Daily Times

In recent days, Turkey has been mentioned with the dollar on international media. It is almost impossible to predict the descent of Turkey’s economy. The economic system is reflected as a challenging process and cannot be perceived as independent from the political processes.

Nowadays, the world is watching an unstable Turkish Economy. It is clear that the depreciation of the Turkish Lira has been the biggest loss in recent years. The exchange rate is not only effective on international goods, services and capital flows. An important dimension of exchange rate policies are widely used to combat inflation, unemployment, current deficits. In many developing countries, the main determinant of the recent economic crises is the exchange rate policies implemented. In the last period, Turkey got its share as a developing country.

In fact, everything is changing with the variability of the political spectrum in Turkey. Besides political stability, Turkey reflects that this is due to the political atmosphere that is multivariate to the survival of the economy. All these transformations which are sudden fluctuations affect the course of the dollar. In order to understand this course, basic macroeconomic dimensions should be taken into account.

Unemployment has decreased 10.2 percent by August in 2018. It was 10.8 in December 2017. Labour force participation rate is increasing. However, while there is an empirically close relationship between unemployment and the dollar rate, this does not prevent the price of the dollar falling. Current account deficit is not stable.

It is following a bumpy course. But it cannot be reduced to 5 percent which is the aim. Especially in August, the lowest current account deficit was experienced in the last period. Inflation started to rise, with the increase in the price of the dollar. This is amongst the reasons why Turkey is amongst the five fragile economies of the world. Each of these questions is a long-term discussion, but each one is a dependent variable that explains the rise of the dollar. Each economic variable helped the dollar move. It is not easy to analyse this situation which has a difficult economic outlook from the outside. Because the estimates do not hold. In the last case, it is seen that the dollar is around 6. For a good economic policy, we must first understand how to determine the value of the currency.

Unemployment has decreased 10.2 percent by August in 2018. It was 10.8 in December 2017

As all goods and services have been in the economy, there is a market in foreign exchange, too. For example, according to the provisional foreign trade data by the Ministry of Commerce in cooperation with Turkey Statistical Institute; exports decreased by 6.5 percent in August 2018, compared to the same month of the previous year and amounted to 12 billion 383 million dollars, and imports decreased by 22.7 percent which is 14 billion 805 million dollars.

Turkey was increasing its potential at the end of 2017. Now, however, the dollar is dominated by an inflationary growth. But it should be looked at its components. The reason is the expansionary fiscal policy applied to reduce the slowdown in the economy after the attempted coup on July 15. This expansion step was necessary, but we should adjust the dose well. Each economy has a long-term average growth rate. If this increases on the potential growth, this is directly triggering inflation.

We need a long-term GDP data, but we can’t calculate it. Because Turkey Statistical Institute-TUIK made revisions. We can’t compare data from before 2009. Comparing after 2009, is not enough to solve today’s problems. I think most of the problems are coming from this angle. In the last two quarters, growth was 8-9 percent. This is Turkey’s long-term growth potential. If you accelerate above the average of the economy, it will not be sustainable. The situation is that the economy should also rise like the pulse of a runner does. We haven’t had enough time since 2009, so we can’t compare. But Recently, the medium-term program has been announced. It is important, because in the medium term, it was reported that steps have been taken by the state. It’s possible to be able to read the steps of Turkey from that program for next 3 years. So its importance lies in having a road map.

Turkey’s income per capita was $ 10,600 in 2017. It is expected to fall to $ 9,385 at the end of 2018. According to The Medium Term Programme, in 2019, it will be $ 9,647 and in 2020, it will reach $ 10,300. What does it mean? It means that Turkey’s success in 2017, will be reached only in 2021. In this respect, the dollar, which will close the gap, will be reduced and maintain the value of the Turkish Lira at a stable level.

Everything unfolds against the dollar in the global supply and demand, dollar won or lost value relative to the equilibrium value. Turkey’s current account deficit, external debt is rising due to external factors. In order to close the private sector’s external debt, the dollar has to be bought out by the exchange rate. When the demand for the dollar is high, the move of the Central Bank prevents the dollar from keeping the dollar at a certain level. As such, according to experts in the long term, the only benefit is to reduce the imports by closing the current account deficit and to reduce prices based on foreign exchange rates by decreasing the current price. In this way, the purchasing power of the public is increased and inflation is reduced.

The author is a PhD student at the Istanbul University and works as a research assistant at Okan University

Published in Daily Times, October 26^th 2018.