Turkish Economy Minister and Deputy Prime Minister Ali Babacan has spoken highly about the recent measures the Turkish Central Bank has taken concerning interest rates and the exchange rate regime, saying the bank’s measures were “very appropriate.”
Addressing an audience of high-profile financiers at the İstanbul Financial Summit on Wednesday in İstanbul, the minister objected to recently raised criticisms against the monetary policies undertaken by the central bank to stem the adverse impacts of the economic crisis and to prepare the country for an exit strategy from the crisis mood.
He stressed the independence of the central bank in setting and applying policies and pointed to its primary objective of attaining and conserving price stability beyond anything else. “If there is a skillful captain at the rudder of a ship, he changes course if he sees risks on the horizon. He rearranges the route to ensure the ship safely reaches its destination,” he said, praising the central bank’s dexterity in shifting policies with timely measures.
Stability is the most fundamental parameter in the economy policies of the governments of the Justice and Development Party (AK Party), as already set out in the party program, the minister underlined, explaining that if stability sustains damage, Turkey gets wounded and everyone living in the country suffers.
In his speech, Babacan also provided some self-criticism with regard to the government’s failure to advance structural reforms to improve the legal system. A well-functioning legal system is an indispensable asset for Turkey, the minister asserted and went on: “We have completed numerous reforms in many areas but haven’t done much concerning the legal system. We are not much different from where we were when we started in 2002.
Reasonable judgments, predictable decisions and clearing gray [unclear] areas from regulations are extremely important issues, and we have to take action to ensure Turkey is a legal state.”
The basis of all economy policies is to improve the conditions of the people, and Turkey has achieved a great deal with regard to this primary purpose during the last eight years since the AK Party government came to power, Babacan argued.
“However, we shouldn’t stop here. We must avoid saying ‘we have already reached $10,000 in per capita gross domestic product (GDP) and we are comfortable now, we are alright.’ Instead we have to prepare the appropriate ground for a Turkey that has $20,000 or even $30,000 per capita GDP,” he noted.
Finance minister suggests caution despite improvements
Finance Minister Şimşek also delivered a speech at the forum and dwelled heavily on the significance of retaining a cautious mood and avoiding falling prey to lethargy from having escaped from the worst of the economic crisis, which was evident from recent growth figures that exceeded expectations.
Şimşek said the Turkish government was already well aware of problems in the global economy and persistent risks, adding that the high performance in the first half of the year shouldn’t be expected to continue for the rest of the year. “On the contrary, we are exerting efforts to sustain a more reasonable performance,” said the minister.
Commenting on the current phase of the global economic crisis, Şimşek pointed to a rise in hopes for a recovery; however, he argued, the recovery is still weak and fragile.
He also mentioned a decoupling in favor of developing economies concerning some recent macroeconomic indicators, such as growth rates, but added, “if all the other engines of the world are not functioning strongly and are not creating new jobs, it lowers expectations [of a complete recovery] for the term ahead.”
He further argued that Turkey was lucky as the crisis did no great harm to its banking sector and budget accounts, also adding that the Turkish economy entered a quick recovery once the dust from the crisis settled down.
“Turkey is continuing its strong economic growth. There are certain pre-requisites for this growth to continue. There are also strong indicators signaling that Turkey will grow faster than other countries, at least faster than Europe,” said the minister.
He said Turkey’s risk premiums were much better than many Eurozone countries, noting that it was not a coincidence but the fruit of the structural reforms implemented over the last eight years.
Şimşek underlined that the continuation of this trend was no guaranty, as Turkey was not an island in a weak global economy.
“In order to sustain strong economic growth, we have to strengthen its foundations with reforms. I see the recent constitutional amendment as a reform opening the door for Turkey’s way out,” said Şimşek.
Meanwhile, as he was speaking to reporters on the sidelines of the conference, the finance minister commented on the use of capital controls by developing countries to control strengthening currencies. He said the utilization of this mechanism is questionable on the grounds that the evidence supporting their efficiency is lacking.