Mahfi Eğilmez: High inflation is the cause of the 'secret fund' fraud

There are only days left to leave 2023 behind. Experienced Economists Prof. Dr. Işın Çelebi and Dr. Mahfi Eğilmez evaluated the economic events that left their mark on 2023, including the “Secret Fund Fraud.” Coming together at the monthly Economics Talks held at Altınbaş University, Prof. Dr. Işın Çelebi and Dr. Mahfi Eğilmez stated that the economy also experienced a transformation in the second half of 2023. Noting that the steps to be taken to lower inflation are not easy, Çelebi and Eğilmez stated that Turkey’s fundamental issue is negative real interest rates. Çelebi mentioned that Turkey needs to develop its foreign exchange-earning services, stating, “While making real interest rates positive, Turkey should increase its international competitiveness and raise the ratio of exports to imports above 80 percent. The path to full European Union membership is a very important roadmap in this sense. Unfortunately, we have moved very far away from that point right now. Yet, that structure is one that would provide relief to Turkey.”

“HIGH INFLATION IS THE CAUSE OF THE 'SECRET FUND' FRAUD”
Altınbaş University Faculty Member Dr. Mahfi Eğilmez also pointed out that in environments where real interest rates are negative, the income people earn from the interest they receive when they deposit their money in the bank is not at the rate of inflation. “Citizens who see that their money is melting despite the interest and that their purchasing power is disappearing look for alternative ways to avoid being affected,” he said. He explained that disasters like the “Secret Fund,” one of the most striking events of recent times, stem from inflationary environments. Mahfi Eğilmez said, “Inflation was also high during the Banker disaster in the 80s. That’s why these things happened. People can’t find anywhere to go! Back then, buying foreign currency wasn’t this free, the stock market wasn’t this developed, and the real estate market wasn’t like this. If you wanted a vehicle, you couldn’t find one. They all had to go down these paths. Now they went into real estate, the stock market rose where interest rates fell, and they bought cars. A portion also went into these types of funds. What is interesting is that society has learned no lessons from these experiences. If you ask me, this is the aspect of the problem that needs to be paid attention to, the socio-psychological aspect.” Furthermore, clearly pointing to the existence of unregistered income and black money, Dr. Mahfi Eğilmez said that people want to escape from these funds. Recalling the proverb “Easy come, easy go,” he said, “Money earned easily is spent easily. While they are running away, they don’t look at this or that. That’s how they get swindled. Besides these, there are unfortunately also our people who earned it honestly but lost it and became victims.”

“LOOK AT THE PISA RESULTS, SEE THE CAUSES OF THE SECRET FUND!”
At this point, referring to the recently announced PISA 2022 results, Işın Çelebi expressed that he sees the level of education as the cause of all problems. Reminding that Turkey’s PISA scores are below the European average, Altınbaş University Faculty Member Çelebi said, “Our children’s reading comprehension rate is 456. The European average in mathematics, reading, writing, comprehension, and science is around 480. We are at the very back among 35 to 40 countries. This research has been conducted under the OECD for 20 years. Both the education level is not rising and inflation is rising on the other hand. People are not receiving a good education. A luxurious life also feels sweet. The effects of social media and digitalization technology in this sense will lead to very big problems in the future. I think the fact that these indicators are at this point also leads to such corruption issues emerging easily. Everything is connected to each other.”
Explaining that digitalization also develops the war industry and causes regional wars, Çelebi said, “It meets the war desires of politicians. To what extent democracy works in the world is a matter of debate. In the US, 3 rectors were questioned and forced to resign. Situations like these, while climate change and water issues should be the primary issue, are never discussed. Yet, it closely affects the economy.” Stating that he finds the decline of the CDS risk premium, which means trust in international markets, from 700 to 323 positive, Çelebi emphasized that the inflation and income distribution problem continues. Reminding that 10 million retirees still receive a salary of 7,500 TL, he said, “We are becoming unable to compete with the world. While China, India, and South Korea invest in technology, we buried it in construction. Today, can an investor say, 'I will establish a bank, I am bringing 100 million dollars'? Because it melts due to inflation when converted to TL, they think, 'Why should I invest?'” he said, underlining that the fight against inflation must continue.

“URGENT NEED FOR STRUCTURAL REFORMS”
Mahfi Eğilmez, on the other hand, pointed out that the real inflation is around 120 to 130 percent, stating, “However, the announced inflation is half of this. Is it enough if we bring the current 40 percent interest rate to 60? Or do we need to take it up to 120? If we go to 120, many companies will be left in our hands. Debts are structured accordingly, and the situation of banks is structured accordingly.” Noting that what needs to be done for this reason is to urgently focus on structural reforms, Eğilmez reminded that Turkey was able to do this in the past. Eğilmez said, “I say it again. We managed this after 2001. Inflation was again at 70 percent levels. Although interest rates were high, Turkey managed to lower this inflation while also protecting growth. Because the steps it took were correct. At that time, Turkey carried out banking reform, ensured public fiscal discipline, removed six zeros from the currency, and started full membership negotiations with the European Union. The positive expectations created by all of these were able to keep growth from falling while lowering inflation. If we can do this, which does not look easy to carry out these structural reforms, then there will be no problem.”

“TURKISH CITIZENSHIP IS VERY VALUABLE”
Responding to questions about obtaining Turkish citizenship by investing or buying real estate, Mahfi Eğilmez concluded his words by saying, “This is a completely different subject. Let a work permit or a 5-year residence permit be given to those who want to invest or buy a house. But Turkish citizenship is very valuable. Elections are held, they will vote, but you don’t even know the language. It must have certain criteria. Even Portugal seeks these conditions, why shouldn’t we?”

News Source: 12punto