63rd government’s challenges

The general election on June 7 will mark the beginning of a new era for Turkey, regardless of what kind of political landscape emerges.
There is no doubt about this. Be the government a single party majority or a minority coalition, the regime of the country as we know it will see an extensive change. The Justice and Development Party (AKP) winning in a landslide victory with enough deputies to change the Constitution alone will spell a death knell for parliamentary democracy in Turkey. A coalition without the AKP will trigger a restoration of the democratic institutions in which the actors of the pre-AKP era will possibly, and hopefully, avoid making the same mistakes that paved the way for the rise of AKP authoritarianism. This column aims to focus on the urgent economic issues that the 63rd government will have to take into consideration. First off, during the last decade, the economic system of the country has been gradually converted into a crony capitalism system in which a clan of privileged businessmen is awarded lucrative public tenders in return for supporting the incumbent party. If the AKP wins again, this system will not only continue but will also be more aggravated and rooted, as the new government will hold uninterrupted sway over power for the next four years.
As a part of this restoration, the autonomy of economic institutions like the central bank and the Banking Regulation and Supervision Agency (BDDK) must be reinstituted with the necessary legal fortifications making it impossible for the political authority to wield influence over them again. This will increase these institutionsand’ efficacy immeasurably and will prevent subjective practices such as the BDDKand’s confiscation of the management of Bank Asya amid political pressure. The Turkish economy is now suffering a structural glitch due to the and”inability to grow.and” The new government will have to promptly take action to fix this anomaly. As far as I followed from their election promises, the opposition parties seem to have grasped the source of the problem, which is the overreliance on the construction sector and focusing on superstructure investments rather than channelizing the flush of funds from abroad and savings to update and aance the nationand’s industrial productivity capacity while reducing the dependence on imports.
The current account deficit (CAD) has been the most drastic side effect of the economic growth policy of the governments since 2002, and the last government has been trying to patch up this loophole by pushing the brakes of domestic demand through macro prudential measures. This would at best provide extra time for policy makers to launch structural reforms, but there has been virtually no progress there. It will not be as easy as having good faith, and the opposition parties, if they can find a way to the prime ministerand’s seat, must be aware that the struggle will be arduous and demanding. They will have to carry the burden, as they will see economic conditions deteriorate further for some time until some tangible results are harvested. And in the meantime, their popularity may be tarnished. The new government will also confront a damaging blow due to inflation. The central bank still keeps its year-end target at 6.8 percent. However, since the cumulative number for the five months has already exceeded 5.3 percent, the assumption that aggregate inflation will be 1.5 percent for the rest of the year is but a delusion. My estimate is that it will be in the ballpark of 9 percent for end-2015, in view of the fact that lower oil prices will be offset and the lagging transitivity effect from the depreciation of the lira will kick in. The central bank will have to adjust its target after the elections.
I would like to discuss in detail the challenges that the new government will have to face on a number of other fronts such as the S Federal Reserveand’s rate hike, unemployment, the current account deficit, foreign direct investments, the debt burden, borrowing conditions, savings and investments, etc., if it were not for the word limit of this article. As a final note, the challenges are huge and imposing and they are waiting at the door. They are unavoidable and unmanageable in the short term. Once they occur, the electors will not think they are inherited from the past, but will hold the party or parties in the government responsible from them. So, if the election results enforce the formation of a coalition, which will possibly require early elections, the parties will have to think twice before taking the hit.

SOURCE: Today’s Zaman