Instead of confusing statements, take steps to overcome the mentioned vulnerability, which clearly attracts attention under the current global circumstances.

It was the late 1993. The Treasury was holding auctions each week to sell bonds with different maturities: three-month bonds, six-month bonds, nine-month bonds and finally one-year bills. The public sector borrowing requirement was significantly high. Therefore, despite the annual inflation at 66 percent, the interest on borrowing in auctions fluctuated around 80-90 percent.

Statements do not solve the problem

In other words, the banking sector demanded high real interest rates for their lending to the Treasury. Naturally, the government was not happy with this. There was only one way to reduce the interest rate: to eliminate the factor pushing it up in the first place. That is, to introduce a reliable stability program that will in time reduce the borrowing requirement of the public sector.

But this path was not taken. They tried to reduce the interest rate artificially. They cancelled the auctions which resulted with high interest rates. Senior officials made statements in a way threatening the banking sector instead of eliminating the factors causing high interest rates. Those who witnessed that period will most probably remember with a smile on their face that a senior official gave a statement during his flight back from Tokyo and said that "banks must mind their steps as he was coming with a case full of money".

Concrete steps needed

Nevertheless, such statements did not work as long as the need for finance remained intact. As auctions were cancelled, the Central Bank was forced to issue currency "benefiting" from the authority the laws then in effect allowed. The rest is familiar: the process towards the crisis in 1994 gained pace. The "funny" part is that, the 90 percent interest rate in 1993 which the Treasury was not happy with reached 400 percent in only six-seven months, in May-June 1994.

There is no similarity between the current economic circumstances and the circumstances back then: Turkey is performing incomparably better in terms of macroeconomic stability. I recalled the outlook two decades ago because of the statements I mentioned. After months of skidding, the leaders of the European Union (EU) finally took important decisions on Thursday, and the world breathed a sigh of relief. With the help of this "sigh" I can write more comfortably and fulfill my responsibility of warning.

Last week, before the critical meeting of the EU leaders - that is, in a climate where all the uncertainties about whether the crisis in the EU will spread or not were still present - senior officials from Turkey made interesting statements. Everyone must avoid such statements given the severe uncertainties and in the expense of increasing the risk perception towards Turkey due to an explicit vulnerability facing Turkey (the fact that high current account deficit is financed via short term foreign capital).

Such statements first makes you think "What is going on?" and then forces you ask "Or?" So, please avoid such statements. Instead of confusing statements, take steps to overcome the mentioned vulnerability, which clearly attracts attention under the current global circumstances. That is, strengthen the decisions of the Central Bank and the Banking Regulation and Supervision Agency. Save some part of the revenues from the tax amnesty, as insurance money. At least, consider temporary raises in tax on some consumption goods. And while doing this, work on a new tax reform attempt to expand the tax base and increase tax revenues permanently.

This commentary was published in Radikal daily on 23.07.2011