The 'Locals' who do not believe inflation will fall

“We are having difficulty convincing the local population that inflation will fall.”

A condescending statement. Are you the Minister of Finance of a colonial administration that you refer to the Turkish nation, the Turkish people, as 'locals'? Let us first condemn this tone. After this statement, let us take a look at the comments coming from financiers: “You are exaggerating.”

Many financial market expert friends state that the term “Locals” used here cannot be translated as “Local Population” and that it refers to domestic resident market actors, local-resident banks, private and legal entities, and savers. I would like to agree for a moment with the view that the word “Locals” in a financial speech should not be over-interpreted. But immediately, a speech Mehmet Şimşek gave in Gaziantep comes to mind:

“Our Syrian brothers are the essential components of these lands, an important part of our country's mosaic.”

With this speech out there, I cannot evaluate the term “locals” as an expression used in an innocent financial meeting. The people of the Republic of Turkey, founded on these lands with the blood of our ancestors, are called the Turkish Nation. Your Syrian brothers, whom you call a mosaic or component, are the ones who joined forces with the British during the First World War and shot the Turkish soldier in the back. History writes this event very clearly, and it is also in British documents. The Syrians are neither our brothers, nor are they the essential component of these lands, nor are they a secondary component, nor are they a mosaic. Now let us come to the helplessness in Mehmet Şimşek's expression from an economic perspective…

The main question is this: In an economy you manage, why can you not convince domestic residents and market actors about lowering inflation?

I am aware that the Minister of Finance did not mean the entire Turkish public when saying “Locals”. While using that expression, Mehmet Şimşek is talking about the fact that domestic resident private and legal entities and investors are not investing in Turkish Lira assets.

Mr. Şimşek, thanks to your government, 80 percent of the Turkish nation has fallen below the poverty line and has no means to save. You have eroded the savings and wealth of those who had savings, and you have transferred the income and wealth of the people to the 5 percent, 10 percent segment of the population. At least 80 percent of the Turkish nation already knows that you cannot bring inflation under control. This segment is also aware of how you will drag them into even more severe poverty and misery in the name of bringing inflation under control.

The “locals” you cannot convince to lower inflation are the cream of the crop to whom you transfer resources, income, and wealth every year. When we look at income groups and consumption, they are at most 20 percent of the population. You are crushing the poor, and you cannot convince the segment that has money. They are not investing in Turkish Lira assets.

I am sure those who attended that meeting understood that you were talking about 20 percent of the population. Well, did those who attended that meeting not ask why the wealthy locals are not convinced by your anti-inflation program? Why do they not trust you?

I have written it many times, I have explained it many times on my YouTube channel. You insist on not understanding. Why does no one trust you? Let us try to find answers by repeating our questions.

THE KKM TROUBLE CONTINUES

When the President and AKP Chairman, citing religious grounds, first lowered interest rates and then invented a nonsensical instrument like KKM (Currency Protected Deposit), we were a handful of economists who said, “Don't do it, you are putting a time bomb in the lap of the economy that is not known when it will explode.” Most market economists criticized the interest rate cut, but there were also many who applauded KKM and said, 'let's wait and see what happens.' When it was understood a week ago that KKM caused an 818 billion TL loss at the Central Bank, this time a large majority understood what a terrible thing KKM is. The KKM loss is not just 818 billion TL. Its two-year bill has approached 1 trillion 600 billion liras. (Approximately 48 billion dollars.) KKM accounts had at one point reached the equivalent of 120 billion dollars in Turkish Lira. Now it is at the equivalent of 70 billion dollars in Turkish Lira. We have paid a cost equivalent to 48 billion dollars to keep an average of 100 billion dollars equivalent in Turkish Lira Deposits. Moreover, for a debt we did not take. In addition, we have brought the Central Bank's foreign exchange reserves to the level of minus 70 billion dollars. You have not yet rid the Turkish economy of the KKM trouble. For this reason, massive public deficits and losses will continue in the future. How will you lower inflation under these conditions?

WHICH INFLATION, WHICH DOLLAR, WHICH INTEREST RATE LEVEL?

Except for a handful of market economists and government supporters in Turkey, no one believes in TÜİK's (Turkish Statistical Institute) inflation. The ENAG inflation measured by independent economists is 125 percent, while TÜİK is 68 percent. I also measure my own inflation. The inflation I found is 129 percent. Which inflation should we believe? You are suppressing the exchange rate to alleviate the KKM trouble. But in this case, the dollar's value in measuring prices in the market also disappears.

Let me give a simple example. I measure my inflation basket with the dollar as well as the Turkish Lira. In 2023, inflation was 129 percent in Turkish Lira and 54 percent in dollars. In the face of inflation in Turkey, not only the Turkish Lira but also the dollar is losing value. In addition to the dollar's loss of value against inflation in Turkey, the current account deficit and the total external debt that must be paid within one year exceed 250 billion dollars. This much extra dollar demand will arise. In this case, how much longer can you suppress the dollar exchange rate?

You say 50 percent interest, but it is still 15 points below your current TÜİK inflation of 65 percent, and 74 points below the 124 percent ENAG inflation. Okay, interest is not formed according to past inflation, but according to future inflation expectations. But for this, one must first establish trust. If it were in Japan, we would trust the future inflation target. Because if it doesn't hold, the person who sets the target commits hara-kiri and ends their life. It is not like that with us; even if they are dismissed, they continue to receive high salaries and live in luxury. Neither local investors nor foreign investors are buying the trick of the inflation drop that will occur in July and August due to the base effect.

MINIMUM WAGE AND RETIREE SALARIES

To fight inflation, you are still aiming to cut the minimum wage and retiree salaries, whose income levels are falling in real terms. Naturally, no one believes that you will lower inflation by further reducing the demand of the segment whose income and consumption are falling in real terms. I have written about this topic at least four or five times in the last three months. Those who are curious about the details can take a look at the old articles.

YOUR BUDGET DEFICIT AND OSTENTATION…

The display expenditures in your budget and income transfers to cronies are very high. You do not even collect the normal 25 percent corporate tax from the high profits that trigger inflation; companies experiencing a profit explosion pay between 4 percent and 15 percent tax with various exemptions. You will increase prices even more with VAT and SCT increases. Even the budget deficit you foresee is at the level of 2.5 trillion TL. To close this deficit, what austerity measures and which expenditures will you give up? How much will you cut from the Presidential budget, private jets, expensive segment official vehicles that have now spread to provincial directors in every province, the black hole of the budget, Treasury-Guaranteed highways, bridges, airports, city hospitals, and the expenses of more than 10 million refugees? Far from cutting expenses, transferring new resources to the sects and foundations fed by the municipalities you lost will again be left to the central government budget and the companies in the Wealth Fund. It must be really hard to convince people that you will give up the 22-year management model based on high-cost and inefficient construction tenders and rent-seeking. Political scientists claim that when you give up this management model, there will be no party left called the AKP.

FOOD AND AGRICULTURE

While food prices are falling in the world, they are increasing by 100 percent in Turkey. As your former Minister of Agriculture said, “We have money, so we import,” will this continue as your agricultural policy? In fact, you don't have money either. Your foreign trade is running a deficit, you have a current account deficit, and your budget is running a deficit. You are importing agricultural products with borrowed money. You do not provide the support that will increase agricultural production; on the contrary, you are hindering agriculture, and you are adopting policies that will enrich a handful of people through agricultural imports. To lower inflation, it is necessary not to reduce food demand, but to increase food supply. Mr. Şimşek, according to you, did the fact that veal tenderloin and lamb chops exceeded 1000 liras happen with the minimum wage hike or the increase in retiree salaries? Could you please give an instruction to the Central Bank or Finance bureaucracy to conduct an econometric model study to explain the relationship between them? In the short term, what kind of policy will you follow to increase food supply?

The Turkish nation, 80 percent of which you have dropped below the poverty line, does not believe that you will lower inflation. Furthermore, the 20 percent wealthy “Locals” are also asking the questions above, and of course, you cannot convince them either that you will lower inflation.