Prominent economist: Economic improvement in Turkey doesn’t solely depend on high interest rates

Prof. Dr. Daron Acemoğlu from the Massachusetts Institute of Technology (MIT) listed four policy changes, emphasizing that raising interest rates alone wouldn’t fix the economy. Despite warnings, the government persisted in a low-interest rate policy, causing the economy to enter a crisis. To aid recovery, figures like Mehmet Şimşek and Gaye Erkan, favored by the market, were appointed. The new administration was expected to “normalize” economic policies and the Central Bank was anticipated to raise interest rates.

In the last two meetings, the Central Bank increased interest rates, which economists found inadequate. In the latest decision on August 24, the rate was raised by 750 basis points to 25 percent. Most economists approved of this decision.

“This decision may be an indication that the Central Bank has truly begun to fight against inflation,” said Acemoğlu in a Twitter post, expressing support for this move.

“THE PATH TO RIGHT POLICIES BEGINS”

Acemoğlu mentioned four policy changes he had consistently emphasized and considered necessary for the economy, stating, “Economic improvement cannot be achieved solely by raising interest rates. I have four policy changes that I have always highlighted and deemed necessary.”

“Moving real interest rates above zero”

Firstly, to start raising interest rates and controlling inflation, real interest rates should be carried above zero. This is crucial for combating inflation. We are at the beginning of this first step. I’m still not sure if state banks will comply. They could continue distributing rent through other means. So, for now, only a portion of the first step has been taken.

“Strengthening freedom of expression and democratic rights”

Secondly, simultaneously initiating an institutional reform process is essential. This is very important. This process should begin with strengthening freedom of expression and democratic rights. However, structural reforms that directly affect the economy are also crucial.

Among these, controlling corruption, stopping practices that reduce competition, ensuring the independence of judicial institutions, and facilitating investments are particularly important. There has been no progress on these matters, and I don’t believe there will be.

“Turkey’s biggest problems are inefficiency and technological lag”

In an analysis I conducted with a related person, it’s revealed that Turkey’s biggest problems are inefficiency and technological lag. These are problems that cannot be solved without significant institutional and structural reforms. As long as this inefficiency continues, real wages won’t increase, and problems triggering inflation will always arise. Poverty and unemployment problems will persist.

“I’m not sure they’ll use resources correctly”

Thirdly, alongside the fight against inflation and the beginning of institutional structural reforms, attracting resources from abroad is important. These resources should be used to rectify the poor condition of companies’ and banks’ balance sheets and to cover the significant expenses arising from earthquakes. Will anything be done about this? Of course, economic policymakers want to attract resources from abroad. But I’m not sure they’ll use them correctly. So far, they haven’t discussed the true situation of Turkish banks and companies.

In the previous term of Mehmet Şimşek as a minister, there were abundant resources, and these resources were not used correctly. It was the period when Turkey’s productivity was the lowest. Will they suddenly start making the right decisions now?

“Difficult times ahead for Turkey and the Turkish people”

Fourthly, ensuring that poverty will not increase. It’s necessary to increase investments and strengthen the social security network through resources from abroad and well-established institutional reforms. I’m not confident that the government will pursue the right policies in this regard.

In conclusion, it’s a step in the right direction, but I’m not sure if it will continue. I believe difficult times await Turkey and the Turkish people. (DIKEN)