Reuters: There Is An Alternative Economy Program Work Within The AKP

Days before the second round of the presidential election, it is still unclear whether the AKP will stick to the current economic program, which has come under “untenable” criticism.

According to Reuters interviews with almost 10 government and party officials, a group within the AKP is working on the fact that it is impossible to solve the current problems of the economy with the policies followed.

The aim of this study, which includes some high-ranking members of the party who were previously involved in the economic administration, is to warn President Tayyip Erdoğan about the seriousness of the problems that may occur in the economy in the coming period and to be ready with A program. which includes a gradual increase in interest rates.

In the first round of the election, although no candidate got enough to become president, Erdogan became the candidate with the most votes with 49.5 percent. Erdogan will compete with opposition candidate Kemal Kılıçdaroğlu in the second round of the elections to be held this weekend.

CURRENT POLICIES MAY CONTINUE

According to the information provided by the sources, the other vision is based on the low interest policy; It is in the direction of the continuation of the current program, in which the public is increasingly decisive in the distribution of currencies, bonds, loans and bank deposits.

The main objective of current practice is to end the chronic current account deficit by concentrating the loans needed to achieve permanent high growth in the so-called “selective” areas, production.

The fact that Erdoğan received more votes in the first round of the elections seems to have put in the background for now the fact that the AKP received 7 points less votes compared to 2018, mainly due to high inflation and the fall of purchasing power.

The government and the current economic management, on the other hand, say that they will continue with the anti-interest, unconventional policy. Similarly, Erdogan, in his April statement, said that as long as he is in power, interest rates will fall and inflation will be under control.

STUDY OF AN ALTERNATIVE TO THE ECONOMY MODEL

In addition to those advocating the continuation of the new model, some AKP staff who are not currently in the administration but have held high positions in the past are doing voluntary work that includes returning to a set of alternative policies that includes an interest rate increase.

Reuters was unable to obtain clear information on whether this work was presented to Erdogan or whether he was interested in it.

According to some government officials, although the damage to the economy caused by the low interest rate policy and exchange rate control policies will continue for a while, the expected negative net reserves and poor performance of the economy will increase. , especially after the summer months. when currency inflows are intense.

A senior official affirmed that there must be a gradual increase in interest rates in the economy and said that a structure where selective credit policies can be carried out by a “public institution” with government subsidies is possible.

The same official said: “There will be only one interest in the market, this structure where multiple interests are formed must be eliminated.”

However, AKP staff say that although they are working on an alternative model, Erdogan’s better-than-expected first-round votes may delay this work for a while.

‘There are TWO DIFFERENT OPINIONS IN THE PARTY’

An AKP official claimed that there are two different views within the party, saying: “One group wants current economic policies to continue to be implemented, but another group now argues that a gradual but measured increase in interest rates would be better in terms of balances”.

“One of the main pressures on economic policies is the local elections nine months later. Local elections will also be taken into account when determining economic management. There is a very high probability that Ankara and Istanbul will return to us, and this opportunity cannot be easily spent.”

The sources note that Erdogan has heard of the growing economic problems and sharp decline in foreign exchange reserves before, but has yet to receive a clear signal on how to proceed. All the sources interviewed by Reuters suggest that Erdogan will have the last word.

LIGHTNING UNCERTAINTY

Mehmet Şimşek, who has been in economic management for many years in the AKP cadre, had met with Erdoğan in the previous months to re-engage in economic management. However, it is not yet clear if he will participate in a task, and if he will, which task he will be in.

A senior AKP official, who reported to Reuters, stated that important steps will be taken in the economy after the elections and that it is still an option for Şimşek to take over and lead the economy. It is also very likely that some names that previously served in the economy will return to the cabinet. Because some of them had already participated in the drafting of the statement, ”he said.

While the CBRT cut interest rates by 10.5 points in the past two years, inflation reached 85 percent, the highest in 24 years, during this period.

The current account surplus, which was the main objective with the low rate policy, could not be achieved as of today. On the contrary, while the current account deficit began to widen sharply, the government attributed the inability to achieve a current account surplus to high energy imports.

In this process, with these policies, which the government defined as stable TL and the market as controlled by the public, the dollar/TL rose to new all-time highs with limited losses, exceeding 19.88. Although TL has lost limited value in the last period, it is one of the worst coins with an 80 percent loss in the last 5 years.

RESERVATIONS IN PROGRESS

In line with these policies, which are summarized as a stable TL, CBRT bookings have started to decline more significantly in recent months. A week before the elections, when the demand for foreign exchange reached a record, the loss of reserves reached 9,000 million dollars.

Total CBRT bookings are estimated to have decreased by another $3.5bn last week, with net booking likely to turn negative. As a result, net reserves will most likely turn negative for the first time since early 2002, when data recording began, starting last week.

The net foreign currency assets of the Central Bank, when swaps and other loans are discounted, were close to minus $120 billion. In addition to its reserves, the CBRT has regular income from foreign exchange purchases from exporters and tourism, KKM, citizenship transactions, etc., since last year.

Turkey exports 250 billion dollars a year and this step means a regular gain of reserves of 100 billion dollars in 12 months. Therefore, even if the CBRT’s own foreign reserves are negative, it can maintain control in the foreign exchange markets.

According to the current economic administration, which disagrees with the view that the current account surplus policy is ineffective, the $100 billion energy bill due to high energy prices dwarfed the gains.

Although the focus was said to be on investments in high technology, energy, underground wealth and tourism with credit policies focused on this process, the process was recently included in the CBRT inflation report stating that it will contribute “around 289 billion dollars” to the current account balance by these means until the year 2030. .

The Presidency did not comment on the matter at the time of writing this article. (Reuters)