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Tuzmen's Warnings About 'Cheap' Currency Went Unheeded

A considerable amount of foreign investment came to Turkey with the atmosphere of stability it sustained. However, the investors’ preferring to invest in the Stock Exchange and buying debentures rather than making direct investments emerged in the discussions over the concept of hot money. Is there a contradiction in this situation?

These are proper evaluations. Turkey is a country which is hub of energy, transportation, information, history and geography. This will not change as long as we maintain stability. An indicator of this is that at the moment we attract twice as much investment than we did prior to 2003. These are benefits of stability. We need to focus on factors triggering production.

How do you think this will be possible with the current low interest rate policy?

We need to determine our development strategy centered on export. This is included in our government’s economy program. Countries focused on export keep their own currencies with low value. China’s export is $700 billion and its reserve is $900 billion. We need to consider these numbers and make serious analyses. The amount of import increased dramatically in Turkey as foreign currency is cheap. Domestic producers of these products do not produce them anymore due to cheap import. Normalizing a currency increases production and eliminates unemployment. Our currency is 40 percent more valuable. If we normalize this, the pressure for import will decrease automatically so the characteristic of import will also change; we will import only end products, not intermediate products. If the currency is too valuable foreign investment diverts into different areas; however, portfolio investment does not decrease unemployment.

Moreover, as we decreased customs taxes after signing the Customs Union Agreement in 1996 foreign products can now easily enter Turkey. Foreigners invest their capital in money markets in Turkey as they give twice as much real interest than inflation. This is a vicious circle. I think interest rates should be appropriate to Turkey’s current situation. Everybody understood what they should do exactly during the fluctuation in last May and June. I already said this a couple of years ago; however, I think I did not make myself clear enough.

Some people did not understand me. What I observe now is that the number of people who understand me increases day by day. For instance, it is the foreign trade deficit which triggers the current account deficit. So, a dramatic increase in the import rate creates the current account deficit in Turkey.

What we need to do here is follow the developments, evaluate them and take advantage of them if possible. We can develop rapidly in this way. If we can sustain the atmosphere of stability until the end of 2007, then Turkey will carry itself on a platform that we can not even imagine. Turkey will be the shining star of the 21st century.

You say, “exports should increase, foreign exchange should rise; however, the low rate of exchange is the backbone of the economic program. Doesn’t this counter your friends in the cabinet?

I am aware that I did not explain the value of the rate of exchange. The communists were not writing on this issue in the past, however, they write about it now. I do not think in a different way as the minister of this government, nor do I claim that Turkey’s export volume increased thanks to me. There are some countries with a better development plan for exports. We did not do this, and we missed out. I could even show this as the reason for the current account deficit. We should consider it also from this point. We cannot always have such an appropriate period. For example, we were faced with big costs to pull inflation down; however, there have been no fluctuations in the markets.

The markets in other countries are shaken and unemployment increases to a great extent when inflation decreases. We took many measures for a soft transition period, but we missed out on some things. One of the things that we missed out on was foreign trade. If we had considered foreign trade when we acted, inflation would be a bit higher; however, our trade deficit would be less. In the second period, we managed to pull the credits with low interest rates and provided more flow of foreign capital since the confidence felt for Turkey increased. The amount of the current deficit increases the risk factors for foreign capital. The foreign capital investors act hesitantly about direct investment due to the current deficit.

Is it possible for the rate of exchange to reach the value you mentioned with a high rate of interest?

Of course, it does not seem possible with this current rate of exchange policy.

Five percent was shown as the inflation target in 2006. Only monetary tools were used to achieve this goal and the real sector was forgotten. Recent fluctuations have shown that this target was not realistic. Do you think that the risks of a quick decrease of inflation were not considered?

We are already discussing this among ourselves. I repeatedly expressed this. The low rate of exchange increases the foreign trade deficit and the current deficit. We could not make this clear, I suppose. I was not happy when I saw that I was right. I was not happy about the 20 percent arrangement in May-June period, and our entrepreneurs were not happy, either. We do not support these sudden rises. These will harm the economy. If it goes on like this, we will have to make sudden moves. Certainly, this is my point of view. It is necessary not to enter into a vicious circle; we have to look at events from the outside. The important thing for us and other institutions related to the economy is to reduce employment, increase exports and reduce imports. We should feel the burden of this on our shoulders before we decide.

What sectors should get the most focus to increase the volume of exportation with high amounts of value-added tax? How can the Turkish government improve its volume of exportation?

To think about it from the perspective of exportation of goods, the focus should be on machinery, electricity and electronic equipment, white goods, and automotive…

There’s a need to gradually move to high-tech industry.

The software business is excellent, though it could be far better.

The main goal is to have a strong and prosperous business sector that produces.

Focus should go to technical textiles, like with the iron & steel, as well as mining sectors.

The situation with kitchen utensils is very good.

The agricultural business sector also did a good job this year with finished agricultural products.

When I take a look at the service sector, I see a great success in tourism and transportation.

Additionally, yacht construction has also become one of the successful business sectors that needs further reinforcement.

There’s talk of some measures against the current account deficit. What do you expect the Under Secretariat of Foreign Trade to do as a department that is within your control?

We’ll impose a closer market inspection on goods that we get from abroad, though we also get them here in Turkey.

I guess the Ministry of Industry officials will have their own projects to improve the situation.

We need to get high quality goods.

Businessmen importing goods should stop having the idea that they can introduce anything to the domestic market.

This is true for foreign businessmen exporting to Turkey as well.

There’s also the need to have more standard controls.

All in all, the volume of Turkish exportation depends on the volume of its importation.

With this in mind, we can reduce the current account deficit when we allow goods to be imported even if we export similar items, and when we become more careful with intermediary goods.

And, I think that a fine balance between exportation and importation can be created with assistance from a development program based on plans to improve exportation. Then we can do away with the current account deficit problem.

TUSKON summit broadens horizon

What’s your assessment of the summit meetings of TUSKON, or the Turkish Businessmen’s and Industrialists’ Confederation?

TUSKON served a purpose of paramount importance.

It attracted a huge turnout, although there was little time left.

The Turkish schools and the TUSKON officials played an important role in attracting such a huge turnout.

And I can see that such meetings create new opportunities for business corporations.

We have to have further meetings.

I pledge my support as well.


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