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Political Scientist Ali Rıza Güngen: Hard Times Ahead

Political scientist Ali Rıza Güngen, arguing hard times waiting Turkey ahead said, “The capital inflows and the credit expansion of the next 2 to 3 months will reveal what we will face in 2019. Technically the economic crisis (contraction in two consecutive quarters) seems to be inevitable.”

Ayça Onuralmış

According to the Consumer Price Index (CPI) announced by Turkish Statistical Institute (TÜİK), the annual inflation rate has risen to 24.52 per cent in September, the highest of the last 15 years. The government on the other hand is trying to intervene it with the “Total Fight Against Inflation Program.” Then, is it possible to avoid the crisis?

Political scientist Ali Rıza Güngen argues that, “If the pace of the capital inflows changes and the cost of the crisis could be spread and reflected to the whole society there will be recovery following the recession” and he evaluates the latest developments and the expectations for 2019 for halagazeteciyiz.net…


– According to the TÜİK data, the inflation rate shows a monthly increase of 6.3 per cent, rising the annual rate to 24.52 per cent. This is the highest level recorded since June 2003 and the 12 month average shows a 13,75 per cent increase. There is a 22 points difference between the PPI and the CPI. What does this mean for the producers and the consumers; what will be the consequences and how will it be reflected on the people?

The fact that the PPI has risen to 46 per cent showed that the consumer prices would still be rising in the following months. However, in accordance with Fight Against Inflation Program’s announcement that the prices of 50 products will be reduced until the year’s end, we can expect a deceleration in the price increases.

The producer price inflation has been significantly high for some time now however, it is not necessary these surges are directly reflected in the consumer prices. There is a lag. The measures taken for disinflation together with the recession force the firms to relinquish from rising their prices. In any case, we can say that the inflation will be detrimental to the people. The price increases canceled today will be coming back starting this January. It is a slim chance for a government of a policy term of as short as two and an half months to find a way out from the crisis without reflecting the cost to the public.

– According to “The Research on Income and Living Conditions” published by TÜİK, the 20 per cent highest income group grabs 47.7 per cent of the total income while the lowest 20 per cent’s share is 6.3 per cent. 69.2 per cent of the population is either paying credit or in debt, not related to housing expenditures. What are the reasons behind the income inequality? Why is this difference increasing year by year?

The Research on Income and Living Conditions presents striking results. In the last 11 years, the income of the poorest 5 per cent has increased merely by a 0,1 per cent while the richest 5 per cent has seen a 5 per cent increase in their income. Every six out of ten cannot afford a holiday away from home. Or, for instance, 61 per cent of the poor population is unable to heat their houses, 62 per cent of them cannot pay for unexpected expenses.

The reasons for the income inequality are the economic policies. When the retained profits are taken into consideration it is possible to see the income inequality in Turkey is even more drastic. The annual increase in inequality shows that the social policies are not alleviating inequality but merely managing it. On the other hand, even though the wages are not decreasing and the budget for welfare assistance is increasing, we see that the income of the top groups is yet increasing even faster. In the context of the crisis the situation will get even worse for a while. There is a good chance that the reel wages will be repressed and the transfers to the households will be cut.

– Is it possible the inflation target set by the New Economic Program (NEP) could be met? What can you say about the “Total Fight Against Inflation Program?” What will its effects be?

It was not possible to meet the NEP’s anticipated rate (20.8 per cent by the end of 2018) before the announcement of the fight against inflation program. However, under the enforced reductions in prices, it is now possible. Still, the comeback of the cancelled price increases, some by January, others after the local elections, will make it hart to achieve the target rate for 2019.

We see a 19.3 per cent increase in prices during the first 9 months of the year. It was not possible to keep the rate at 20 per cent by the end of the year without the enforced price reductions such as dictated by the inflation program. The implementation, however, is significant in means of controlling the wage increases and limiting the increase in minimum wage rate. The fact that the measures taken for the sake of the short term, obstruct achieving the medium term targets, demonstrates the crisis of the crisis management. Its effect on the economy will be just delaying the higher inflation rates. However, the program does not alter the suspension of household spending decisions other than the basic consumption under recession.

– 75 per cent of those more than 3 thousand firms went bankrupt is construction companies, concrete plants, construction material wholesalers and hardware dealers. What can you say (specially regarding the working population) to this?

The International Finance Institute’s calculations show that the real estate firms will be the most effected through the foreign exchange dominated indebtedness. It is not possible for the construction firms and the manufacturing sector in general to be safe either. We are yet to know the share of the construction industry in the non-performing loans for the last weeks. How much of these loans will be subject to September’s restructuring framework, we will see in the coming months. However, the contraction seems inevitable for the construction industry.

In recession, it seems the unemployment, for instance the NEP’s estimate of one million newly unemployed will be coming from the construction industry as the expansion of this sector absorbed the excess labor supply during the times of economic boom.

For the working people the recession means unemployment as well as the swelling of the reserve army of labor means downward pressures on the real wages. Under these circumstances, it is urgent to facilitate the Unemployment Insurance Fund and use it for the unemployed and the public interest.

– Why was McKinsey invited to Turkey? What may be the reasons why the deal was abandoned?

A deal with the IMF has very high “political costs.” For a cadre, having long boasted for getting rid of and extending loan to the IMF, it is the last resort to go and knock at the IMF’s door. In this period in face of the security demands of the investors McKinsey may have been seen as a remedy.

In the 16th century, when it is not anymore enough to assure by the mere body of the sovereign, the King had to put the Paris’s public income as assurance to secure a loan. Similarly in today’s complicated world, the assurance by the name and the position of the president is not enough. Some people in the JDP must have seen the statement declaring the the government would pay regard to a consulting firm, a way out. However, continuing loss of votes forced the president to personally avert this attempt. If the JDP were not loosing votes in the crises environment the McKinsey deal would go on and be used functionally by the JDP government.

What s important here is the necessity to assure international financial capital and the investors. McKinsey might have left the scene (we will not be able to know this for sure) but the “assurance” problem with the international financial capital is still here.

– What could happen in the economy in the last months of the year and in 2019? Could the crisis be overcome? What is ahead for Turkey?

We will feel the economic recession in the last months of 2018. If the assurance problem we have mentioned briefly continues to be an issue, we may witness a foreign exchange attack similar to the one in May and August. The measures aiming at controlling the extent of the recession will trigger a problem in the financial sector. There will try to solve it yet by another bail-out.

What will happen in the first months of 2019 depends on the capital inflows and credit expansion in the next 2 to 3 months. Technically economic crisis (contraction in two consecutive quarters) seems inevitable. However, under two conditions there may be a following rapid recovery: If the capital inflows increase pace and if the cost of the crisis could be spread to the whole society and they could make people pay the price. But, if you take note, what I am saying is that the economic recovery will create an environment in which the people will even worse off in 2019.

There are hard times ahead. The way not to let the broad social segments of the society pay the price of 2018 crisis is to persist on vocalizing what we think and augment our voices.

Translation : Benan Eres

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