The Turkish government’s pledge to reform the vulnerable economy is a good sign for restoring credibility, but the future still hangs in the balance, especially against a backdrop of the COVID-19 pandemic, as benefits would only come in the long term, experts said.
Turkish President Recep Tayyip Erdogan announced in mid-November that his government is making preparations for new reforms in the economy and judiciary, showing determination to usher Turkey into “a new booming era for economy and democracy.”
“We will take every step to gain investors’ confidence; we will do what is necessary,” Erdogan told a group of businessmen, noting reform measures regarding the economy will be presented to parliament as soon as possible.
A parliamentary source has confirmed to Xinhua that legal amendments are being prepared by the ruling Justice and Development Party (AKP) and will be submitted to lawmakers in weeks.
Earlier this month, after a surprising reshuffle at the top of Turkey’s economic team, the Central Bank hiked the interest rate by 475 points to 15 percent, a move that met the market’s expectation and was saluted by many investors as something that could re-establish the credibility of the banking system and the emerging nation.
The Turkish lira has lost 30 percent of its value since the start of the year despite massive interventions from state lenders and the Central Bank that have depleted Turkey’s foreign currency reserves.
Currently, inflation and unemployment remain at double digits amid a widening current account deficit and high foreign-denominated debt.
Turmoil in Turkey’s neighboring countries also leaves the economy vulnerable to destabilizing shifts in investor confidence, as Turks have turned to U.S. dollars, euros and gold to protect their capital amid a sharp depreciation of lira and their savings, leading to so-called dollarization of the economy.
Official data published last week showed Turks held a record 225.8 billion dollars of foreign currency and precious metals as of Nov. 13.
Yalcin Karatepe, a professor of economics at Ankara University, told Xinhua that Turkey must focus on sustaining macroeconomic stability for the long haul rather than to resort to a quick fix.
“Commitments are good but not enough. We have to see what actually is going to be done to restore investor and market confidence,” he said, noting the need to reinforce the supremacy of law to lure foreign investors back to Turkey.
Karatepe also highlighted the need for long-awaited structural reforms, such as an equitable distribution of income and fiscal plans, to get the lost capital back.
In a recent note to investors, Enver Erkan, an economist at Istanbul’s Tera Securities, said the messages from the new Central Bank management, new economics staff and President Erdogan were well received among investors.
“As soon as possible, economic decision-makers should support these goodwill messages with actions. The market is waiting for more precise and orthodox monetary policy movements,” he remarked.
Other economists urged Erdogan to be more open to the prospect of a new International Monetary Fund (IMF) program, an eventuality that the Turkish leader has rejected in the past.
Korkut Boratav, a veteran Turkish economist and scholar, said in an article this week that the Turkish government should consider an IMF loan to avoid a potential default in foreign debt repayments, which would be an unprecedented scenario for Turkey.