In Turkey, it has become customary for those who come to power to say that they inherited a wreck. This is partly true. In order to stay in power, Turkish politicians try to protect their votes by squandering the means at their disposal, by borrowing the means they do not have, and by resorting to populist expenditures. In doing so, they wreck the economy. This has almost always been the case.
This time the situation is different in two ways: First, the economic wreckage is much heavier than in the past, and second, this time there is social and political wreckage as well. This wreckage shows us that what we thought was wreckage until now wasn’t. The earthquake magnified the wreckage, but there would have been serious damage even without it.
Let us first summarize the wreckage in social and political life. We have almost nothing left in terms of rule of law. The law has is governed by a “whatever the government wants” approach. Education seems to have sunk into a complete disaster. From primary school to university, education is of extremely low quality. As a result of increasing the number of universities and making it easier to enter, we have produced thousands of people who have graduated from university but do not know what they have studied. Freedoms are limited: freedom of the press, freedom of science, freedom of demonstration have all been lost. The separation of powers, which is the essence of democracy, is not working at all. On the contrary, it has become a unity of powers.
Society has lost the grounds for compromise in almost every field; every discussion ends in a fight or insult. Waste and corruption have reached incalculable levels. Turkey is completely isolated from the world in foreign policy. We have no friends beyond a pseudo-friendship with Russia and the Gulf states based on self-interest. In a country whose rulers are proud of ignoring the constitution, there is no one left who obeys the law except a well-intentioned minority. Turkey is going backwards in all areas in international indexes.
Regarding the economic dimension of the rubble: this year’s budget deficit was estimated to break a record at 659 billion liras. If we consider that the earthquake will have a direct cost of roughly 100 billion dollars, and that this cost will be spread over three years, this year’s deficit will be 30 billion dollars (600 billion liras at today’s exchange rate). Add to this the promised payments, election expenditures, the huge burden of currency-protected deposits and the increase in interest payments due to the increase in public borrowing, and we can estimate an additional expenditure of roughly 900 billion liras. Even if there is no decline on the revenue side, the budget deficit is likely to reach 1.5 trillion liras.
In such an environment where the budget deficit will increase, and if interest rates continue to be kept low relative to inflation, it would not be surprising if inflation–which had started to fall due to the base effect–starts to increase again and ends the year at around 50 percent (I am using official data here, even though the inflation I actually estimate is much higher than what is announced by officials).
I expect the construction activity caused by the earthquake and the flight of money and increase in demand caused by high inflation to keep growth at around 3.5 percent. Although the decline in growth is likely to curb the rapid increase in the current account deficit in the coming months, it is unlikely that the current account deficit will fall below 5 or 5.5 percent.
The country’s risk premium is almost double the 300 basis points that are considered “extremely risky.” This makes us one of the few riskiest countries in the world. Since this high risk premium pushes external borrowing rates to 10 percent or more in dollar terms, external borrowing at this cost is likely to create even bigger problems.
This is just the tip of the iceberg. The rest will be revealed after the elections if the government changes hands.
Through various moves, the political power managed to hide this catastrophic wreckage until the elections. Many people think the situation is good. If power changes hands, the newcomers will inherit this disastrous situation. And if they fail to explain this situation to the people, they will be thought to have created the wreckage. If the government does not change, for the first time in our history a political power will have handed over a huge wreck to itself.
This article was originally published in Mr. Eğimelz’s blog.
The views and opinions expressed above are the author’s and do not represent those of the Free Turkish Press.