What do economists say about the Common Policies Consensus Paper?
The Table of Six shared their Common Policies Consensus Paper, which had been in the works for quite some time, with the public at the Ankara Congresium convention center. One of the most anticipated areas of the paper was its economic policies. There were important topics and articles concerning the field of economy, finance, and social policies. How did economists find this text, ranging from the inflation target to growth, from the fight against poverty to the Central Bank? What do they think? Economists Nesrin Nas, Mustafa Sonmez, Murat Kubilay, Emrah Lafci and Ilhan Dogus evaluated the Consensus Paper for Arti Gercek.
NESRIN NAS: I BELIEVE THE TEXT WILL EXCITE THE PUBLIC
I studied the text and my general opinion of it is positive. We see that an effort will be made to repair institutional structures and to revive them. There are examples such as ensuring the independence of the Central Bank and the separation of the Ministry of Treasury and Finance. I think that the Consensus Paper will create excitement in society. Considering that there is a serious problem of hunger and poverty, for example, giving breakfast and lunch to children can be affordable topics. When this air of excitement is created, society will expect things.
There is a rule in economy which states that as the belief that things will get better increases, expectations are shaped accordingly. Pessimism, on the other hand, can make things worse than they already are. I see, first and foremost, that the Paper attempts to create this optimism. As such, I find the text realistic, it can create excitement, but I just have some questions about inflation.
“THE MOST THOUGHT-PROVOKING PART IS FIGHTING INFLATION”
The part that makes me pause and think the most is the fight against inflation and poverty, and of course, employment. Inflation has already stuck. Pricing habits will be geared not towards future inflation rations but towards compensating for past accumulated inflation. How to remove that “stickiness,” now that is the biggest problem. Unfortunately, it is not easy to take steps and make rapid transformations in sectors such as rents or service-related fields. For example, housing supply cannot be increased very quickly. Perhaps joint solutions can be produced with municipalities by finding resources from international markets.
It may be necessary to give up growth in the fight against inflation. However, it should be noted that the redistribution of wealth within society can bring with it growth, at rates that are sometimes much higher than expected. Regulating income distribution is important in this respect. I think this problem can be solved with high taxation if the savings owners can be convinced.
MUSTAFA SONMEZ: ALL THAT A RATIONAL MIND EXPECTS HAS BEEN INCLUDED ARTICLE BY ARTICLE
When I examine the text, I see a consensus based on what can be done to salvage the wreck that had been created. There is a consensus about turning to the West as the axis here. Instead of an adventure in Russia or the Middle East, there is a return to the West. The independence of the Central Bank and the choice to separate the Ministry of Treasury and Finance bode well.
There is no clear framework for City Hospitals and Public Private Enterprises. They are just trying to understand what's being handed down to us, there is transparency in this regard. There is no promise being made to review or terminate those contracts.
When we look at the basic economic targets, there are targets ranging from growth to national income. Everyone has the obligation to outline such goals. A government that has a claim to legitimacy must say these. The claim "we will fight inflation, but we will not neglect growth, we will grow by x amount" needed to be said, and so these were written. Whether or not these will happen is another story, but if you are creating a program, you have to talk about these things.
In practice, their realization depends on foreign inflows. It depends on recreating confidence in Turkey and a decrease in the risk premium. So, there is the claim that we can do all these things, that they can happen. If you are asking whether the goals are consistent with each other, I think they are.
It is said that attention will be paid to income distribution and attention will be paid to regional balances. Everything that a rational mind expects has been included article by article. Time will tell what happens with regard to implementation.
MURAT KUBILAY: AS A TRANSITIONAL TEXT, IT IS POSITIVE
The principles on the economy stated by Republican People’s Party (CHP) leader Kemal Kilicdaroglu, which were previously stated by Table of Six staff, were put forward more clearly. There is a strengthening of private institutions such as the Strategy and Planning Organization and the independence of the Central Bank. Although we do not know the transition process yet, it has been revealed that there will be a restructuring in economic institutions. For example, the Ministry of Treasury and Finance will be separated from each other. There are commitments to support society without falling into political concerns, which the ruling party has benefited greatly from in the long run.
Sectoral analysis has been given importance. In sectors that are seen as strategic, a planning that will include the public and the private is envisaged. I think that needed to be taken into account. The ineffectiveness of the private sector in certain areas was considered, and even the privileges of gangs of five and similar groups were observed. In order to regulate this, a new commission was prepared to return the assets to the public.
In general, as a text that opposition parties can agree on, it is positive. However, it will need to be developed further after the transition period of 1-3 years. After all, this is a joint agreement, it is valid for the period of Turkey's normalization process. After this, it would be best to prepare a new text on both development and redistribution of wealth.
EMRAH LAFCI: THE PAPER IS GOOD, THOUGH I HAVE CONCERNS REGARDING THE IMPLEMENTATION PROCESS
When we examine the paper, we see that some of the previously mentioned headings are included, such as the independence of the Central Bank. These are explanations we have heard from time to time, I would not actually say that it is something new in this respect. When we look at the targets, it seems that targets such as inflation and growth can be achieved whereas increasing exports to 600 billion dollars seems somewhat fanciful.
I found the paper satisfactory. My biggest reservation about this is the implementation process. Who will implement it, who will be the Minister of Finance, who will be the staff, on one side there is the Good Party, on the other hand there is Babacan, and CHP as well. In other words, I have reservations regarding the implementation phase. Beyond that, I think the paper will have a positive effect at least initially as the new government will be inheriting a wreck.
“IT IS IMPORTANT THAT FOREIGN INVESTORS ARE CONVINCED”
Emrah Lafci continued his views on the subject by drawing attention to the investment related parts:
“Foreign investors must believe that the Table of Six can do this job consistently, because it needs to finance it. If such a persuasion does not occur, if foreign investors do not come immediately in 2023, we may face a devaluation. At this point, depending on how they perceive at the pre-election atmosphere and with what percentage of votes the new government wins, foreign investors may come for cheaper gains. Of course, they will not come preceding the election, but resources are needed on this.”
ILHAN DOGUS: NO MENTION IS MADE OF PUBLIC INVESTMENT AND EMPLOYMENT
When I examine the paper, there are some elements that catch my attention. I want to mention them. First, reducing unemployment to single digits is not a welfare-friendly goal. A government's goal should be to end involuntary unemployment. It is a right for people to be able to work if they want to do so.
With regard to the growth issue, the paper says that "We will ensure that the average growth rate is above 5 percent" and "At the end of five years, we will at least double our per capita income in dollars.” To realize this 5 percent growth with the current population growth rate of 1.21 percent, the dollar exchange rate must reach around 11 percent.
Bringing the exchange rate to this level again requires high increases in the interest rates, according to the economics understanding that contributes to the text though it goes unspecified. Raising interest rates to such a degree would make the promised growth and employment target impossible.
According to the understanding of the economists advising the Nation Alliance, an increase in growth, a decrease in poverty, and an increase in demand are inflationary. It is a mystery how they will reduce inflation to single digits while increasing growth above 5 percent, and how they will eliminate these contradictions. It has been said that "In five years, at least 5 million additional jobs will be created that will provide qualified and decent income." The broadly defined number of unemployed was 7.8 million people in November 2022. If we factor in the projected population increase of 1.21 percent, the number of unemployed will be 8.6 million at the end of 5 years. In other words, 3.6 million more people will be unemployed. The current workforce of 31.6 million will reach 35.2 million at the end of 5 years at a population growth rate of 1.2 percent. This still means that the unemployment rate will be above 10 percent. So, this projection is computationally inconsistent.
“We will not impose responsibilities on the Central Bank other than maintaining price and financial stability," says the paper. Financial stability is the main task of central banks, the reason for their existence. Price stability is outside the sphere of influence of Central Banks and interest rates do not have a strong effect on prices. Inflation targeting has demonstrably been a practice that increases unemployment and decreases the share of labor in GNP. Public investment and public employment are the most effective instruments for a government to affect the economy and realize its promises such as reducing unemployment, increasing growth, and improving income justice. These were not mentioned. So, if the Nation Alliance will not make these promises with its fiscal policy, how will it be successful? By making concessions to the private sector? It has been experienced for 40 years that practices such as tax incentives and tax reductions have not yielded the expected results.