Ümit Akçay: the government test with market discipline

In this article, I would like to draw attention to the mechanism that this process reveals in a more concrete way: Having to apply a policy that tries to cool the economy while decreasing support for the vote is the basic dynamic that defines this special juncture that we are going through.


The need to establish market discipline prevails, no matter how long the AKP administration tries to delay it. closely monitoring Turkey’s economy, especially after 2013, the number of companies in the major economic crisis period, zombie companies have realized. In fact, the zombie army formed by these companies, sunk but that tried to float for political reasons, grows more and more in each economic bottleneck.

For example; Ahead of the 2017 referendum, Prime Minister Binali Yıldırım said in a statement that about 30,000 companies were bailed out thanks to the Credit Guarantee Fund. We know that new ones were added to these companies after the currency crisis and credit crash in 2018. The new economy program announced in 2018 had promised the liquidation of these companies. However, this promise was delayed until the 2019 local elections. In April 2019, the expectation of a new structural adjustment program dominated. However, in 2019 the Fed’s ‘U-turn’ interest in Turkey thanks to policy makers is achieved by falling 12 points, the implementation of market discipline could be suspended.


At the beginning of 2020, it was anticipated in the minds of the economy’s direction that problems like bad companies and their constantly restructured debts that force the banking system would be left behind thanks to the revival of economic growth. Even when the corona epidemic started, this strategy did not change (I summarized the details of this strategy in the article titled ‘Escape to the future 2.0’ that I wrote at the beginning of this process).

However, 2020 has been a year in which AKP executives could not escape the damage that the establishment of market discipline could bring them, due to the economic effects caused by the corona epidemic. The change of economic management on November 6, 2020 meant the acceptance of undertaking an inevitable bill for the government. From that moment on, the government synchronized its economic agenda with the agenda of big capital. Not only that, he was able to make other fractions of equity a part of this synchronization. For now.


Last month, the Monetary Policy Committee (MPC) of the Central Bank of the Republic of Turkey (CBRT) met after the article ‘A tough process is coming’ entitled, through this special juncture we are going through, I mean some properties. I will pick up where I left off and discuss the CBRT / PPK statement after the February 18, 2021 meeting. I think emphasis four in the statement is important in terms of our topic.

The first of them is to emphasize in the statement that the expansion of credit has stopped. If we remember the mechanism in 2018, the currency crisis brought with it the credit collapse and recession. In 2020, we experienced a minor currency crisis and, as a result of the interest rate increase that followed, the growth rate of loans stalled in 2021. This means that zombie companies will no longer be able to float easily.

The second important issue is that inflation is still trending upward. Again, if we remember the reflection of the 2018 currency crisis on inflation, we can say that inflation will continue to be the most important problem for the next few months.

This brings us to the third emphasis of the CBRT. That was the announcement at the last meeting that the positive real interest rate policy, which was declared to last a ‘long period’, will continue in inflation ‘until it reaches the 5 percent target.’ If this can be achieved, it will not be possible to postpone the establishment of market discipline, which was constantly postponed from 2013, and avoid the political bill that this could lead to the government.

In fact, the current policy is similar to the program implemented in the 2000s with the agreement of the IMF. At that time, the high positive real interest rate was the main axis of the implemented program. Even while the government was implementing such a severe program, it was able to increase its support for the votes. At that time, the high level of capital inflows made it possible.

We can also assess elements such as the EU membership agenda or the IMF program in this context. In this way, the high positive real interest rate did not cause the credit contraction, on the contrary, the credit expansion was able to continue strongly. However, the internal contradictions of this program arose when capital inflows slowed.


Let’s go to the present after the reminder of the 2000s. Now the problems are different. The issue is not focused on the public sector, it is on the private sector and is dispersed. Credit expansion has stalled and it is difficult to expect a new boom in the near future if the management of the economy maintains its current stance. Furthermore, the postponement of the establishment of market discipline could once again bring the pressure of the rapid devaluation of the TL back to the agenda and the government’s attempts after November 6 could suddenly evaporate. In this sense, the only condition for the continuation of the process without a traffic accident in government terms is the continuation of capital inflows.

While the global economic environment is ripe for this for a while, the problem is not limited to this. Under any circumstance, the possibility of liquidation of zombie companies as a result of unemployment reaching 30 percent, chronic cost of living and the persistence of high interest rates creates a downward slope for the government. The fact that the official opposition began to question the government’s agenda shows that this inclined plane is reflected within the ruling bloc. From now on, a very critical period will begin for the fate of the authoritarian consolidation initiative that has been taking place since 2018.

Assoc. Dr. Ümit Akçay teaches at the Berlin School of Economics and Law (HWR Berlin). He previously worked at Istanbul Bilgi University, METU, Atılım University, New York University and Ordu University. Akçay, co-author of Financialization, Debt Crisis and Collapse: The Future of Global Capitalism (Ankara: Notabene, 2016); Money, Banking, Government: Central Bank Independence from Political Economy (Istanbul: SAV, 2009) with Capitalism Planning: Transformation of Planning and State Planning Organization in Turkey (Istanbul: SAV, 2007) is the author of the book . Akçay is currently interested in the fields of international political economy, central banking and financialization.

Newspaper Wall excerpt, full article here


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