A full text of the interview is as follows:
The rulebook has been rewritten and changes are taking place around the world that will determine the course of the next century. What are some of the lessons the Turkish business world should take away from the pandemic process? What is the key to staying “strong” and “resilient” in the coming period?
“It became clear from this crisis that there was no safe harbor. Moving forward, we need to be prepared for a second wave or even for new pandemics. Maintaining a healthy and safe working environment continues to be a top priority in the business world. We have also seen a transformation in the way we do business. We are prioritizing online sales platforms and remote work as we look to strengthen our digital infrastructure. In order to meet changing demands, we need to be able to offer a diverse range of products and services. Flexibility and speed, as well as continued innovation and the development of a skilled workforce, are essential to staying strong and resilient. The pandemic has accelerated digital transformation. As a result, there is a greater need to develop a workforce with digital capabilities, and the business world is beginning to focus more on training in this field. There is also a need for policies that will establish working conditions appropriate for this workforce. Not only the business world, but governments as well, must adapt to this transformation quickly and efficiently.”
Basic indicators show the economy trending upwards after the low points in April and May. Do these signs of recovery indicate lasting improvements?
“There has been a strong increase in demand. Industrial recovery is also very strong. Low-interest loans strengthened domestic demand and drove the markets. Negative real interest rates bolstered consumption and housing sales. We are now entering a period in which domestic demand will become a little flatter with rising interest rates. We expect the economic recovery to slow down in the last quarter. Next year will be difficult because credit has been over-used. We can no longer continue to grow with monetary and fiscal expansion alone.”
The real exchange rate index is at a historic low. Is this due to “speculative attacks?” Why can’t this trend be stopped, despite all of the intervention?
“There is a problem of confidence. In combatting the economic crisis, we focused on short-term interventions and in turn threatened long-term stability. It is repeatedly said that we should have confidence that the Lira will stabilize after every devaluation, but instead rates go up again because sustainable policies have not been implemented. In trying to stabilize the rate, we depleted a significant amount of our reserves, and when the exchange rate rose again, public confidence was shaken. The fact that the majority of our net reserves are borrowed from banks through swaps also negatively impacts confidence. Nevertheless, if predictable polices are implemented, we can restore trust and balance in the market.”
How do the decisions taken by the Central Bank after the currency intervention affect businesspeople?
“We have said from the very beginning that the excess liquidity made available during the crisis must be removed when the time comes. The time has come, and the Central Bank is doing this now. It is preferable to have a predictable interest rate policy. There is currently significant uncertainty over interest rates. It is clear that rates have increased, but there has been no indication given on how much it will increase, for how long, or when it will stop. We believe that ending intervention for the purpose of stabilizing the exchange rate is positive. We hope that market interventions will be kept to a minimum.”
We have seen a downward trend in the real value of the Lira since 2010. Despite this, the increase in exports is less than it was before 2010, when the TL was more valuable. Is the currency competitive? Is the exchange rate-export relationship over?
“Competitiveness is no longer just a matter of currency. Competitiveness arises from quality and efficiency. To achieve this, you need technology and a trained workforce. There is not a fast and easy way to become competitive. To do this, you must continuously reform, innovate, and improve infrastructure. Like you said, the real exchange rate is historically low, but the world is not the same, and low exchange rates do not necessarily cause a spike in exports. The instability of the currency diminishes the appetite for investment while the cost of raw materials increases. Domestically, inflation and expenses are increasing. The pandemic has clearly demonstrated that being inexpensive is not enough to attract supply chains anymore. It is necessary to abandon these old conceptions and adapt to the new world.”
What do you consider to be the critical points between “perception management” and “economic management?”
“The economy is something that everyone deals with in their daily life. Good perception management is very important to building trust, but if it is not accompanied by good economic management, it will erode trust even further. Eventually, perceptions need to align with reality. There can therefore be no economic success through perception management alone. At the same time, the ability to explain clearly what is taking place in an economy is necessary for the success of economic policies.”
What are the most urgent issues for the economy for industrialists?
“There are many new regulations due to the pandemic. At this point, the business world should conduct a reevaluation of the current situation. Generally, liquidity should not continue to be injected into the market, but support is still needed in certain areas. These areas must be determined first. Regulations that are not market-friendly need to be removed.”
“We need to focus on how generate growth; how to increase employment during a pandemic. We should focus strategies that elevate high technology and high value-added production. This depends on accelerating research and development and innovation. It is necessary that the policy of negative real interest must end; that we make peace with the markets and begin to attract foreign direct investment. That is why we must revisit certain strategies in our foreign policy. How will we integrate with the new world? Europe is changing. The EU Green New Deal will impact all our exports and financing procedures. And so we need a new road map that implements coordinated policies on foreign relations, environment, energy and the economy.”
Recently, “resource nationalism” and “techno-nationalism” have gained ground. Countries are increasing protectionism. How Turkey react to this dynamic?
“Diversification is critical for energy security. In this sense, the value added from the discoveries in the Black Sea is much greater, especially from the standpoint of reducing our dependence on foreign energy. It is not possible, however, to achieve sustainable economic development only from natural resources. In today’s world, value is created through technology and innovation. We have seen many countries that lack these resources and yet still achieve serious success in development through the application of effective strategies. If the revenue from our natural resources is applied to the right areas in a way to maximize productivity, it will make a significant contribution to our economy – but it is not possible to transform the economy in this way alone. It is necessary to avoid policies that harm competition while turning to new and innovative technologies.”
What are your thoughts on Turkey’s attempts to find new sources of energy, particularly in terms of the tensions in the Eastern Mediterranean?
“A foreign policy that is based on international law and utilizes diplomatic tools would strengthen Turkey’s positions in the Eastern Mediterranean. We have seen that multilateral problems such as Cyprus that have remained unresolved for many years have played a role in exacerbating the disputes over natural gas exploration.
“We can find a solution to this issue by implementing a strategy that places our diplomatic, geopolitical, economic, and cultural soft powers at the forefront. It is of great importance that both Turkey and the European Union identify the source of the disputes and work to find solutions within a diplomatic and legal framework. Policies aligned with principles of democracy and rule of law would also strengthen Turkey’s negotiating power. Doing so will be the most critical factor in ensuring that foreign policy can be positively impacted by domestic policies.”
On foreign debt…
“Our foreign debt is still very high. Turkey’s economy has not grown in the last three years; the pace of growth has dropped too low. In the past two years, approximately $60 billion of open positions has closed. It is important to control the exchange rate in order to convert this debt. In order to do this, it is first necessary to control inflation. We have to make our policies compatible with economic principles. The depletion of our reserves must be stopped. Otherwise, the perception that there is an adverse risk of default will increase. The rise in the number of credit default swaps reflects this. Turkey has always had the ability to pay back its debts and will continue to do so, therefore we should apply predictable policies that boost confidence in this regard.”
Turkey has an important position in the global supply chain. Can it find ways to turn the destructive processes taking place throughout the world into something constructive?
“Supply chains are generally shifting westward. Beyond its geographic location, it is now much more important that Turkey possess a stable economy, an qualified workforce, and that it prioritizes common values as democracy and respect for rule of law. New factors such as climate change, renewable energy, and a circular economy will be important criteria in guiding international trade in the coming period. Updating the Customs Union to include the digital economy and the Green Deal should be a priority. This provides us with a new opportunity for the development of the EU-Turkey economic partnership. By emphasizing democracy, rule of law, freedom of expression, and a rules-based international order, Turkey can transform this destructive process into a constructive one.”
Unemployment, particularly youth unemployment, is one of the biggest problems Turkey is facing. What are some of TÜSİAD’s recommendations for finding solutions to this issue?
“According to the May figures, job losses among young people reached to 800,000 and the youth unemployment rate was close to 25%. Youth unemployment has been over 18% for a very long time – not only during the pandemic. Additionally, about a third of young people are neither in school or employed. Skill mismatch is a major problem in the labor market. Both quality academic and vocational systems of education are critical to ensuring a lifelong development of skills and to overcome the mismatch. It is also necessary to instill innovation, research, digital skills into the education system to prepare people for the jobs of the future. We should provide more opportunities for quality internships to help facilitate a smooth transition of young people into the workforce. Finally, it is important that we develop our entrepreneurial ecosystem so that young people can realize their innovative ideas and create new opportunities for employment.”