Among the most important elements of the Economic Recovery Program launched in Turkey in the aftermaths of the 2001 crisis was the granting of independence to the Central Bank. Independence does not mean central banks' taking actions without anyone else's approval. The practice in many countries as well as in Turkey is as follows:

Laws stipulate that the main target of central bank is to ensure price stability. In this context, governments provide the banks with annual and medium-term inflation targets. In some cases, they set the inflation targets as well receiving opinions from the central banks. But in the end the main responsibility is undertaken by governments. That is who has the authority also has the responsibility. Once the inflation target is set, technical details in line with the target; i.e. the implementation of the monetary policy is left in the hands of the central banks. If the targets are diverged from, central banks are asked to give an account before the government as well as before the public.

Theory of economics and experiences cumulated over years lie behind this framework. Current state of theory suggests that the best thing that can be attained by monetary policy is to fight with inflation. Monetary policy can also work to maintain growth rate as close as possible to the potential growth rate in the short term. Apart from this, you cannot increase growth rate above potential growth rate or improve potential growth rate using monetary policy.

Experience accumulated over years is as follows: at the dawn of general elections, governments sought for increasing growth rate to get more votes. They 'made no account of' the potential growth rate; they only wanted to 'pump up' the economy no matter what. And the shortcut for this is making central banks issue money, extend credit and reduce interest rates artificially. Governments neglected the fact that the engine cannot be run at such a high speed and eventually break down. What is more, a substantial part of this example was experienced by developed countries. As a result, parties have come to an agreement to secure that economy will not be exposed to destructive practices and that such practices do not lead to unfair competition against opposition parties: they decided to grant independence to central banks.

This is the short story behind the independence of central banks. You are right if you thing why did this archaic issue came up to your mind on this holiday? On Wednesday, medium term program for 2010-2012 period was announced. As you can remember, on Thursday I touched upon the program and said that the targets and forecasts of the program were 'attainable. But 'attainability' does not necessarily guarantee that the targets will be attained. A student of mine said that he would get 'BB' minimum for every course he will take from now on. This of course is an attainable target. Paying attention in the lectures and studying daily must be enough to attain this. But, under two conditions: first, there will be no exogenous shock; the student will not catch a long-lasting illness. Second, he will study systematically. Catching a disease is not a desirable thing; let us skip it. But, will the student fulfill his part and study systematically?

Similarly, announced macroeconomic targets and forecasts seem attainable under two conditions: If no new global shock arrives and if the fiscal measures and reforms listed are accomplished. The program definitely wants to improve the confidence in the economy and reduce the risk premium. This way, people will spend with ease; banks will lend with ease; economy will get back on track.

But to secure the required confidence; we first have to believe that the program will be abided and the promises will be kept. The question is: If you start to discuss again the independence of the central bank, which is founded on a number of theoretical grounds and experience, can the medium term program be credible?

This commentary was published in Radikal daily on 21.09.2009