IBRAHIM – Farewell to an ominous year

Farewell to an ominous yearSeveral news stories at the end of last year featured businessmen sharing their views on what would happen in 2014. The main theme was that the new year andquotwould not be unforgettable.

andquot This sounded to me like a clear euphemism of saying andldquoa terrible year ahead,andrdquo and, looking back to the past 12 months as I stand in the last week of this year, I think the businessmen were right. I would say that 2014 was literally an unforgettable yearThey were addressing their concerns about political uncertainties originating from serious assertions of corruption and bribery that implicated a number of members of the government, and the local and presidential elections, which were almost guaranteed to take place in a very tense political environment.

These worries were largely realized, and they were coupled with the recklessness of the government as it undermined the rule of law to dodge the consequences of its actions. Furthermore, a number of external developments — such as sluggish performance in the European economy, worsening geopolitical conditions in the Middle East, a civil war in Ukraine and Russiaand#39s aggressive foreign policy — served to deteriorate the overall situation of our economy.

The US Federal Reserveand#39s unwinding of its expansionary monetary policy apropos of the betterment of the US economy started draining liquidity. Add to this the reflections of political risk, and we saw the lira climb to all-time high levels against the dollarThe nation was able to lower its current account deficit (CAD) in the face of rising exports and falling imports.

This positive picture was backed by falling energy import costs in line with nose-diving oil prices. The deficit was over $52 billion in the first 10 months of 2013 and it was down to $33.

14 billion in the same period of this year This corresponds to a decline of almost 37 percent.This year marked augmented pressure on the central bank by the political authority, denting the bankand#39s prestige in the markets.

Some members of the government, including then-Prime Minister Recep Tayyip ErdoIan, who later became the president, have been openly and blatantly calling on the bank to lower benchmark interest rates to prop up economic growth by encouraging investments and consumption.This pressure continues unabated, and the central bank has accordingly signaled no rate increase in the short term These calls are seemingly in contradiction with the governmentand#39s policy of cooling down the economy by stemming domestic demand to diminish the risks of being caught unprepared with a large CAD burden amidst a possible sharp depreciation of the lira as the dollar gains further ground.

The purchasing managersand#39 index (PMI), which is an indicator oft-referred to regarding the performance of the manufacturing industry, steadily ebbed down until August, well below the break-even point of 50 however, after August, it bounced back again. The real sector confidence index values also showed a similar pattern until August, jumping in September But in October and November, as it became clear that the government and ErdoIan had no intention of letting go of the tensions — only to escalate them further, even risking a severing of ties with the European Union — the index values fell sharply.

Mentioning all the details about the main indicators of the economic situation is beyond the capacity of this column. But please let me state that the numbers were far from attesting to a good performance.

The government was mostly criticized for procrastinating on structural reforms, and, for me, that train has already left the station. Two packages promising to strengthen the foundations of the economy have been announced, but they have not been widely cheered by business representatives as these measures are not reasonable or feasible.

Besides, people simply do not believe or care when the government lists promises to make the economy a top-priority item on its agendaThis is because the government no longer shows respect to the supremacy of law. One of the most appalling practices of the government has been its coordinated and sinister attempt to sink a private bank due to the affiliations of some of its shareholders with the faith-based Hizmet movement, which the government illusively claims to be behind a putsch to derail the country on its journey to become a glorious nation with ErdoIan at the helmSimilarly, the Finance Ministry has profiled over 100,000 companies and dispatched squads of inspectors to make some of them unable to operate under heavy pressure.

Businessmen have been forced to choose between obedience to the government or swallowing a bitter pill. Pro-government companies have been awarded with juicy tenders.

Free-market conditions have been wounded deeply, stirring doubts among foreign investors about the wisdom of bringing their money to a country with its fate tied to the arbitrary and unchecked decisions of a rulerWill next year be better? General elections are scheduled for mid-2015, but no matter the outcome, the party-state will consolidate and the markets will become less free. Ambiguities in the region and in our main trade partners will become worse.

The political atmosphere will be harsher and freedoms will become more restrained. So I think 2015 will be even more andldquounforgettableandrdquo than this year.

SOURCE: Today’s Zaman