The question of how Turkey’s growth performance will be in 2017 and after has become an important matter of debate after Sunday’s referendum. The International Monetary Fund’s (IMF) latest global economic outlook report stated that the referendum results would produce political uncertainty, which would also reduce growth in Turkey. I must note that this is a very subjective and unrealistic comment.
The Turkish government had already begun forming the institutional structure of the new era long before the referendum. We will now see that these steps will continue faster as part of a more comprehensive reform program.
The new system will help ensure stability and economic growth in quite a short time and quickly remove the not-so-very-widespread social uneasiness. There is no need to wait until 2019 for the institutions and reforms of the new era, as I have just said, they have already begun coming into force. In this regard, the Credit Guarantee Fund is a very concrete and historic example. This is a giant step toward ending mortgage-based banking, which is the most serious problem in the tutelary economy today. The outdated mortgage-based collateral system has ended in Turkey, but instead a new collateral system has been introduced that turns the project risk into a credit risk.
The Credit Guarantee Fund provided loans of TL 137.7 billion ($37 billion) in a very short period of time. It provided only 2 percent of the total bail, amounting to TL 122.3 billion to existing credits. In other words, criticism that banks find remedies for their doubtful receivables is not right. Small and medium size enterprises (SMEs) were supported by 92 percent of these loans and the average interest rate was 14 percent. I predict that this loan expansion alone, which supports employment, will contribute 1 or 1.5 percent to the economic growth in 2017. Of course, the IMF cannot fathom this step in the new era. For this reason, I would like to advise everyone to follow these reforms, which will be rapidly introduced in Turkey as of May.
Now, let us revisit the IMF’s latest global economic outlook report, which is far from the facts of the world and Turkey. Apart from cliché comments that are based on some technical and economic data, it is clear that the report has an implicit political tendency. It identifies risks that will face the global economy in the medium run, and touches on issues such as global income inequality, the introverted and protective political orientation of developed countries, and low productivity in economies. However, as the report does not identify the root causes of these fundamental structural problems, it seems that it reflects a conclusive finding, from growth estimations to necessary reforms, as subjective political wishes.
In general, the report revises up growth expectations for developed countries, including central Europe, while reducing the growth expectation of developing countries based on political risks. Of course, it downwardly revises the 2017 growth expectations for Turkey for the same reason, saying that Turkey will enter into a process of political uncertainty because of the referendum and geopolitical risks.
Certainly, it would be hard to say that this is not a wish, but an objective economic outcome. This is because the report overlooks the fact that the growth pace that started in Turkey in the last quarter of 2016 will gain momentum in 2017.
Unemployment figures for January show that non-agricultural employment has begun falling. Although the non-farm labor force, which declined in the previous period, started rising in January, the non-agriculture employment increased faster. I predict a rapid increase in employment in the industry as of February. It can be said that industry and exports will make a clear positive contribution to growth by pushing up employment in 2017. I will briefly touch on the reasons for it below, but I must first touch on the essence of the IMF’s wish for Turkey: “The decline in the developed countries’ influence on the global economic strength, which became clear during the 2008 crisis, should stop and not reach Asia’s development and the Eurasia region. For this reason, political risks will come to the fore in Asia Minor countries such as the Pacific, Middle East and Caucasus.”
The IMF reduces its growth estimation for emerging economies such as Turkey due to political risks; however, it claims that Europe, which is on the brink of disintegration, will not enter recession. This is a political wish that we must dwell upon.
The acceptance of Constitutional amendments in the April 16 referendum and Turkey changing its political and economic system does not mean risk or uncertainty, but overcoming the uncertainties of the old system, renewing institutions in line with the new era and paving the way for reforms. For all these reasons, I predict that Turkey’s growth data in 2018 and 2019 will near two-digit numbers. Exports will make a positive contribution to the economic growth.
As I mentioned above, the loan expansion alone, which is ensured by the Credit Guarantee Fund, will contribute 1 or 1.5 percent to the economic growth in 2017. So, it can be said that the Turkish economy will grow by more than 4 percent in 2017.
A comprehensive reform program will be launched in Turkey that will improve both the financial markets and the investment climate even before 2019. I foresee that foreign direct investment (FDI) will rise rapidly on this note. The new financial architecture pioneered by the Turkish Sovereign Welfare Fund (SWF) will attract Gulf capital to Turkey. This new step by Turkey is a historic stride that will unite Asia Pacific and Eastern Europe. And in this sense, it will make a significant contribution to global peace and welfare. Turkey’s referendum results and the concomitant system change will be the new antidote to the global crisis.
*Cemil Ertem is a Turkish columnist at Daily Sabah Turkish newspaper
(Published in Daily Sabah on Friday, April 21, 2017)