I already started to discuss the success conditions of the Medium Term Program announced in mid-September. The points I touched upon on my last commentary were: promised levels of monetary and fiscal policy variables over the 2010-2012 period must be 'attainable'. Second, there must be a correlation between these variables and variables that concern everyone such as growth and unemployment so that the 'attainability' serves a purpose. It appears that there is no problem considering these two conditions.

Third condition which is hard to fulfill is building the confidence that monetary and fiscal policy variables will be maintained at promised levels. If medium term fiscal rule arrangement was introduced on the basis of a solid legal framework; we would be relieved in this respect. There exists a risk in this regard; but we can reduce the risk if we implement legal arrangements.

There are also other things we can do. Today I would like to discuss these. First, I have to remind two things. First: Turkey's saving rate is quite low. We need savings of the rest of the world in order to grow rapidly. In other words, Turkey can grow rapidly as soon as it borrows from abroad at sufficient quantity and under good conditions. To put it differently, in periods of rapid growth, Turkey gives high current account deficit.

However, when financial systems of developed countries have problems, we cannot find the foreign resources we need. Therefore, we have to increase the saving rate. This cannot be achieved overnight; it requires time. Moreover, it is not easy to design a policy that will increase private sector savings. On the other hand, it is possible to push up public sector savings.

Second point to be reminded is: in 'normal' economies, if production decreases and unemployment increases significantly, policies directed to boost domestic demand steps in. Fiscal policies are loosened and public expenditures are improved while tax rates are reduced and central banks introduce interest rate cuts. During the current crisis, Turkey was among the countries that faced the harshest reductions in production and rises in unemployment. As budget facilities were not sufficient, we failed to give the reactions that countries with 'normal' economies would give; we could not do much to stimulate domestic demand. The actions we took were insufficient; delayed and partially directed to false targets. Let alone the delays and the wrong targets. Main reason why measures to stimulate domestic demand proved 'insufficient' is that tax revenues is not sufficient. A large group does not pay taxes. If we can collect taxes at a reasonable level from that group, one of the most important conditions needed for Turkey to 'step into a new age' will be fulfilled.

As you might note, these two important phenomena overlap. A way to increase public sector savings is to push up revenues without reducing expenditures. Turkey needs to launch a tax reform. Given the current climate crisis, it is not necessary to implement this reform right away. However, preparations for the reform must be done now. Such credible structural reform significantly decreases the risk perception about Turkey and improves willingness to invest in Turkey.

Imagine that along with this highly important structural reform, Turkey launches another equally important reform: education reform; not only secondary and higher education but also on the job training as well as training of unemployed. Imagine that considerable amount of funds is allocated for this purpose. Taking such a huge and successfully designed step implies that Turkey's potential growth rate will leap up in the future, which in advance improves the willingness to invest.

Let us go on imagining: You have already implemented a medium term program that sets attainable targets. You have launched the implementation of a fiscal rule which will sure be attained along with a legal framework which makes everyone believe that this rule will be abided. Your goal is to attain the budget targets in the program without compromising the quality of the health services as achieved as a result of the health reform launched in 2005. You initiate two large reforms in tax system and education. This Turkey will have the 'story', which is highly necessary and which will be told to everyone with pride, will not?

So, where does the IMF stand in this picture? It stands here: for a couple of years now, amount of foreign funds available for countries like Turkey will be limited. If you can access sufficient amount of foreign funds during the first years; the program can be implemented more easily. You can negotiate with the IMF which is 'claimed' to loosen its terms. If the IMF gives green light to your program, you sign an agreement to access the funds. Otherwise, if the IMF says 'no' to such program, you do not sign any agreement. It is quite simple.

This commentary was published in Radikal daily on 27.09.2009