Okan BAŞAL
İstanbul

AKP Leader and President Tayyip Erdogan announced a series of new measures after the Cabinet meeting, saying that "we are deploying new tools to ensure relative stability by stopping the fluctuation in the currency".

Among the measures announced, the losses of those who invest in TL due to the rate increase are covered by the taxes of the Treasury, that is, funded by other citizens taxes; If the promise of exchange rates to be given to the exporting company by the Central Bank is not fulfilled, the losses are again covered by the taxes of other citizens. Moves such as reducing corporate tax, that is, the tax on bosses by 1 point, and lending from public banks to "priority sectors" are also among the measures expressed by Erdogan.

The dollar rate, which was above 18 liras at the beginning of Erdogan's speech, had fallen below 14 lira at the time of this news (20 December, 22.30). Before Erdogan's announcement, the euro rate above 20 lira had fallen below the 16 band.

Will the effect of this announcement and the new measures on exchange rates permanent or temporary, or is it instantaneous reaction? From which sources will the announced measures be covered? What will be the bill for these measures to the state and the citizen? We directed these questions and more to the economist Mustafa Sönmez.

"THE MOST IMPORTANT VEHICLE THEY DID NOT USE WAS THE TREASURY

Mustafa Sönmez, who stated that "there is an intention to return to TL and deflation using treasury resources" and stated that this is an expected move, here he explains why:

"I've been waiting for this. The Treasury has a low budget deficit. Even in the pandemic, they didn't grow the deficit. Considering Europe's borrowing rate in pandemic conditions, the borrowing rate is also relatively low. The most important tool they didn't use was the Treasury. Now they're going to open it up and use it to strike a balance in exchange rates. But when you close one side, one side can open up badly. What surprises will come to the Treasury from here, how will they handle that hole, these are different questions."

"EITHER THE BUDGET DEFICIT WILL INCREASE, INTEREST PAYMENTS WILL REACH THE CREST OR THEY WILL RELEASE NEW TAXES"

Sönmez explains what the consequences of spending Treasury resources in this way will be:

"Nothing is free. Treasury resources, tax resources will be used for this. There's no treasury grant for that. They're probably going to make an additional budget. What's the source of this? What tax revenues will they have? Or they're going to do it at the risk of a budget deficit. If it is done with a budget deficit, it will go into debt, interest payments will reach the arch. They're going to cut out education, health, other items and set aside a share of the interest. They're either going to release new taxes or they're going to cut back on spending and set aside a share of the interest."

Stating that the situation is no different for the 1-point reduction in corporate tax to be reflected in the citizen, He says, "This will eventually come out of the citizen".

"IF THEY HAD FOUND A SOLUTION FOR THE GOLD THEY HOARDED UNDER THE PILLOWS, THEY WOULD HAVE USED IT UNTIL TODAY"

"It is known that there are 5,000 tons of gold under the pillow in our country with a value of 280 billion dollars. New tools will be developed together with market stakeholders to bring these gold into the financial system and into the economy".

"Propaganda sentence. It's a moral statement. If so, when will he not drive at this speed? If they had found it, they would have used it so far."

"AFTER A WHILE, IT MAY NOT BE ABLE TO COPE WITH INFLATION"

Mustafa Sönmez's assessment of whether the immediate decrease in exchange rates will be permanent is as follows:

"There's a matter of trust here. How many people will trust this formula? Do people get convinced? Now, panicked, people may have sold foreign currency to keep us profitable. There may be those who exchange their currency for profit realization. Some people say I don't sell my currency, I'll stand there. We don't know how many people exchange their currency in this way, make a TL deal and demand the difference from the Treasury, and we don't know how much the trend will be. He has to compare that to inflation. After a while, the bank interest rate and exchange rate difference may not cope with inflation. inflation will increase by 10 percent in December and will increase to 30 percent annually. In the months to come, 40 percent will reach 50 percent. Even if you invest in TL and get a return as much as interest and rate increases, you can still stay below inflation."

"THERE ARE NO MODELS"

Sönmez's assessment of the relationship of the announced measures with the "Economic Model of Turkey" expressed by the government is as follows:

"There's no model. They were worried about dollarization. We don't know where this is going to stop or what's going to happen.

The key issue here is inflation. Where will the accumulated inflation sit tomorrow, the day after tomorrow? They have to regulate everything according to inflation. If it does not regulate the interest rate according to inflation, there will again be a trend towards foreign currency. If it tries to meet the expectations of the currency in this way, the Treasury will have to use the resource. So inflation will have the final say again. Imports made of high rates, goods produced with it, their labels... In the first quarters of 2022, we can see 40-50 percent inflation with TUIK (Turkish Statistical Institution) figures."