Why is the economy difficult to recover when the rule of law weakens, and what steps are needed for a way out?

Economic crises are often explained solely by interest rates, exchange rates, or budget figures. However, global economic literature reveals that lasting stability depends not only on technical monetary and fiscal policies but also on the rule of law, judicial independence, transparent public administration, accountability, and an environment of reliable information.

For this reason, in countries where the media is largely under political pressure, trust in the judicial system has weakened, and pressure on the opposition has increased, economic problems can become deeper and more prolonged. This is because investors, producers, employees, and consumers make their decisions not only based on current prices but also on their expectations regarding which rules will be in effect tomorrow.

While indicators such as rising exchange rates, high inflation, and loss of purchasing power may appear to be macroeconomic problems at first glance, there is often a crisis of confidence behind these indicators. When trust in the currency, courts, regulatory bodies, official data, and decision-making processes diminishes, economic actors turn to shorter-term, more defensive, and more costly choices.

WHY ARE INSTITUTIONS AT THE CENTER OF THE ECONOMY?

Studies in the field of institutional economics emphasize that looking only at natural resources, population, or geography is insufficient to explain the differences in prosperity between countries. Protecting property rights, impartial enforcement of contracts, the non-arbitrary use of public power, and citizens' access to information are considered among the fundamental conditions for long-term investment decisions.

The work of Daron Acemoğlu and James A. Robinson on the role of institutional structures in economic development, Douglass North’s approach to institutions and transaction costs, and governance assessments by organizations such as the World Bank, OECD, and IMF all point to a similar conclusion through different methods: Economies with reliable and inclusive institutions tend to be more resilient to shocks.

In this framework, judicial independence is not just a political principle but also an element of economic confidence. A company wants to believe that its property will be protected when it invests; an entrepreneur wants to believe that there are impartial mechanisms to which they can appeal against unfair competition; and a citizen wants to believe that legal remedies will function. When this trust weakens, investment appetite may decline, capital flight may accelerate, and the country's risk premium may rise.

Similarly, freedom of the press and access to information are part of economic functioning. Independent media contribute to the oversight of public spending, tenders, market regulations, and economic decisions. In environments where information is suppressed or directed from a single center, it becomes difficult to detect faulty policies early; the gap between official statements and market expectations may widen.

WHICH STEPS STAND OUT FOR LASTING IMPROVEMENT?

There is no single prescription for exiting an economic crisis. Countries differ in their debt structure, external financing needs, production capacity, political system, and social conditions. Nevertheless, international experience and academic studies show that some common themes stand out for sustainable recovery.

• - Reliable monetary policy: The central bank's focus on price stability, the predictability of its decisions, and its ability to act independently of the political calendar are important in limiting inflation expectations.
• - Fiscal discipline and transparent budget: The auditability of public spending, clear monitoring of off-budget liabilities, and efficient use of resources increase confidence.
• - Judicial independence and legal predictability: Contract security, property rights, and an impartial judiciary are among the decisive factors in both domestic and foreign investment decisions.
• - Independent regulatory bodies: The fact that rules do not change according to individuals in areas such as banking, competition, energy, capital markets, and public tenders supports market confidence.
• - Freedom of the press and data transparency: The reliability of economic data, the traceability of public decisions, and critical oversight can reduce the cost of faulty policies.
• - Social protection and income policy: While fighting inflation, targeted support that protects the access of low-income segments to food, housing, energy, and basic services reduces the social cost.

The common point of these steps is not just to send a message to the markets, but to reduce uncertainty in the daily lives of citizens. When inflation expectations are not broken, wage increases, pricing behavior, and savings preferences continue to deteriorate. Legal and political uncertainty can also reinforce this cycle.

International literature on central bank independence shows that the credibility of monetary policy is critical in the fight against inflation. However, independence alone is not enough. If public finance is loose, data is controversial, trust in courts is low, and regulatory bodies make unpredictable decisions, the impact of monetary policy may remain limited.

The success of economic programs is closely related to the society's belief in the program. Therefore, it is necessary not only to announce technical texts but also to demonstrate the independence of institutions and the auditability of decision-making processes. Harsh measures implemented without building trust may improve some indicators in the short term; however, the institutional foundation must be strengthened for lasting prosperity growth.

Global experience shows that in economies where authoritarian tendencies are strong, problems often accumulate and grow. Capital seeks safer havens, qualified labor may plan its future in other countries, and households may prefer to keep their savings in foreign currency or other assets instead of the local currency. All of these behaviors can increase pressure on the currency and the cost of fighting inflation.

Therefore, the answer to the question "how does the economy improve?" cannot be sought only in interest rates, exchange rate levels, or short-term support packages. Lasting improvement becomes possible through the restoration of the rule of law, the strengthening of independent institutions, the increase in the reliability of economic data, the provision of transparency in public administration, and the trust of different segments of society in decision-making processes.

This approach, independent of political preferences, is based on a fundamental conclusion shared by international research: The loss of confidence in the economy is not just a market problem; it is also an institutional problem. As institutions strengthen, the credibility of economic programs and the society's capacity for sacrifice also increase.

News Source: 12punto