Fatih Özatay, PhD - [Archive]

There are lessons to learn from what Portugal is called for 16/06/2011 - Viewed 997 times

We have to learn lessons from what the IMF and the European Union calls Portugal for as prerequisite of the US$ 116 billion bailout plan.

It is doubtless that the economic program that was launched after the 2001 crisis and was pursued roughly until the eruption of the global crisis with certain modifications brought economic stability in Turkey. This way, public debt, budget deficits, interest rates and inflation was reduced significantly. One of the key pillars of that program was the steps taken to change the institutional structure that made possible the implementation of undisciplined economic policies observed in the large part of 1980s and 1990s. 

Institutional reforms are insufficient
Of course the institutional structure was not altered completely; but considerable progress was made. For instance, the Central Bank was given its independence, law of auctions was amended, law of banking was changed, and new ones were added to independent administrative authorities (regulatory institutions) started to be established one after another beginning with the late 1990s.

The next phase of this process was to initiate the institutional reforms tailored to solve the problems that prevent Turkey from converging with developed countries in terms of the level of welfare. Unfortunately, this process could not be launched. For instance, the steps in the field of the education reform, to match the skills level of the labor force with the demands of the economy, to promote women's participation in the labor force, to abandon the tax system that discourages employment or to struggle with the informal economy were either not taken or were not worthwhile.

It appears that the new constitution will occupy Turkey's agenda for the period ahead. A more libertarian constitution is an aspiration for Turkey; and if it is made, it could be to the benefit of everyone. But I hope that in this process the long-awaited economic reforms will not be thrown out of focus. I cannot maintain my hopes observing the reform performance of Turkey since 2007 and the projects that focus mainly on infrastructure as highlighted in election pledges. But I wish that this is all because of pessimism and that I will end up mistaken.

Achievements must be sustained
Even if we cannot initiate the reform process that will take Turkey one step further, we have to try sustaining the achievements succeeded so far. However, in the period before the elections, signals were delivered that steps that might hinder economic stability laboriously achieved after the 2001 crisis might be taken. We heard confusing statements about the future of regulatory institutions, in particular. In May, the IMF and the European Union signed a bailout plan for Portugal. In the context of the US$ 116 billion agreement, Portugal has to introduce an economic program with three main pillars: to initiate structural reforms tailored to improve competitiveness and productivity, to ensure a more solid financial system, and to discipline the fiscal policy.

In the scope of the first pillar, Portugal is asked to strengthen its competition policy as one of the main prerequisites for the bailout. The country thus has to prepare a new competition law and strengthen the independence of regulatory institutions.

With additional measures, Turkey can in time reduce the risks stemming from the rise in the current account deficit and the increase in the share of short term capital inflows in the financing of the current account deficit. It is evident that new risks must be avoided in this process. Even if we fail to recall which practices brought the main achievements after the 2001 crisis, we had better learn lessons from what Portugal is called for.

This commentary was published in Radikal daily on 16.06.2011