Preparations for a fake paradise have begun

On one side, the legal system has collapsed. Everything rests on the whim of a single person... Rules and institutions are not functioning. On the other side, the economy has become so “addicted to foreign capital” that even if you sell everything you have, it is not enough. With the mindset of 'let foreign currency come from anywhere,' you end up causing the country to be accused of money laundering. You allow the world's leading criminal organization barons to roam freely in the country.  When efforts to close the foreign currency deficit combine with suspicions of money laundering, you end up on the Grey List in international financial markets. Once on the Grey List, you turn the country's geopolitics and survival into a bargaining chip in foreign policy. The U.S., which you call an ally, openly supports the country's biggest headache, a terrorist organization, and you become unable to raise your voice. 

Still, it is not enough. At the beginning of 2024, “Hot Money” you begin a return to those policies. That is still not enough. You do not learn from history,  and you start handing out capitulations, which were one of the most significant reasons for the decline of the Ottoman Empire.   

If you ask where all this came from? In recent days, Mehmet Şimşek, Hafize Gaye Erkan, and actors in the financial market, primarily foreign and domestic banks, have begun to say in chorus that the Turkish Lira will not lose value against foreign currencies in 2024. The message they are giving is: "Foreign exchange will not rise as much as inflation. Interest rates are also very attractive. Sell your dollars. Hot money will be king again." 

Before moving on to hot money, let us note this: When the exchange rate, interest rates, and inflation in a country do not reflect reality, the price mechanism does not function. The measurement function of money is lost. Stability vanishes. Neither domestic nor foreign investors will come. Add to these conditions the abnormalities experienced in the country's legal and justice system. Direct investors who cannot make calculations based on market conditions "concessions of a capitulatory nature" wants. 

In recent days, Parliament Speaker Numan Kurtulmuş has submitted a bill to parliament. Unprecedented concessions are being granted to the UAE in the field of renewable energy. Those interested can find the concessions provided on the internet. But in summary, it involves the transfer of renewable energy resources corresponding to 23 percent of the country's installed capacity, and the allocation of hundreds, perhaps even thousands of acres of land whose size and location are not yet known, to be used in the field of renewable energy. And most importantly, no other domestic or foreign company or state will be able to enter this field... There is no need to repeat at length how imperialism drains a country's blood through capitulations.  

A COUNTRY CAN BE ROBBED WITH LOW INTEREST RATES, AND WITH HIGH INTEREST RATES TOO... 

Between 2002 and 2008, Turkey  for financial capital to a "Hot Money Paradise" Policies that turn the country into a "Hot Money Paradise" are now being returned to. These policies created a temporary fake paradise for the Turkish people, but ultimately impoverished Turkish society, destroyed the economy's competitiveness, and dragged Turkey into a debt trap.

Hot money comes for high interest rates. In our country, especially over the last two years, we experienced the exact opposite: a period of excessively low, real negative interest rates. Many economists like myself criticized these low-interest policies. Now, the question of why you are opposing the interest rate hikes will justifiably arise.  

If the balances of the economy are ignored and one swings between extremes, deviating from the reasonable, it is possible to fleece the public with both high and low interest rates. Turkey has experienced both over the last 20 years.

During the early years of the AKP government, there was a massive abundance of liquidity in the world. Furthermore, full membership negotiations with the EU had begun. With this atmosphere, the inflow of direct foreign capital into Turkey accelerated. Foreign currency became abundant, and the price of foreign currency remained low. On top of that, Turkey was offering the highest real interest rates in the world during this period. At that time, while countries like Brazil, Argentina, and Russia were offering 4-5 percent interest, Turkey was offering 15 percent real interest. The exchange rate remained well below inflation. Those who brought hot money to Turkey during that period earned profits at the level of 30 percent in dollar terms, both from high real interest rates and the fact that the exchange rate remained low. Every year, they transferred money equivalent to two percent of the national income, approximately 10 billion dollars, abroad. Resources were transferred from the poor to the rich domestically, and generally from Turkey to abroad. (Calculations are taken from Prof. Dr. Korkut Boratav's book, 'Economic History of Turkey 1908-2015', İmge Kitabevi.) 

Because the exchange rate remained low, both farmers and industrialists gave up on production. While we were once one of the seven self-sufficient countries in agriculture, today we have reached a point where we import agricultural products from the farthest corners of the world, such as Canada and Australia. As imports exploded and exports could not keep up with the pace of imports, our foreign trade deficits increased and our foreign debts grew. 

With the 2008 global financial crisis, hot money left first. On top of that, when it became clear that the negotiations with the EU were a charade, direct foreign capital inflows also decreased. Inflation, unemployment, foreign exchange deficits, lack of production, and inequality in income distribution became entrenched, worsening with each passing year. In the days when hot money was abundant,  the fake paradise experienced due to abundant and cheap imports, the "Tulip Era" has come to an end. Let us recall the definition from that period that remains in people's minds: "They are stealing, but they are working." 

Now, looking at the statements from Mehmet Şimşek, Gaye Erkan, and local and foreign bankers, we see that the era of the TÜİK inflation perception that does not reflect reality, low exchange rates, and high interest rates is about to begin again.  Foreign banks and funds will invest in Turkish Lira instruments. Therefore, the exchange rate will remain low. We will experience a short-lived fake paradise, but afterwards, just like in the previous period, we will pay a heavy price. 

Yes, but in Turkey, the exchange rate had already been far too low relative to inflation for the last two years, and interest rates were also low, yet we were still robbed. Moreover, we have experienced the most severe distribution crisis in the history of the Republic over the past two years due to the low exchange rate and low interest rates. How did this happen? 

Due to the policies implemented since September 2021 under the pretext of 'Nas' (religious decree), the exchange rate remained well below where it should have been when evaluated alongside inflation.  Out of respect for science, I take the inflation figures from ENAG seriously, not those from TUIK. If the exchange rate and inflation had moved in parallel, the dollar would have closed 2022 at 30 lira instead of 18.76, and 2023 at 42 lira instead of 29. If we calculate both years together, the dollar would have been expected to be at 68 lira by the end of 2023. It didn't happen.

The government suppressed the dollar out of fear that if the dollar rose, inflation would rise. Meanwhile, through various amnesties and different types of decisions, a significant amount of money of unknown origin entered the country. Turkey became a destination for international organized crime syndicates and, consequently, for money laundering. When the exchange rate was well below where it should have been, exports did not increase, or increased very little, while imports exploded. The foreign trade deficit, which was around 45 billion dollars annually before 2022, rose to 110 billion dollars per year. 

At this exchange rate level, exports should have also declined. To prevent a decline in exports, indirect subsidies and the exploitation of workers were resorted to. Wages were reduced in real terms using the fallacy of TUIK inflation, and the business world was provided with loans at interest rates far below inflation. Both exporters and importers saw their profits explode thanks to these cheap loans and suppressed wages. Because of the low interest rates, in order to prevent the exchange rate from rising They invented one of the most absurd financial instruments in the world, such as the Foreign Exchange Protected Deposit (KKM) scheme. The exchange rate difference that had to be paid to KKM accounts, regardless of what it was called, was interest plain and simple. But unlike the normal functioning of interest, this interest was not paid by the bank collecting the deposits (the borrower), but by the state, and therefore by the public. While those receiving KKM interest did not exceed 3 percent of the population, they made the remaining 97 percent of the population pay the cost, which reached 1 trillion 600 billion Turkish Liras.  

When the state and the public took on the exchange rate difference, banks experienced an explosion in profits—and continue to do so—even though they provided loans at interest rates well below inflation using deposits they collected at very low costs. The commercial sector enjoyed the happiness of using loans at 20 percent interest while inflation was at 120 percent, multiplying their profits. By dumping the interest rate difference onto the entire society and eroding wages with the Turkish Statistical Institute's (TÜİK) bogus inflation figures, exporters were able to continue exporting despite the falling exchange rate,  imports increased from agricultural products to industrial goods, importers profited, and the production and competitive power of farmers and SME industries declined.  

In short, by moving away from the reasonable and oscillating between extremes, they fleeced the public both when lowering interest rates and when raising them. 

When there is no rule of law in the country and no suitable investment environment in the economy, you are forced to provide capitulations for direct foreign capital investment and grant all the concessions requested by hot money just to keep the wheels of the economy turning. The price will be very heavy; we will even long for today.