Diplomatist Magazine Diplomatist July 2018 | Page 38

PERSPECTIVE
The press freedom and civil liberties have been curtailed.
Now, with Erdogan’s executive presidency and a renewed
electoral mandate, Turkish politics will enter unchartered
waters.
The real test of Turkish democracy will be in the strength
of its economy. The major signs, thus far, are negative. The
offi cial reserves are rapidly declining and foreign debt,
especially private sector borrowing abroad, is alarmingly
high. In the face of capital fl ight and a rising external trade
defi cit, the Turkish Central Bank has had to raise interest rates,
now at 17.75 percent. This has added to infl ation woes; the
annual rate of infl ation has risen to over 12 percent.
In the months ahead, the Turkish Lira is likely to lose value
as the external trade defi cit worsens. An emergency call for
help from the International Monetary Fund is not out of the
question. Having been downgraded by rating agencies, direct
foreign investment in Turkey is also witnessing a decline.
Serious structural reform is imperative to avoid economic
collapse. Household saving in Turkey is one-tenth of the
disposable income, well below the average in comparable
countries. Furthermore, the Turkish government spends more
than it earns as tax revenue. Growth depends on foreign
borrowing.
What Turkey needs is capital deepening, following the
example of India, by opening branch banks, away from urban
centers, especially in Eastern (mainly Kurdish) Anatolia. But
the violence resulting from the confl ict between the PKK and
the Turkish authorities is a major stumbling block, preventing
normal socio-economic and banking reforms in these parts
of the country. In the absence of banks in rural areas, private
savers hoard gold and informal money-lending is abound.
Turkey needs to undertake two major structural reforms.
First, the economy must be induced to maximise domestic
value-additions, replacing the unproductive and excessive
reliance on consumer-goods imports that now fi ll urban
shopping malls. Even the famed Turkish coffee and cuisine
have now been Americanised or replaced by Italian or
French imports. In Anatolia, home of the historic arts and
crafts, traditional handicrafts have been replaced by cheap
Chinese imports. Innovative investment incentives are
urgently required to encourage restructuring toward domestic
production to replace costly consumer-goods imports.
Secondly, and most significantly, Turkey needs to
boost its reliance on domestic energy. Over three-quarters
of the Turkish trade defi cit is due to high-cost imports of
hydrocarbons. Energy imports represent 95 percent of total
Russian President Vladimir Putin, left, and Turkey's President Recep Tayyip Erdogan
shake hands before a meeting in Ankara, Turkey, Tuesday April 3, 2018.
38 • Extraordinary and Plenipotentiary Diplomatist • Vol 6 • Issue 7 • July 2018, Noida