On the Medium-Term Program in the economy: Fairy tales and facts

During the week, Vice President Cevdet Yılmaz brought along every minister related to the economy. He announced the Medium-Term Program (MTP) they have prepared for the next 3 years.

We listened to a fairy tale in the style of Alice in Wonderland. The program also seems to signal an election, perhaps for November 2025 or March 2026.

Because they only invited pro-government media and TV reporters who broadcast for financial markets to the meeting, many questions were not asked. In any case, Cevdet Yılmaz escaped by saying, "I don't have much time. I cannot spare much time for questions." You are making a plan and program for the country's three-year future, yet you won't take questions to discuss this plan. It seems they don't take the program seriously themselves. It is obvious that it was prepared with a "just for the sake of it" mentality. As is customary, it falls to us to evaluate the program.

GROWTH

In order to appear credible to the markets, they have revised their growth targets, lowering them by half a point compared to the previous program, but they are still flying above the clouds.

They were targeting 4 percent growth for 2024. They realized it was a dream. They lowered it to 3.5 percent, but that is also a dream. For this to happen, the economy needs to grow by 3.2 percent in the second half of 2024 (June-December) compared to the same period last year. How will this happen while industrial production is falling and new orders have been constantly decreasing for 14 months? We are supposedly going to grow by 4 and 4.5 percent in 2025 and 2026. In addition to the decline in industrial production, it seems that a large portion of farmers will give up planting their fields this year. While Turkey is debating stagflation (stagnation amidst high inflation) or even slumpflation (shrinkage along with high inflation), how credible is it to prepare ambitious growth tables and tell fairy tales?

ILLOGICALITIES IN GROWTH

There is a world of difference between real growth in Turkish Lira and growth expressed in dollars. It is another indicator that the relationships between foreign currency, inflation, and pricing have completely broken down…

For example, in 2025, real growth in TL will be 4 percent, while growth in dollars will be 10 percent.

In 2026, real growth in TL will be 4.5 percent, and growth in dollars will be 12 percent.

It is clear that they will continue to suppress the dollar for two more years. Indeed, their mid-year dollar targets are as follows:

• 2024 average: 33.22 TL.
• 2025 average: 42.00 TL (27 percent increase compared to the previous year)
• 2026 average: 44.40 TL (5.7 percent increase compared to the previous year)
• 2027 average: 46.86 TL (5.5 percent increase compared to the previous year)

With these exchange rates, you will both provide growth and increase exports to reduce the current account deficit!!!

This is another dream. If the suppression of the foreign currency, which has been suppressed for three years, continues, the revenge will be very painful. However, we cannot say when this will burst for now.

THE SOURCE OF GROWTH WILL BE HUMAN CAPITAL!!!

I will not go into more technical details of growth. I know there will be no answer, but I have three questions regarding growth.

You placed the strengthening of human capital (manpower) in the first place as the source of growth. This is a practice that should be done. There are two basic ways to strengthen human capital. The first is education, and the second is a young generation that is healthy and fed with sufficient protein and vitamins... Alongside these two factors, there is the migration policy that directly affects human capital. Then three questions arise.

Do you believe that human capital will be strengthened with the "Turkey Century Education Model," which has been moving away from basic sciences every passing year and focusing on religious education, and which was implemented this year?

The vast majority of students, from primary school to the end of university, go to school hungry and are fed with grains. Do you believe that you will create a strong human capital with increased productivity with this diet?

Another impasse we have in terms of human capital is this: Turkey's well-trained, qualified workforce, qualified youth, doctors, and engineers are migrating abroad. In return, millions of uneducated, unskilled Iraqi, Syrian, Afghan, and Pakistani refugees are coming to Turkey. What do you think about the effects of your government's refugee and migration policy on the policy of strengthening human capital?

FISCAL DISCIPLINE

There is a rising voice from all segments regarding the fight against inflation. It cannot be done with interest rates and monetary policies alone. Fiscal policies also need to be strengthened. Two basic emphases were made on this issue in the program. One is the efficiency of expenditures, and the other is the increase in tax revenues.

You cannot just brush it off by saying efficiency in expenditures. I would have expected the journalist friends there to ask.

We have Treasury-guaranteed projects. There is a 99 percent margin of error for an airport. One passenger lands, but you pay for 100 passengers. You gave a daily guarantee of 45 thousand vehicle crossings for the Çanakkale Bridge. 6 thousand vehicles pass per day. As a result of your efficient spending policy, are you giving up on paying these guarantees for the next three years?

Taking the floor during the questions section of the meeting, Mehmet Şimşek said that in addition to reviewing tax exemptions, they would also fight against the informal economy and money laundering. The very next day, all the defendants who remained in custody in the Dilan Polat – Engin Polat case, which is a symbolic name for vulgar wealth and debauchery with informal, money laundering, and unearned money, were released.

In some cases, some influential people intervene, and some important documents and reports do not enter the case. The case is trivialized. I don't know what is not in the file in this case, but according to the report that entered the file, they issued 500 million TL in fake invoices, and 170 million TL in fake invoices among themselves. They kept 500 million TL off the books. So we are talking about 1.2 billion liras. How do you think MASAK interpreted this: "accounting error because they are not institutional"

Come and believe the fiscal discipline fairy tale. Fighting the informal economy is not just about the Ministry of Finance. There is the judicial leg of the business. I don't think there is any need to repeat dozens of news stories about the rot in the judiciary.

ACTUAL INFLATION, TARGET INFLATION

Vice President Cevdet Yılmaz said that price hikes in managed and directed prices will not be made according to actual inflation, but according to target inflation.

They estimate that there will be 41.5 percent inflation by the end of 2024. However, in the meantime, they raised prices for bridges and highways by 284 percent in 2024. The hikes in fuel, electricity, and natural gas are obvious... I don't know how we will believe it.

The inflation targeted by the program for 2025 is 17.5 percent, and the inflation targeted by the Central Bank is 14 percent...

The question is: At the end of October every year, the Revaluation Rate is determined according to the 12-month average producer price inflation. At the beginning of every year, the state raises taxes, fees, fines, and managed and directed prices at this rate. According to the 12-month averages announced in August, producer price inflation is 46 percent. It is impossible for this to fall to 17.5 percent in the next two months. In this case, will you raise taxes and fees at the beginning of the year lower than the Revaluation Rate, or will you settle for 17.5 percent?

And of course, the journalists asked, but Vice President Cevdet Yılmaz, Minister of Finance Mehmet Şimşek, and the Minister of Labor all passed the buck and did not answer.

If you are going to raise prices by the future inflation target rather than past inflation, will the minimum wage and salaries increase by 17.5 percent?

INFLATION TARGETS AND REALIZATIONS

In the meantime, let us convey the inflation targets and realizations in the previous Medium-Term Program and the future inflation targets and leave the interpretation to you. Moreover, according to TÜİK's measurements...

• For 2022; inflation target 9.8 percent, realization 64.3 percent...
• For 2023; inflation target 24.9 percent, realization 64.8 percent...
• For 2024; inflation target 33 percent, realization estimate hopefully 41.5 percent...
• For 2025; inflation target 17.5 percent (Central Bank 14 percent), according to the survey conducted by Koç University and Konda Research company, the household's annual inflation expectation for the end of August 2025 is 113 percent...
• It is said that it will be 9.7 percent in 2026 and 7 percent in 2027.

It is up to you to believe it.

There are many topics to write, talk about, and discuss regarding the MTP. However, let us settle for this much in the length of a column. While the basic preferences in the government's political economy are clear, there is little benefit in discussing technical issues in the economy in more detail in an environment where the rule of law has collapsed.