourse. Likewise, it is early to tell what labor and opposition would react to this discourse. However, the representatives of the business circles attending the meeting carefully noticed this shift. 

Among the issues carefully noted by the business representatives is what Nabati did not say as much as what he said.

For example, Nebati reminded in detail how many kilometers of asphalt highways, how many bridges, the extent of the exports, as well as the advancements of the aircraft fleet are made during the AKP’s nearly twenty-year rule, to the people and institutions that are the ones that implemented these works. 

Then he explained the new economic policy announced by Erdogan: reduction of the costs and increase in exports, foreign exchange accumulation by exports, decrease in inflation and exchange rates and economic growth will be ensured. 

There are also an unspoken part

There is an interest warrant, but no resources for inflation and investment

At the meeting, Nebati also uttered the all-known statement, which did not take participants by surprise: there will not be any interest rate increase. 

Let’s put it another way: The Minister assured investors that the Central Bank Monetary Policy Committee (MPC) will not increase interest rates before the MPC meeting, scheduled to convene on December 16 to determine the new policy rate, took place. 

This assurance goes beyond President Erdoğan’s insistence on his stance against interest rate hikes and firing the Central Bank President because he did not reduce the interest rate. 

It points out that the Central Bank’s independence on paper is no longer there.

During the seven-hour meeting, the Minister of Treasury and Finance did not mention inflation. When asked about inflation, he glossed over the issue and brought it to the current account deficit; At least, that’s my impression. However, the overwhelming majority of the economic world believes that the economy can’t get back on track unless inflation is reduced.

Likewise, the participants noted that they could not get answers to where to find the necessary resources for growth and how to ensure stability. The Minister answered these questions by drawing the issue to the global conjuncture and geopolitical questions. In other words, he did not answer them.

The impression of the business world is that the government has decided what to do, but it is not yet clear how.

Stability cannot be achieved with one meeting

When I asked what they meant by the word “stability,” my sources responded with more than one headline. They meant a bundle that includes different requirements such as the government or Erdoğan to be predictable in their decisions, implementations to be well-planned and not being cancelled after initiated, incentives not being cancelled, and insurance of legal guarantee, in other words, no political interference to the judiciary. 

However, the priority of the government is the shortage of foreign currency.

Nabati openly asked investors and banks not to buy foreign currency when the Central Bank intervened in foreign currency to eliminate distrust in the markets and the public. (As a matter of fact, the CBRT made another intervention when the dollar exceeded 14.6 Liras at noon on December 13, but it could not lower the US Dollar below 14 Liras.) The foreign exchange deposit in Turkish banks reached 260 billion dollars. It was discussed that 400 billion Liras worth of gold under the pillow should be discharged into the economy.

So, what does the business community think about this meeting, and how convincing do they find what is said?

First of all, the world of C-level business people was pleased that the Minister held this meeting and listened to them one by one. However, it is not expected that everything will work out with a meeting.

Let’s get closer with the EU, but no mention of the US

Nebati did not give any message on two main issues: the fight against inflation and the source of investment. Industrial production, which is still the source of exports, has reached the upper limit; It works with 75-80 percent efficiency. In other words, what is needed to increase production, not efficiency, and it requires new investment.

Where will that investment come from? No clear answer can be given. When asked, politicians start to give political messages and talk about the importance of national unity. Because, as Nabati admits, the problem in the economy is distrust in the government rather than a foreign attack. Would Erdogan repeat this discourse in his speeches?

Exports are made to foreign powers, and investment is expected from abroad.

Nebati has already said that they want to improve relations with the European Union, and asked for the help of the business world. However, how to improve relations with the EU as the quality of economy and democracy is constantly declining is another issue.

The USA, where Erdoğan talked about increasing trade to 100 billion dollars, was not mentioned in this 7-hour-meeting. So on the one hand, is it realistic when there are talks about threats of new sanctions?

In other words, the contradictions are not only economical but also political.

Such are the impressions conveyed, at least.