Mahfi Eğilmez uses car example for public spending: 'When I was Undersecretary, I rode in a Renault; now they don't get out of Mercedes'

Former Treasury Undersecretary Mahfi Eğilmez appeared on a program hosted by Güzem Yılmaz Ertem, broadcast on Oksijen TV.

Giving striking examples from his time as Treasury Undersecretary, Mahfi Eğilmez addressed the issue of consumption in Turkey, saying, "The sink in my house broke. It had plastic parts. I wanted to fix it myself. I went to a business, and they quoted 500 TL. It seemed expensive to me. I went to another place, and they quoted 350 TL. Thinking I wouldn't find it at this price again, I bought two. People are now buying several of the products they purchase because they think they won't be able to buy them at the same price later. We must overcome this first."

"WE MUST FACE REALITY"

Mahfi Eğilmez summarized his points as follows:

"Applying a model economy taken from China to Turkey is certainly possible. But without deviating from science. We shouldn't get into things like 'Interest is the cause, inflation is the result.' If we go down that path, we end up in absurd places. We couldn't turn back from there immediately; it took 2.5 years. And unfortunately, we were left with a bill of over 800 billion. With minus 65 billion dollars in reserves.

If you set interest rates incorrectly, you stop production. Turkey set interest rates below inflation. It still does. This affected people's behavior. When interest rates were low, people turned to spending their savings. In a country where inflation is 70-80 percent, or even 125 percent in reality, keeping money in the bank at 45-50 percent causes people to lose money. What will they do then? They will buy goods to protect themselves. We led to an incredible increase in consumption. Those with money bought their second or third homes; those with nothing turned their homes into warehouses for shampoo and detergent. To break this, we must first face reality. What is the reality? 125 percent inflation. Okay, brother, we will bring the interest rate to this level. If we do this, we will have time for other issues. If we don't, we will unfortunately continue to suffocate like this."

"NOBODY BELIEVES TÜİK"

Statistical institutions must act independently of the government. They shouldn't be called and told, 'Brother, show inflation as low today.' Turkish society does not believe any of the data announced by TÜİK today. We are also in a difficult position. Inflation is announced, and they say, 'What 60-70 percent, professor?' Nobody believes it. You talk about growth, they don't believe that either. This also damages the institution greatly. We need to establish a statistical institution with an independent structure. I think inflation is closer to ENAG's measurement.

"IT HAS TURNED INTO DE FACTO INTERFERENCE"

The Central Bank's job is a technical matter. When politics interferes with technical matters, the situation becomes unsolvable. Central banks are interfered with all over the world, but not to this extent. Trump also interfered. He said, 'Interest rates shouldn't be this high,' but the central bank didn't listen to him. And because it didn't listen, it wasn't dismissed. But in our case, it has turned into de facto interference. We have even experienced periods where interest rates were determined for them. The Central Bank had a system and a culture. These were respected institutions. You tell the person, 'Keep the interest rate at half of inflation,' then you are transferring wealth to certain places. This is a different kind of decision. Then the matter ceases to be technical and becomes political. Because we do this so much, we are ruining the situation. Look at the FX-protected deposit scheme (KKM). The loss emerged very clearly.

The Central Bank is definitely burning through its reserves to intervene in the market. The Central Bank must be transparent. It shouldn't make surprises. People have gotten used to surprises. The Monetary Policy Committee (PPK) meets, and one minute before 2 o'clock, everyone is fortune-telling, asking, 'What will the Central Bank do?' Whereas this is clear at the Fed. It has never been seen that an interest rate of 0.25 was hiked where it was said that the rate would be hiked by 0.50. Therefore, people know, expect, trust, and are certain.

If inflation is 68 percent today, you will set the interest rate at 70 percent and get ahead of it. Then you will start to come back down slowly. In other words, you will do the opposite. We are chasing inflation. You cannot catch it by chasing it. They are relying on the base effect for July and August. This is a separate thing. It doesn't mean you have solved the problem. Of course, is this very easy? No, it isn't. But we are talking so comfortably. When you raise it to 70 percent, there will be many bankruptcies. Many SMEs will be left in our hands. They could have brought it to this point slowly until today.

PUBLIC SPENDING...

You cannot solve it just by the Central Bank raising interest rates. You have to put something alongside it. You have to slowly install what you call structural reforms so that the world also looks and says, 'They are getting on the right track, money can be invested here,' and some money comes in.

Public spending is very high in the budget deficit. If a rule is set for people in a country, those who set the rule must follow it first. Those who set the rules call for austerity. But they don't do it themselves. There is incredible public spending. I was the Treasury Undersecretary in 1997; my car was a Renault. It was a car allocated by the state. Now you look at the simplest provincial director, they have a Mercedes or Audi underneath them. We cannot get out of this. Ultimately, you are spending the taxes you collect. Everywhere is like this. If we are to remain in the presidential system, 150 deputies are enough. The Parliament doesn't have its old influence anyway... Why should we give these salaries to 600 people?

EXCHANGE RATE PREDICTION

I predict that we will grow by 2.5-3 percent in 2024. But I think our inflation will always remain high. It will turn into a low-growth model with inflation. I don't expect a technical recession or contraction on a quarterly basis.

If you don't set the interest rate correctly, the exchange rate also goes up. I don't think the future inflation will be 36 percent. Future inflation will be in the 50s. If Turkey reaches 60-70 percent in interest rates, the exchange rate will also fall."

News Source: 12punto