Oman represents a different model among GCC countries with its unique political, economic and social structure. The country differs from its fellow neighbours in terms of political orientation, economic development as well as social and cultural life. While the country particularly avoids taking sides in regional conflicts and other foreign policy issues, it plays a mediating role especially in the disputes between Iran and regional and global actors. Unlike other Gulf countries such as the UAE, Qatar, and Bahrain, the Omani government keeps the ratio of foreigners to its own population at a certain level in order to allow its citizens to benefit more from the already limited resources in the country. An interesting fact with the expatriates who reside in Oman is the fact that they are far better integrated into Omani society than expats in other Gulf countries who experience some form of segregation. This is mainly due to Oman’s centuries-old culture of hosting people from different countries and being a trade hub between continents.

Oman also differs from other Gulf countries such as Qatar and the UAE in terms of its economic capabilities as well as structure. Despite Oman’s economy being heavily dependent on oil exports, the country’s reserves are limited. Because of the lack of enough natural resources, the Omani regime has tried to increase the welfare level of the country by using the existing reserves as effectively as possible, and allocating returns towards economic development and infrastructure. These limited reserves caused Oman to lag behind other Gulf countries with regards to economic development. As a result, Oman has made little progress in terms of becoming an international trade hub, despite the strategic location of the country. Additionally, Oman’s GDP per capita also remained the lowest among the GCC countries. Although it has lagged behind other Gulf countries economically, Oman has been undertaking a new initiative to bring a sustainable development model for the country and to make a rapid progress towards a post-petroleum economy.

On 27-28 January 2019, the Omani government announced its Vision 2040 program where it detailed a new strategic road map that would allow the country to transform its economic structure. There is no doubt that the most important motivation that pushed Sultan Qaboos’ leadership to define a new strategy is the disappearing natural resources in the country. It is estimated that the oil and natural gas reserves of Oman will end before 2040. If new discoveries cannot be made, the country will supply its energy needs through imports and will have to replace their exports with goods other than oil. This depressing trend is pushing the Omani leadership to find alternative ways to restructure the country’s economy.

The fact that the Omani economy is heavily dependent on energy products is a serious challenge for restructuring its economy in the post-oil era. In current numbers, the Omani economy is 70% based on exports from the energy sector. The disappearance of this high volume of exports and the increasing imports in order to meet the energy needs will mean a serious burden for the country’s economy. In addition to this trend, the Omani economy is also struggling with high unemployment, which increases the pessimistic future for the country’s economic Outlook.

By implementing the Vision 2040, Oman’s main priority is to diversify its economic activities and establish an economic environment where dependence on hydrocarbon products is kept at a very limited level. Aiming to adopt an economic development model in this direction, Oman aims to stand out in fields such as production, industry, tourism, trade, mining and port management. The country also aims to replace hydrocarbon based energy resources with renewable energy options.

Within the scope of the policy of diversifying the economic activities, one of the areas Oman attaches special importance to is the transforming the country into global trade hub. By increasing the capacities of its ports in southern regions Oman aims to attract regional and international investors. In this context, significant efforts are being made to expand the ports in the cities of Duqm and Salalah along the Indian Ocean in the hope that these ports can also serve as alternative to Jabal Ali Port in Dubai.  

Attracting foreign investments to Oman is another important target of the Vision 2040 strategy. The Omani administration organizes a number of events where international investors are being informed about potential projects in the country. The Omani government also made significant legal changes that would help investors easily tackle investment procedures. Within the context of these developments, there has been a significant increase in foreign direct investments in Oman in 2019. A recent example of such investment came from China. Under the newly signed privatization agreement on December 17, 2019, Oman’s state-owned Electricity Transmission Company, known as Nama, sold a 49% stake to the Chinese state-owned State Grid Corporation of China for $1 billion.

While struggling with these concerns regarding the future of the economy, Oman is also dealing with problems in foreign policy. Although Muscat remains neutral on many regional issues, Omani leadership is concerned that the new political dynamics of the region may also affect the country. For instance, the aggressive foreign policies of Saudi Arabia and the United Arab Emirates are not welcomed by the Omani leadership, as the country prefers to remain neutral in foreign policy. The continuation of this approach would bring some level of tension between these two countries and Oman. The civil war in Yemen also put Oman in a difficult position in pursuing a neutral foreign policy. This is mainly due to the fact that both Riyadh and Abu Dhabi consider Oman to be a passage for Iranian arms to Houthis in Yemen who are fighting against Saudi and Emirati backed forces. Although the Muscat administration rejects these claims, the continuation of the conflict in Yemen remains a cause of tension between Oman and its northern neighbours. Given this grim picture, Oman has to be careful not only in managing its economic direction, but also political relations with neighbouring actors that have strong natural resources reserves.

As Sultan Qaboos has been recently admitted to a hospital in Belgium due to health problems, the uncertainty over Oman’s leadership is also a source of concern for the country. As the uncertainty continues, Oman has focused on economic development while insisting on continuing a neutral foreign policy. With its inclusive social fabric, cultural pluralism, economic structure and neutral foreign policy position, Oman represents a unique case among the GCC countries. These aspects would allow the Omani leadership to become successful in its attempt to transform the country, particularly economically.

“In the Far East if you want to come together, we should start with a common trading currency, not to be used locally but for the purpose of settling of trade. …… the global market is tied to the US dollar, which gives room for the currency to be manipulated” (Dr. Mahathir Mohamad)

The “25th International Conference on the Future of Asia” was held in Tokyo – Japan on 30 May, 2019. The theme of the conference this time was “Seeking a New Global Order – Overcoming the Chaos.” The Prime Minister of Malaysia, Dr. Mahathir Mohamad as a keynote-Speaker inaugurated the conference and without losing time criticized the risks of a U.S.-dominated unipolar world and the instability of the world’s reserve currency, the fiat U.S. dollar. He suggested Asian leaders and advisors to rethink on a single Asian currency that is linked to Gold. Dr. Mahathir advocated that the same currency can be used for international trade and investment amongst the Asian economies. And could also serve as an alternative to minimize the dependency on the U.S. Dollar. As a quick refresher, the 93 year old Dr. Mahathir was the Prime Minister of Malaysia from 1981 to 2003, and again took office in May 2018. He also served as Malaysia’s minister of finance from 1998- 1999 and between 2001 -2003.

Dr. Mahathir’s remarks are very similar to what he has advocated in the past. He has been well known for his criticisms of the International Monitory Fund (IMF) and the international currency markets. It was during the Asian financial crisis of 1997-98 that Dr. Mahathir singled out currency speculators and traders. He openly condemned George Soros, as being responsible for the demise of Malaysian ringgits during the Asian Financial crises, a period in which the Malaysian Ringgit lost much of its value. Hence, it is easy to apprehend when Dr. Mahathir asserted that “in the Far East, if you want to come together, we should start with a common trading currency, not to be used locally but for the purpose of settling of trade. At the moment we have to depend upon the US dollar, but the US dollar is also not stable. So the currency that we propose should be based on gold because gold is much more stable.”

Asia has a long history when it comes to dealing with floating fiat currencies or trading in gold, silver and copper coins.

The veteran statesman in the past has also proposed the Islamic countries (i.e. Malaysia, Indonesia, Brunei and many countries of the Middle East) to opt for “gold dinar.” The Muslim world indeed holds a very long history of gold dinar (a gold coins weighing 4.5 grams), which was used as a basic mode of exchange from the 7th century through the 13th century. Likewise, Muammar Gaddafi of Libya also presented a similar notion where he proposed a common gold-standard policy for Islamic North Africa, and Africa. And it is generally assumed by quite a few that the perceived threat of this plan, to the hegemony of the floating fiat U.S. dollar, was one of the key factors that led to the invasion of Libya by U.S.-led NATO forces in 2011, which paved Gaddafi’s downfall.  

Further, Dr. Mahathir noted that the idea of adopting another currency such as Chinese Yuan or Japanese Yen is not favored amongst the Asian countries. This is merely due to the fear of a loss of one’s sovereignty/autonomy. For that reason, the idea of introducing a Pan Asian gold currency is more viable in order to neutralize such reservations. Nevertheless, if the project becomes accepted in the near future the local currencies could also follow the same policy of linking to gold, which would eventually bring all of Asia under a common currency standard. This solution would likewise maintain the sovereignty of the domestic currency excluding the need for a centralized institution like the European Central Bank, and all the supranational superstructure that has accompanied it.

Interestingly, Asia has a long history when it comes to dealing with floating fiat currencies or trading in gold, silver and copper coins. For instance, China throughout the 11th and 15th century used paper currency for trade and commerce. And later reverted to silver, gold and copper coins and continued to deal in the same till mid-1930s. In fact, a number of Asian countries (like; Japan, Korea and Vietnam) in the past did follow the Chinese paper currency model. So much so, that the paper currency of China’s Yuan Dynasty was also used in Indonesia and in some parts of Europe for a number of years, even before the West formally introduced fiat money. However, the past showcases that the experience of Asia with paper currency was never worthy, hence, time and again the Asians reverted back to gold, silver and copper coins.

China, Russia, Iran and Turkey are aiming to bypass the U.S. Dollar and a common currency backed by the gold standard can be a valid option for all.

One can confidently affirm that gold has fascinated man since the very beginning. And what seems more attractive is the idea presented by Dr. Mahathir of having a currency that can be backed by the gold standard. Rather than a worthless fiat currency, gold backed currency would not only be holding real value, but would also be a hard currency. Importantly, one needs to recognize that over the last few years Russia and China have been proposing a framework that would manage and accommodate transactions in gold, bypassing the U.S. dollar and U.S. hegemony. In addition, both the countries are trying to make most of their transactions in gold since the two have been amassing gold reserves at a rapid pace compared to other countries.

At the same time, China, Russia, Iran and Turkey are aiming to bypass the U.S. dollar. And with the introduction of a common currency backed by gold can be a valid option for all. It is worth mentioning that a gold standard if implemented not doubt be allowing countries to flee away from the whims of the policy makers in Washington. The price of gold unlike U.S. dollar cannot be simply manipulated by even powerful governments. A world trading in gold currency will not be easily disrupted by the trade wars among two other countries or even a group of other nations.

Nevertheless, replacing the U.S. dollar may not be so simple or straight forward as it may seem.

As gold is universally acknowledged, therefore, sanctions even from a giant economic state cannot bar friendly states from trading peacefully in currencies operating under a gold standard. Nevertheless, it is fairly evident that replacing the U.S. dollar may not be so simple or straight forward as it may seem. The process of introducing an Asian common currency will be a long-term attempt which not only requires a strong political will within the region but also a considerable amount of time and effort. Hence, the young Asian leaders need to take heed from the 93 year old Dr. Mahathir’s call and work towards making this notion a reality.

The production of automobiles led by developed countries has a great influence on the progress of many sectors. The automotive industry, which has a direct impact on production, employment, and technological development, has strategic importance for the economy. The added value it produces has positive effects on many sectors with forward and backward links. The production of automobiles, which are fed by sectors such as iron-steel, gas, electricity, and software, contributes to the development of areas such as defense, agriculture, and transportation. Therefore, automobile production has an important place in terms of the added value that it provides to the economy of a country.

The global automotive industry, which accounts for about 5 percent of the world economy, corresponds to the world’s fourth largest economy. Among the sectors with the largest share of global trade, the automotive industry generated 1.3 trillion dollars of global trade in 2015. It has been estimated that the worldwide production of cars reached 95 million in 2017 and will approach the 100 million limit in 2020. According to the statistics, Turkey produces nearly 1.5 million cars and exports around 32 billion dollars annually in the automobile sector. This number can drastically increase if Turkey owns a domestic brand.

Turkey produces nearly 1.5 million cars and exports around 32 billion dollars annually in the automobile sector. This number can drastically increase if Turkey owns a domestic brand.

The automotive industry has its share in the wind of change on a global scale, which is driven by advanced technologies, sustainable policies, and modified consumer behavior. It is foreseen that innovations such as autonomous driving, electrical motors and smart cars will structurally change the automotive industry. With the emergence of these innovations, it is understood that there will be many changes in terms of both producers and drivers. With the introduction of new models that provide more energy efficiency and advanced technologies instead of existing models, it is estimated that the share of these models will increase especially in developed countries. In this period of change, new car brands will enter the market with less difficulty. In this case, a window of opportunity will be opened for new players such as Turkey.

A study conducted by the International Energy Agency (IEA) demonstrates that the number of electric cars is estimated to be 9-20 million in 2020 and 40-70 million in 2025. Besides, the study also expects that the electrical car fleet in the world will be 8 percent in the lowest scenario in 2040 and 26 percent in the highest scenario. One of the most important factors affecting the high levels of these estimations is the incentives and tax cuts of local governments and nation states. In addition, it is seen that electric cars will have more competition and tax exemption than fossil-fueled cars. Tax deductions and the spread of incentives will have a significant impact on the proliferation of electric cars. The number of electric cars in Turkey is not at the deserved level at the present time. However, it is estimated that the number of electric cars will increase rapidly with a domestic brand.

In the United States, the total amount of local and federal incentives for electric cars has reached $10,000 in some cases. In addition, the charge of service in public space and parking are also free for those cars. It is understood that the expansion of electric cars will increase dramatically in the following countries such as Britain, Germany, Norway and France, which have the world’s largest automobile markets. At the same time, if governments allocate tax cuts and incentives for production and purchase, eventually the number of electric cars will increase. Likewise, Turkey can also increase the number of electric cars with use of such incentive mechanisms.  

Moreover, although electric cars stand out in terms of the environment, it is difficult to drive them in long distances with a single charge and the battery expenses are a huge problem for consumers. However, due to the recent developments in battery technology, it is predicted that the costs of electric cars will decrease in the near future. For instance, the cost of $900 per kWh will diminish over time to a range of $200-300 per kWh. If the number of production is more than 500 thousand, it is stated that the cost per kWh is as low as $145. Thus, it is estimated that the battery price of 50 kWh is estimated to decrease to approximately 7 thousand dollars. As a result, with R&D studies in battery technology, it is considered that both the single-charge travel and the price of electric cars will be positively affected.

Turkey will have its own domestic car in 2021. With low labor costs, skilled labor force, and more than a million domestic sales, the Turkish automotive industry will have an advantage in the production of a domestic brand.

Charging stations are one of the forefront infrastructures that have a huge impact on electric cars, but it will take time for some major cities in the world to increase the number of these stations. Electric cars will become more common in crowded and polluted cities if local and national governments allocate extra benefits for consumers. Turkey has been observed to increase the number of charging stations. In particular, it is expected that the increase of stations in cities such as Istanbul and Ankara will positively impact the number of electric cars.

The automotive production in Turkey is manufactured by assembly process and the majority of high-end input, including engine and transmission components, are imported from other countries. The production of the domestic car will play an important role in changing this situation. Although the current level of domestic technology is at the required level, the investment for the domestic car has not yet been completed due to the high initial investment costs. Furthermore, with the development in recent years, the first mass production of domestic cars is predicted to take place in Turkey in 2021. With low labor costs, skilled labor force, and more than a million domestic sales, it is estimated that the Turkish automotive industry will have an advantage in the production of a domestic brand.

As a result of consumer demand and environmental concerns, the global automotive industry is at the beginning of a transformation in the forthcoming twenty years. There will be exceptional opportunities for new participants that enter the market. In this period, major brands that enter the market will re-decorate the industry on a global scale. This state of consciousness in Turkey, which has risen the motivation to implement domestic automobile brands, has been dreamed about for years.

The relationship between the U.S. and Southeast Asian Association of Nations (ASEAN) is crucially interconnected within mutual interests. However, the Trump administration has failed to meet the expected sustainable and consultable ASEAN policies.

The U.S. government’s majorly contributive move towards supporting ASEAN perspectives is based on two distinct policies, which involve security and economic policies as observed in territorial disputes in the South China Sea and the formation of the Trans Pacific Partnership Agreement (TPPA) during the Obama era. Hence, the Trump administration has contradicted the U.S.’s existing role for being inconsistent by encouraging irrelevant narratives due to certain fundamental principles.

On the other hand, how ASEAN member states perceive the above-mentioned approach gives some insights about the current relationship. For instance, known as a robust character and strong statesman, Dr. Mahathir Mohamad, the prime minister of Malaysia, stated that “there is a need for the U.S. President Donald Trump to be consistent, including over policy matters on Asia.”

Among the member states, countries such as Singapore, the Philippines, Malaysia, and Indonesia have comparatively felt disaffected more than other by countries by the changing characteristics and uncertainties of U.S. policy. This is quite understandable when considering the divisions between member states and their relationships with the U.S. and China.

Dr. Mahathir Mohamad, the prime minister of Malaysia, stated that “there is a need for the U.S. President Donald Trump to be consistent, including over policy matters on Asia.”

During the Obama era, the U.S. was leading its relationship with ASEAN in a determined policy known as a ‘pivot to Asia.’ This policy aimed at re-structuring security and economic policies by supporting each other, while preferring mainly the advancement of economic relationships. Obama himself engaged significantly with member states with his official state visits, and he also attended ASEAN summits as well.

In contrast to Obama, Trump’s ASEAN policy is surrounded on narratives of his ‘America first’ agenda and protectionism as a mainstream policy. In fact, no surprise should come out of this contradiction considering his administration had delivered initial signals on how he would construct, in essential, trade-based relations with ASEAN before his presidential victory in 2016.

There is no doubt that, at least in certain terms, Trump’s policy of U.S.-economy victimization is labeled as a deconstruction process flapped out of a well-established relationship during the Obama era. Indeed, Trump called for punishment to be applied to certain countries including some member states of ASEAN, which are responsible for contributing to the trade deficit that put the U.S. at a disadvantage.

In this regard, Trump’s absence on the 33rd ASEAN Summit held in Singapore on 11-15 November meant an isolation from exchanging ASEAN interest where leaders of major regional and global powers such as Japan, South Korea, Russia, Australia, New Zealand, India, and China took part.

In contrast to Obama, Trump’s ASEAN policy is surrounded on narratives of his ‘America first’ agenda and protectionism as a mainstream policy.

Although U.S. Vice-President Mike Pence represented the U.S. government, his discourse and statements during the meetings with various leaders were far from rebuilding a constructive relationship with ASEAN.

Pence re-iterated the importance of U.S. security policy of the Asia-Pacific region, while stressing that “empire and aggression have no place in the Indo-Pacific.” With this obviously Pence was referring to China and North Korea and security issues related to the South China Sea and North Korea nuclear issue, which are still considered as potential threats to the interest of the U.S. and its allies in the Asia-Pacific region.

As is known, the U.S. has a special approbation to the free access of the sea ways, which connects regional allies bound to energy sources in the Middle East and global commercial activities connecting the Indian Ocean and the Pacific region.

As seen in the above-mentioned statement of Pence, the U.S. has deprived from a multiple approach in its engagement with ASEAN. And no doubt that Pence clearly did not cater the expectations of ASEAN in the context of improvement of the economic relationship, which in fact was considered extremely essential during the current global economic recession.

Due to these uncertainties, ASEAN leaders do not have any predictable hope of boosting the relationship with the U.S., in particular, pertaining to engagement and improvement in trade and investment opportunities the region offers.

Though the U.S. administration merely focuses on security issues, it is too difficult to gain the upper hand in competition with China without cementing economic relationships and gaining engagement with and popular support of ASEAN people.

ASEAN has already acquired the position of being a strong global economic power house in terms of sustainable economic development, direct foreign investment, and increasing trade by applying liberal economic policies.

In addition, ASEAN has been re-structuring economic connectivity among the member states and strategic partners on the basis of bilateral treaties for further advancement since the establishment of ASEAN Economic Community (AEC) commencing from the end of 2015.

It is quite clear that the U.S. under Trump’s presidency does not have any significant tendency for a combination of multiple policies with ASEAN, even after the mid-term elections, which resulted in the Democratic upper-hand in Congress. The upcoming few years of Trump’s administration will be tested as to whether it will re-evaluate its relationship with ASEAN or not.

When the Global Financial Crisis (GFC) erupted in 2008, the U.S. realized that this was not an economic meltdown that the U.S. or G7 countries could handle alone. Trade relations and financial markets around the world have become increasingly interconnected and complex since the 1980s, and this rapidly increased in the late 1990s. It seemed impossible to prevent the crisis from becoming even more destructive and contagious without cooperation and coordination among major countries. As a result, albeit reluctantly, the U.S. pushed the button to activate the G20, an international forum of the world’s major economies. During the broiling hot days of the GFC, the G20 was seen as the most powerful platform to lead global efforts to mitigate the effects of the crisis and to avoid new catastrophic crises in the future.

The G20 has made important progress in reshaping the governance of global finance by, among others, implementing macro-prudential policies; developing more strict rules on the ‘too big to fail’ problem; increasing the lending capacity of the IMF; and collecting richer information on the shadow banking system. Although the G20 has put noteworthy efforts in implementing global reforms in some areas, there is still much to be done.

Basel III, the new generation of global banking rules, was a good step for adjusting international banking regulations to consider systemic risks and develop a macroprudential approach. Focusing more on systemically important financial institutions (SIFIs) in regulations to address the ‘too-big-to-fail’ problem was also a vital move. However, all these new regulations and rules have not been strictly followed and implemented by every country yet. Even the Trump administration has been trying to roll back some of these regulations and rules.  As a result, in the period following the crisis, the global debt level increased, and major global banks became even bigger. G20 countries should take financial rules and regulations more seriously and monitor their implementation more closely. 

While the financial capacity of the IMF was increased after the GFC, its available resources remain insufficient to meet the problems of the global economy. The distribution of voting power is another chronic problem in the IMF. Although some positive steps were taken after pressure from the G20, the governance structure of the IMF hasn’t been reformed enough to represent the change in the global economy over the last 30 years. Considering their growing importance in the global economy, many developing countries are still not represented fairly. Besides the U.S. has been blocking progress by using its veto card fecklessly. Whether the IMF is ready for the next global crisis in terms of its resources and structure is a big question mark.

The distribution of voting power in the IMF still remains a chronic problem. Considering their growing importance in the global economy, many developing countries are still not represented fairly. 

Without exception, every single country on the planet needs new infrastructure investments. According to the estimates of a well-known global consulting company, the world must spend $3.7 trillion in infrastructure investments every year until 2035 in order to keep pace with projected global growth. This is a huge investment challenge to meet. But, financing infrastructure investments is not an easy task mostly due to the nature of infrastructure assets. One of the missions of the World Bank is to finance such development-friendly investments. However, the resources of the World Bank are not enough to fill the infrastructure gap.

There are some new initiatives such as the Asian Infrastructure Investment Bank and New Development Bank that are established to become alternative for the Bretton Woods institutions. The emergence of these institutions is valuable to create new external finance resources for the needs of the global economy.  But this time, some Western countries are skeptical about the advancement of these Chinese-led institutions. As competition increases, there will certainly be pressure on the Bretton Woods institutions to reform. For the stability and future of the global economy, it is needed to reap the benefits of economies of scale by combining all financial resources available, and to make the management of international institutions more inclusive. So, other G20 countries should put more pressure on the U.S. and some European countries to make more structural reforms in the IMF and World Bank. 

The advancement of China-led institutions such as the Asian Infrastructure Bank and New Development Bank have caused skepticism among Western countries, which perceive these initiatives as a threat to the current established financial system. 

No concrete steps have been taken to break the oligopolistic structure in the international credit rating market yet. Although these institutions were one of the leading actors that caused the crisis to emerge, they have not yet experienced sufficient reform. Conflict of interest and opaque rating methodologies still remain problematic. Many emerging countries complain that credit rating agencies make their rating decisions based on political winds rather than economic fundamentals. G20 countries can lead to the establishment of a multinational credit rating agency that has a transparent rating methodology, and a structure that is distant from the political turmoil and conflict that occurs in the international system.

The slowdown in the pace of global reforms is another big problem for the G20.  Western countries were more pro-reform when the burning of the GFC was deeply felt. As the economy recovered in the West, especially in the U.S., U.K. and Germany, the desire for reform declined, which indicated that their commitment to change was not real, but pragmatic and self-centered.

As the economies in the West recovered after the Global Financial Crisis, their desire for reform in the global system declined. This indicated the fact that their commitment to change was not real, but pragmatic and self-centered. 

Escalating trade wars, U.S. sanctions against Iran, immigration issues, the Ukrainian crisis, and the Syrian conflict have led to sharp disagreements about major global issues among G20 countries. Different priorities and interests have been making it almost impossible to achieve policy coordination between countries. While it will be too naïve to expect comprehensive solutions to all global economic problems, G20 countries need to act on a common ground in critical issues and try to present and implement reforms in these areas.  

In my previous column, I tried to show that the U.S. dollar will not be able to sustain its international reserve currency role indefinitely. The current status of the U.S. dollar is a direct result of the U.S. being the hegemonic power of the world in terms of economy and finance. However, the relative power of the U.S. has been declining for decades and the world is becoming more and more multipolar as the center of the world economy has continuously been inching towards the East. As a result of this tectonic shift, the sustenance of the current commercial and financial system will be more and more difficult. And, eventually the global system will be replaced by another one, which is congruent with the multipolarity of the world itself.

The U.S. dollar as the international reserve currency is the product of a world system dominated by the U.S. Once this dominance is over, a new global order will certainly emerge sooner or later. I am not trying to say that the transition will be smooth and painless. Nor am I asserting that there is a certain path to be walked on and a definite final destination to be reached. The U.S. will certainly try to resist this shift as much as it can afford. Actually, it started doing this in an effort to preserve its relative power in the world by using import tariffs, the dollar and the U.S.-centered international payments system directly or indirectly as a weapon against countries such as China, Russia, Iran, and Turkey. However, I should stress again that these maneuvers on the part of the U.S. will only hasten the transition from the current global system to the one waiting for us in the middle/long term.

The U.S. dollar as the international reserve currency is the product of a world system dominated by the U.S. Once this dominance is over, a new global order will certainly emerge sooner or later.

But, exactly what is awaiting us? As I indicated above, the future is not carved on a rock. However, the future could play itself out in a limited number of ways, since global mode of governance has to be highly correlated and in congruent with the global power structure. We are heading towards a multipolar world, so the new global system has to reflect this pattern in its architecture. This means that the U.S. dollar will not be replaced by another national currency. In this regard, the U.S. dollar will be the last national currency of the modern world acting as the international reserve currency. Why? First of all, no country -including the U.S.- will be able to afford such a status, since in order to have such a currency, the state in question must dominate the world both economically and financially to a great extent. Only then could the state balance out the national and international needs sustainably, sufficiently and more or less satisfactorily at the same time.

Secondly, an international reserve currency comes with its privileges. The U.S. has benefited from the U.S. dollar both directly and indirectly to an incredible extent. In a multipolar world, no national currency can ever have such a favored status, even if it mistakenly believes that it can afford it.

The U.S. has benefited from the U.S. dollar both directly and indirectly to an incredible extent. In a multipolar world, no national currency can ever have such a favored status, even if it mistakenly believes that it can afford it.

Therefore, in the transition period, we will see that numerous states around the world will increasingly engage in bilateral trade and swap agreements between themselves to use their national currencies. However, this does not mean that in the end every country will use its national currency in international trade. Such a world would be highly volatile and unsustainable both commercially and financially. The world is way better with an international reserve currency such as the U.S. dollar (particularly when it is not used as a political weapon), than with numerous national currencies exchanged in international trade.

Moreover, the world will not be completely “flat” in a multipolar world. Far from it. Only a few number of states who are economically and politically strong will have a meaningful influence in international trade and finance, though other states will have important roles in the balance of powers. So, there will be “regional powers” such as the U.S. and China, which will dominate their regions both economically and financially in the “flat world,” without being able to trump one another.

In the transition period from a unipolar to multipolar system, we will see that numerous states around the world will increasingly engage in bilateral trade and swap agreements between themselves to use their national currencies.

This general future outlook of the world could in theory translate into two different international financial/commercial systems. In the first scenario, national currencies of regional powers could be used as “regional currencies” in international trade. States outside of the region will also use the currency of the regional power when engaging in trade with one of the states in the region in question. It will be like using Chinese yuan when trading with South Korea. However, this scenario necessitates states around world to accumulate different types and vast amounts of reserves in their coffers. Furthermore, international trade and finance will be highly volatile and unsustainable in such a scenario due to (inevitable) fluctuations in exchange rates. It seems that the only meaningful way for this scenario to materialize is that states from different regions will minimally engage in trade between one another.

The second scenario is the path of regional clearing unions. Under this scenario, bilateral swap agreements will evolve into regional clearing unions (RCU) in the medium/long term. And, international trade will be “governed” by these RCUs. Every RCU will have its international “abstract” currency like Bancor. And, in time these regional clearing unions could band together to form the world’s international clearing union and introduce the international “abstract” currency of the world. Under this scenario, a sustainable and much more equitable international trade and finance order could be established. It seems that the second path is the one the world should strive to go down.

The U.S. emerged out of the ruins of World War II as the world’s hegemonic power. Although the world had divided in political terms back then as the “democratic world” backed by the U.S., and “communist world” backed by the USSR, the U.S. apparently was the “sole” hegemon of the world in terms of economic power and financial outreach. The extent of the economic and financial power of the U.S. was so great that no empire or state the world had seen before could be compared to it. Therefore, we can easily conclude that the most powerful state the world has ever seen by now is certainly the U.S.

As a direct result of this rather unique situation in world history, the U.S. almost singlehandedly shaped the economic and financial system of the world in the immediate aftermath of the Bretton Woods meetings. Although several countries other than the U.S. participated in these meetings, their effect on the final outcome and “agreement” was rather limited. To add insult to injury, the unique and central place of the U.S. dollar in the emergent Bretton Woods system was “never” discussed in the meetings and added to the final agreement by the U.S. itself singlehandedly as if it was a second thought. Yes, because the U.S. was the hegemonic power of the world, its national currency, dollar, became the international reserve currency without any discussion. Other countries had no other option other than to sign this final “agreement.” In the final analysis, it is the U.S. itself who was ruling the roost.

Back then, the unique and central place of the U.S. dollar in the emergent Bretton Woods system was “never” discussed because the U.S. was the hegemonic power of the world.

However, we are not living in such a polarized world in terms of economic/political power. The extremely polarized economic world between 1940s and 1970s gave way to an increasingly multi-polar world and the economic center of the world shifting towards Asia rapidly. That said, the U.S. is still the most powerful country in the world. However, this is not enough to dominate the whole world in economic and financial terms.

The relative power of the U.S. has decreased tremendously since the 1970s and particularly since 1990s. And this has been what had to happen. The world needs to get “flat.” You cannot sustain a world in which some countries have the upper hand indefinitely. Sooner or later things have to change. And we are in this transition right now. It will be very slow to human eyes, but very rapid from the perspective of history.

The share of the U.S. in the world economy was a staggering 40 percent in 1950 according to market prices. It is 24 percent right now. On the other hand, the share of the U.S. economy according to purchasing power parity (PPP) has declined from 27 percent to 15 percent. So, according to both market prices and PPP, the economic power of the U.S. diminished dramatically.

I can assert that we are living in a watershed period, which will shape the future trajectory of the world.

Actually, China has surpassed the U.S. in 2013 and became the biggest economy in the world according to PPP, and it will be so in terms of market prices in the very near future. So, I can easily assert that we are living in a watershed period, which will shape the future trajectory of the world.

This general framework signals that the unique role of the U.S. dollar will cease to exist in the foreseeable future. This will not happen anytime soon, but it will happen. In a world in which several countries are competing with each other in economic, political and financial terms, a single country could not impose its will as easily as it was the case in the 1940s, where the U.S. was dominating so thoroughly. More to the point, with a diminished relative power, the U.S. cannot afford its national currency to play an international role. Yes, this was the case up until now, but the U.S. will find it increasingly harder and troublesome as its relative economic power dwindles.

We attested that in the last years the U.S. has been using the dollar and U.S.-controlled payment system, as a weapon to promote its political goals. Financial attacks against the Turkish Lira, sanctions against China, Russia and Iran can benefit the U.S. politically or look so to an extent in the short/est term. However, this inconveniently hawkish and shortsightedly bold standing is a colossal mistake for the U.S., which will only expedite the transition from the existing financial/commercial system to another one waiting to emerge.

Using the US Dollar and US-controlled payment system is inconveniently hawkish and shortsightedly bold standing as well as a colossal mistake for the US.

The “rise” of the currency swap agreements between countries around the world is just first steps on the way to a new global economic/financial order. China, Russia, India, Japan and other countries are signing billions of dollars’ worth swap agreements in an effort to use national currencies more in bilateral trade. This is de-dollarization in action. And it will continue to morph into a much broader and bolder multilateral trade agreements in the long run. I now shall answer the question I asked on the title: The future of the U.S. dollar is to revert to a national currency role without a unique place in the global economy/finance.

China, Russia, India, Japan and other countries are signing billions of dollars’ worth swap agreements in an effort to use national currencies more in bilateral trade. This is de-dollarization in action.

This is inevitable.

Then, what will replace the U.S. dollar? Another national currency? Not necessarily. A multi-polar world cannot afford a national currency acting an international currency. This holds for the U.S. dollar and also for… the Chinese yuan. In a multi-polar world, international trade will most probably be conducted via regional clearing unions, which could eventually give way to the international clearing union. And these regional clearing unions will have union-specific supranational currencies such as Bancor, which could eventually coalesce into the international “abstract” currency of the world.

The Turkey-Africa Economic and Business Forum held in Istanbul this week has yielded fruitful prospects for reviving and strengthening the relations between Turkey and the multifaceted and rich continent of Africa.

The two-day forum which was held between 10^th and 11^th of October and organized by the Trade Ministry of Turkey and the African Union in collaboration with DEIK (Turkish Foreign Economic Relations Board) drew over 3,000 African and Turkish business-people from various sectors. The next forum is set to take place in 2020 according to a joint declaration that was signed at the end of the forum.

Speaking at the Forum during a ministerial and general secretarial meeting, Trade Minister Ruhsar Pekcan said that Turkey will be adopting a holistic approach to duly address the multicultural and multifaceted realities of Africa. “It is important to understand the realities of the continent’s countries by adopting a holistic approach to address the multiculturalism of Africa, rather than looking at a single window.”

Providing an overview of the topics that were discussed at the various panels during the forum, Pekcan underscored that numerous financial and investment opportunities, the entrance of Turkish business prospects to the African market, and collaboration with local counterparts in the substructure and energy fields were among the key topics that were discussed.

Noting that her first visits after being appointed as the trade minister were made to countries in the African continent, namely South Africa and Zambia, Pekcan remarked that during these visits she had the opportunity to observe and comprehend firsthand “Africa’s great potential”. Underlining the need for strengthened relations, the minister noted that her wishes of “gathering with African representatives more frequently and holding consultations for developing trade and economic relations between the countries.”

On a similar note, the commissioner for economic affairs of the African Union Commission (AUC), Victor Harrison stressed the importance of collaboration in the pursuit of sustainable development. Underscoring the need for partnerships between the respective private sectors, Harrison noted that this was key to the development of the continent at large. Hopeful of the prospects that the forum would provide for the countries involved, Harrison noted “I believe that we will contribute to Africa’s development and will carry out beneficial discussions.”

On the last day of the forum, Turkey and African countries signed a joint declaration “to enhance lasting partnership between parties for development and economic integration.” The declaration pointed out that the Forum emphasized a diversified and multilayered Turkey-Africa partnership. The willingness to improve and boost economic and commercial ties was emphasized in the declaration which called for a joint action plan to assess the potential of lifting tariffs and other obstructions to trade.

The parties reached a consensus to form various partnerships in design, inspection, financing and the management of projects with the objective of cutting down on costs of energy and improving the access to electricity in the continent. It was also emphasized that reducing transportation costs, enhancing intra-African trade, facilitating food and water safety and advancing global connectivity were of significant importance.

The declaration called the involved parties such as the Turkish and African enterprises and financial institutions to action, encouraging them to expand investments and participate in infrastructure projects through Public-Private Partnership and Build-Operate-Transfer means in addition to other expanded forms of cooperation. Geared to build diversified economies both in Turkey and in Africa, the declaration prioritized sectors such as agriculture, electricity, aviation, maritime, education and healthcare.

Many in Turkey and around the world got shocked as the Turkish Lira depreciated tremendously against the U.S. dollar in the last few days. It goes without saying that this sharp depreciation has nothing to do with economic fundamentals in any sense. This is irrationality and hysteria in action. And for many, it is utterly political as well, as the U.S. president Donald Trump has made it very clear in a tweet that reads “I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!” [Italics added by me] So, it looks like the hegemonic power of the world, the U.S., is going rogue “financially” against its so-called ally, Turkey.

Turkey has undergone five major financial attacks in the last two years. First in November 2016, second in January 2017, third in October-November 2017, fourth in May 2018. This is the last and by far the biggest one. The first three financial attacks, however intense were they, pale significantly in comparison to the last two. And the last one we are witnessing nowadays is an outlier still, in which the Turkish Lira lost its value by around 40 percent within the space of a couple of days.

Such a dramatic devaluation necessitates equivalently dramatic economic reasons if we are to adhere to an economic explanation. Yet there is none. As an economist, it is really difficult for me to try to understand and “analyze” what is going on economically. I wrote several articles both in English and in Turkish for the past two years regarding this very same subject and tried to show that these financial speculations, or “financial attacks” have their roots not in economics but in politics for the most part.

To reiterate briefly, although the Turkish economy has its own weaknesses such as a high current account deficit, as other countries have their own, the Turkish economy looks quite healthy. In addition, external debt to GDP ratio is 53 percent as of 2017. Public debt to GDP ratio, on the other hand, is only 28 percent. This ratio is one of the lowest in the whole world. Moreover, the Turkish financial system is quite healthy with a 16.3 percent of capital adequacy ratio. This holds for non-financial firms too. Short-term foreign exchange liabilities of non-financial firms in Turkey is lower than their short-term financial assets.

I should add that in the last quarter, the Turkish economy fared considerably well, too. The average economic growth rate for the last five quarters is 7.4 percent in Turkey. In addition, the unemployment rate, though relatively high, decreased by more than one percentage point to 9.6 percent in the last year.

Further, no macroeconomic indicator of Turkey went sour in the aforementioned period. Yet Turkey has now been suffering a very dramatic devaluation.

It is apparent for most people in Turkey that the U.S. has been exerting its financial influence on Turkey in order to promote its political aims regarding Turkey. And this is not the first time the U.S. is doing this. Take Chile in the 1970s. From 1970 to 1973, the U.S. strived hard to overthrow the democratically elected President Salvador Allende. As a small part of this endeavor, which is named Project FUBELT, the then President Nixon ordered the CIA to “make the [Chilean] economy scream” in 1970 in an effort to destabilize the country.

Note that these points are not speculations, but declassified facts as Collin Powell, the then U.S. Secretary of State, expressed in 2003 that “with respect to (…) Chile in the 1970s and what happened with Mr. Allende, it is not a part of American history that we’re proud of. I can’t justify or explain the actions and decisions that were made at that time.”

The Turkish economy looks strong enough to weather this irrational and politically motivated financial attack, though it will certainly make a dent in the short term. However, one should note that the U.S. government itself is undermining the very legitimacy of its “strong” currency by abusing its “power” to promote its political ends. This will certainly have important ramifications for the U.S. globally in the medium and long-term.

The world economy has been witnessing a rapid transformation for the last four decades together with staggeringly growing influence of financial industry under the current economic and financial system, a.k.a. neoliberalism, which will definitely give way to another system sooner or later.

One should note that the previous system, namely Bretton Woods, had lasted only three decades, and the neoliberal system still lingers on, though showing real signs of strains. For example, the current system needs constantly growing economies, however the 2008-09 global financial crisis pointed out that this would be more and more difficult for the world economy to achieve under the “current” economic and financial system, or paradigm.

However, we live in the here and now and have to cope with all the “intricacies” of neoliberalism. First and foremost, with the rapid financialization of the world economy, countries around the world have become much more susceptible to the caprices of global finance. We witnessed hundreds of financial crises in the last four decades, unlike the Bretton Woods era, in which only a few of them occurred. Moreover, most countries in the world have seen their ability to pursue an independent monetary policy and fiscal policy to erode significantly.

Ironically, this is the same era in which the rhetoric that central banks around the world gained their “independence” has become widespread. What happened actually was central banks have become dependent on the financial industry, as they were dependent on states in the Bretton Woods era. There is nothing as real independence and it is very clear that for central banks being dependent on the state is much more democratic than the other way around. However, one has to take into account the sheer power of global finance and the “rules” of the current system when talking about monetary policy. A country can freely and happily pursue looser monetary policy than other countries when international capital flows are restricted. For example, this was what France did for a long time in the Bretton Woods era, when her neighbor West Germany had been implementing stricter monetary policy.

Moreover, fiscal policy in the current system is much more critical than in the previous system. A country who is pursuing a somewhat loose fiscal policy could be punished intensely and with a mind-boggling rapidity by “financial markets.” Even a rumor that this country will spend beyond her means and that “there is now a possibility” that the financial situation of the country will deteriorate could trigger some kind of a “panic” in the financial markets. So, in the new system not only central banks, but also most countries have been “tamed” to a great extent.

It should be underscored that for a government being fiscally responsible is a good trait. However, the line between being fiscally disciplined and profligate is significantly blurred and apparently it is “up to” the financial markets to decide which country falls which side of that line through various and numerous “country reports” of credit rating agencies, IMF and the like.

All in all, we need to understand clearly what neoliberalism has to offer and dictate us, and what choices we have in the current system. One should note that “good” governance does not mean being as much fiscally prudent or monetarily strict as possible, i.e. to the extent that financial markets are totally satisfied with the “governance” of the country. In the end, one should remember that the nature of the relationship between financial industry and real industry/households is conflict of interests. This is a redistribution game afterall.

Behaviors of U.S. President Donald Trump occupied the 44^th G7 summit held in Canada this year, which had a distinct atmosphere compared to previous summits held every year. Trump’s uncompromising attitude and his announcement regarding U.S. withdrawal from the Paris Climate Agreement, which he made during the summit in Italy last year, have led some to argue that the G7 is effectively becoming a G6.

One should note that several decisions made by President Trump, such as withdrawing from the Trans-Pacific Partnership (TPP), the Paris Climate Agreement and the nuclear agreement with Iran (JCPOA), opening NAFTA for renegotiation, putting negotiations regarding the Transatlantic Trade and Investment Partnership (TTIP) on hold and recognizing Jerusalem as the capital of Israel has led to deep differences of opinion between the U.S. and other G7 countries. In addition, his recent statement regarding the fact that his policy of imposing a 25% tariff rate on imported steel and 10% tariff on imported aluminum would include the European Union, Canada and Mexico by June 1, 2018, has been met with great reaction and anxiety among the Western allies of the U.S. Following this decision, which would affect the current balance of international trade, the rest of the G7 countries tried to persuade the U.S. administration to abandon this policy in order to avoid disrupting the liberal economic order.

As a reaction to Trump’s policies, 29 ambassadors from the EU sent an open letter to the president on the first day of the summit. The letter stated that the trade and investment relationships between the U.S. and the EU have been a win-win for both parties for years; the U.S. has benefited from its trade with the EU more than anyone else. Furthermore, the letter suggested to cooperate against China. Prior to the G7 leaders’ summit, the finance ministers of the six-member countries also repeated the call to withdraw tariffs. Thus, the main subject during the G7 summit was the heavy tariffs imposed on steel and aluminum by the U.S. President.

During the summit, Canada, the biggest trade partner of the U.S., made several attempts to resolve the situation to no avail. With close inspection, one can see that Canada exports an important amount of steel and by itself provides over 50% of U.S. aluminum imports. Attempts to open negotiations made by the Canadian Prime Minister led to heated exchanges between the U.S. and Canada. After Trump’s accusation of “backstabbing,” several high-ranking U.S. bureaucrats also targeted Trudeau with heavy accusations and criticisms. Trudeau, accused of being unfair by Trump, stressed the fact that Canadian workers, just like American workers, needed to be protected, and reminded Trump that he ought to be a fair-trade partner. Following his press conference with Trump, Trudeau stated that Canada will also impose new tariffs on July 1 in retaliation to the U.S., signaling that the protectionist policies of the Trump administration will not go without response.

Western allies, who had hoped to persuade Trump during this year’s summit, failed to achieve any progress and the summit revealed the fractured state of the western bloc. The fact that the other six countries of the G7 cooperated against the U.S. and made joint announcement signifies that the trade war sparked by Trump will not be one-sided. While such a trade war in a situation where countries compete against each other will not have any winners, it has the potential to cause a global recession and to negatively impact the prosperity of the world.

When we take a look at the statistics of trade between the G7 countries, an interesting picture emerges. More than one third of the U.S. $568 billion trade deficit as of 2017 was due to its trade with G7 countries. The fact that the U.S. is running trade deficits with all G7 member countries except from the United Kingdom provides important context for the merchant attitude displayed by Trump during the summit.

The Shanghai Cooperation Organisation (SCO): A new organization versus a divided G7

The protectionist policies adopted by Trump are hurting Asian countries as much as they are western countries. Following the election, the Trump administration focused on competition with China and forced the Western world to act in cooperation. Stating that allies who do not act in accordance of this particular vision should not count on the U.S. for further support, Trump has illustrated that the U.S. is aiming for a bilateral competition with China, and that the U.S. no longer wants to finance the liberal world. Trump’s “Russia should’ve been here” statement during the G7and his tweets following his early departure were highlights of the event. Some even claimed that Trump’s behavior is aimed at destroying the Western alliance.

The fact that on the same day of the G7 summit another summit was being held on the other side of the Atlantic by the Shanghai Cooperation Organization supports this theory. With messages promoting cooperation and unity at a time when Western allies are bickering among themselves for economic gain, the SCO – which claims to be an alternative bloc to the West – signaled to the world that a new center of power now exists. Putin’s emphasis on the rising economic power of the SCO especially drew attention. In reference to the SCO’s combined economic power – over $15 trillion – which totals to 20% of the world economy, the Russian President claimed that the SCO is stronger than the G7 in terms of purchasing power parity. One can appreciate how bright the future of the SCO compared to the G7 by noting that China and India – the two fastest growing economies in the world – will account for 40% of the global GDP growth in the next 10 years. While undoubtedly, this organization should not be expected to succeed in the immediate future, its claim of being an alternative to the Western alliance should not be underestimated. In opposition to the West, which is experiencing clashes of economic interest, the internal harmony displayed by the SCO illustrates that it is a new focus of power.

Deepening divisions among the West and the Rise of Asia

The G7 summit ended tensely after heavy criticisms directed to Canada by the U.S. President and his decision not to sign the joint statement at the end of the summit. The disagreements on trade not only failed to be resolved during the summit, but even grew tenser. President Trump and his advisors, following neo-mercantilist policies, state at every given opportunity that they will put their national interests first, disregarding international norms and thus following protectionist and one-sided approaches. Similarly, the Trump administration does not hesitate to repeatedly declare that they do not want to finance the liberal global order. Therefore, the grounds that justify the superiority of the U.S. in the current global order are now being debated more than ever. Trade wars seem inevitable in a global atmosphere such as this, where political balances are shifting profoundly. If other countries were to react in cooperation to Trump’s continued protectionist policies, this would be met with great anxiety in the global economy and the implementation of such reactionary policies may cause trade wars on a global scale.

On the other hand, the U.S., while adopting more aggressive policies after the incredible economic rise of China, is also shifting its military presence to the Asia Pacific, and is adopting protectionist policies in order to maintain its economic superiority in the global arena. Trump is acting destructively in his economic and political relations with the West. However, he is more constructive and cooperative when it comes to relationships with Asia. Within this framework, it’s important to note that Trump left the G7 summit early to meet with North Korean leader Kim Jong-Un. So, Trump, in his attempt to undermine China’s hegemony in the Asia Pacific, is harming the Western alliance. The policies that the two leading global actors such as the U.S. and China – who have become referred to as the G2 – will implement against each other, can trigger multifaceted trade wars.

The Turkish economy grew by 7.4 percent year-on-year in the first quarter of 2018. Thanks to this spectacular performance, Turkey ranked second fastest growing economy in the G20, only behind India (7.7 percent) and ahead of China (6.8 percent) and Indonesia (5.1 percent). The average growth rate for the Euro area is only 2.5 percent. The U.S. is marginally better with 2.8 percent. Moreover, this performance of Turkey came at a time when other emerging countries in the G20 club have performed poorly. The growth rates of Mexico and Brazil are just 1.3 and 1.2 percent in the first quarter of 2018, respectively.

One should note that Turkish investment expenditures, arguably the most important sub-category of GDP (Gross Domestic Product), increased by 9.7 percent in this period, which gives an important sign regarding the health of the Turkish economy and her future direction.

Turkey has a very good track record of sustaining a significant level of average long-term growth rate (4.8 percent) for the last 7 decades. While the world economy grew substantially in the aftermath of the World War II (WWII) into the 1970s in general, only some (developing) countries including Turkey managed to sustain their growth performance more or less intact well after the 1970s and even until today. For example, the growth performance of Western Europe was quite bright with a 4.8 percent average growth rate annually in the 1950-1973 period as they were recovering from the tumultuous years between the two world wars and the WWII itself. However, their average growth rate was rather disappointing with around only 2 percent in the post-1973 period. The same pattern held for Eastern Europe, Latin America and the US, albeit with varying degrees.

Thanks to having a relatively high level of long-term average growth rate, the Turkish economy transformed tremendously after WWII. Prior to the war, Turkey had mostly been a rural country with an economy based mostly on agriculture. After the war Turkey began to industrialize with a growing urban population base. The share of urban population increased from less than 20 to over 85 percent and the share of agriculture in GDP plummeted from over 40 percent to around only 6 percent as of 2017.

While this performance has not sufficed for Turkey to become a fully developed country, it never the less made great strides from a very low base to become an upper-middle income country. With this performance, Turkey fared tremendously better than industrialized countries as well as numerous developing countries, beating the world average significantly.

Thanks to this performance, the Turkish economy grew more than 20-fold since WWII, as the Turkish population increased from around 20 to 81 million and GDP per capita more than quadrupled to over 10.000 dollars. In the period between 1950-1980, the Turkish economy had been inward looking and import-substitution growth strategy had been in place. With the adoption of export-oriented growth strategy, Turkey has increasingly become a globally open economy. The volume of external trade of Turkey has tremendously expanded since then, from less than 10 to over 50 percent of GDP.

Moreover, between 2002-2017, the average annual economic growth rate has been 5.7 percent, a tremendous performance, which is somewhat higher than the long-term average and far higher than industrialized countries, and better than most of the developing countries.

Surely, the Turkish economy has her own problems such as current account deficit, as other economies have their own. However, the Turkish economy has showed her resilience and potential time and again in the last 7 decades and particularly in the 2000s. Provided that smart economic/industrial policies implemented, Turkey can sustain her growth performance and become an industrialized and rich country by 2040 or 2050, as future projections indicate.

Since the onset of the global economic crisis political, economic and technological competition among the global and emerging powers acquired increased pace and tenacity. While the U.S., Russia and China experience geo-political tensions with increasing frequency and face the possibility of direct confrontation beyond proxy-wars; liberal economics and free trade approaches rapidly lose their proponents in the world economy.

The political backing behind the liberal international trading system represented by institutions such as the World Trade Organization is fading, while neo-protectionism gains ground along with rising economic nationalism. Triggered by the Trump administration in the U.S. and the rising tide of nationalist/neo-populist parties in Europe and elsewhere, trade wars, currency wars, cyber-space wars, economic sanctions and accusations of technological theft are also increasing.

A fierce conflict for sustained global economic hegemony, or to use Organski’s words, to prevent a “power transition,” openly takes place between the U.S. and China. All these developments constitute crucial challenges for the political and economic authorities of emerging powers and developing countries. There is an ever-increasing pressure on decision-making communities in these countries to monitor global developments closely and formulate effective and timely responses.

Managing the Turkish economy under presidential system

Turkey is heading for a systemic transformation towards the “Presidential Government System” under such difficult global conditions. But it is exactly these difficult conditions that make Turkey’s systemic transition more important and inevitable. As such, the systemic reform that will take place in Turkey following the June 24 elections shall be conceptualized not only as a legal and political reform that will restructure the separation of powers among the executive, judiciary and the legislative branches of the government. On the contrary, it should be construed as a structural reform that would transform the macroeconomic governance architecture and socio-economic development strategy with comprehensive institutional changes.

While embarking on major institutional reform in macroeconomic governance, there are several common features that need to be taken into account from the successful development experiences across the globe:

1. Strong political leadership that supports politico-economic stability and the autonomy of key institutions formulating long-term development policies with a clear division of labor.
2. A highly qualified, professional, meritocratic, practical, fast-acting, problem-solving bureaucracy controlled by “pilot organizations” with strong channels of communication with political and economic actors.
3. A dynamic, open-minded and innovative private sector that shares common interest with the politico-bureaucratic elite as to the long-term development goals of the country and focuses on vibrant sectorial competition strategies with a global view.
4. A dynamic social structure that allows vertical mobilization through a high-quality education system, participatory institutions and structured collaboration among political, bureaucratic and market actors.

Therefore, Turkey’s initiative for institutional reform shall proceed in a way to enable smooth progress on all these accounts. When we look at the historical record of previous AK Party governments for institutional reform, it is clear that significant reforms were made to institutionalize a “regulatory state” in the first decade of the 2000s. Consequently, fiscal discipline was permanently established and the financial structure became resilient against severe international shocks.

Several institutional reforms in line with the “Post-Washington Consensus” style of prudent financial and macroeconomic regulation were successfully accomplished. Instrumental independence of the Central Bank to conduct monetary policy and autonomy of key regulatory agencies responsible for the supervision of regulation of finance, capital markets and other services were secured. This robust regulatory framework was extremely effective in constraining the negative repercussions of the global economic crisis on Turkey.

But there was one major structural problem with the overall macroeconomic management approach in that it favored the inflow of international funds to sponsor the booming construction, finance and service industries; rather than industrial production and technological know-how.

Over the course of the years following the global economic crisis Turkey tried to realize a paradigmatic transition to a more production and real economy oriented growth model with no avail. In order to precipitate a transition to a more industry-technology and export oriented growth strategy various inventories and reports were prepared, sectorial goals were determined and subsidies were released. Yet the path dependency, which remained from Turkey’s stabilization program during the early 2000s with an emphasis on fiscal discipline and the service sector, could not be broken.

Social and political volatilities from the Gezi Park protests in 2013 to the failed coup on 15 July 2016 also exerted a negative impact on the projected strategic transition. As did the hesitant attitude of the AK Party leadership on taking a leading role for industrial-technological upgrading through public-private partnership schemes since these were seen contrary to the principles of economic liberalism.

When we came to 2018, the global atmosphere concerning strategic public involvement in key industries and neo-protectionism are globally accepted practices and there is a relative sea change in terms of the public-private balances in macroeconomic management. Therefore, the political leadership in Turkey has more leeway to exert strategic activism when it comes to achieving prioritized sectorial growth objectives.

Restructuring macroeconomic management

In order to follow global developments leading to the so-called Fourth Industrial Revolution, Turkey needs to radically restructure both the philosophy and institutional manifestations of macroeconomic management in order to keep up with the pace of ever-fastening global competition among global and emerging powers.

Concretely speaking, the following institutional changes could be made in the existing macroeconomic governance architecture:

1. The basic law of the Central Bank could be altered to establish a dual role for the Bank focusing on price stability (inflation control) and employment (growth) as in the case American FED and several other major central banks. This will transform the current standing of the Central Bank from a purely financial management organ to a pilot institution trying to balance price and financial stability with growth and employment objectives in the real economy.
2. The current ministerial portfolio responsible for the management of macroeconomic areas is excessively dispersed. Several ministries could be merged and some of them could be made leaner in order to increase their efficiency.
3. In this context, the current Economy Ministry, Science-Industry and Technology Ministry, and Development Ministry could be merged together to form an “Industry, Trade and Development Ministry.” This ministry could play the role of a coordinating ministry such as Japan’s METI holding the pulse of the real economy and productive sectors.
4. The fiscal and financial branches of the ministerial-bureaucratic network such as the Ministry of Finance and Treasury could be brought under the roof of a “Ministry of Finance and Treasury” so that financing development and budget management could be properly coordinated.
5. A new “Ministry for Science, Higher Education and Information” could be formed to better manage science policy in close coordination with universities and institutions responsible for high-tech infrastructure.
6. An autonomous agency that brings together academics, experts, bureaucrats and key stakeholders from civil society could be formed to monitor the institutional reform process and conduct objective impact analysis such as India’s NITI or Malaysia’s PEMANDU.
7. Sector-specific incentive schemes could be prepared to boost research and development for scientific agriculture, nanotechnology, biotechnology, optics, lasers, rocket science, high-tech materials such as carbon-fiber and renewable energy technologies. Autonomous sectorial monitoring commissions could be formed within the Office of the Presidency to follow up the efficiency of these schemes.
8. Advisory positions within the Office of the Presidency could be organized into more institutionalized offices in order to allow sectorial offices for modernization of agriculture, manufacturing industry, R&D financing, entrepreneurship, export promotion and so on.
9. These presidential offices could follow up both policy formulation and implementation processes in order to solve jurisdiction problems among different ministries and assess the efficiency of devised policies, allowing policy adaptation.

Turkey is currently under a severe financial attack. It is quite apparent that Turkey’s macroeconomic indicators are quite healthy, and it is not possible to explain the current situation “economically”.

Attracting foreign investors relies on two main factors: the country’s economic vitality and debt ratio. Naturally, investors want to invest in countries in which they can profit handsomely. At this point, economic vitality comes into play. A country with a high growth rate has a significant potential in terms of investments as it offers high profits for firms. On the other hand, investors expect the country they are lending money to have the capacity to pay off her debts. In this respect, if a country’s debt ratio rises, its capacity to pay off her debts will decline, causing investors to withdraw their investments.

We see that Turkey has a good performance in both of these aspects. First, Turkish long-term annual economic growth rate averages out 4.8%. Moreover, despite the July 15 coup attempt in 2016, the Turkish economy grew 7.4% in the following year, showing an impressive performance and clearly demonstrating her resilience. Hence, Turkish economy is quite vital and naturally attracts investors.

Second, Turkish public debt-to-GDP ratio is around 28.5%, which places Turkey among countries with the least debt load and this ratio is much higher for most of the countries in the world. For example, France’s ratio is 97% while the U.S. and Japan hover around 105% and 253% respectively. On the other hand, Turkey’s budget deficit-to-GDP ratio is approximately 1.5%, despite being in an election year. This ratio is significantly lower than the Maastricht criterion, which is 3%. The same ratio is 2.8% for France and 2.9% for the U.K.

Lastly, Turkish external debt-to-GDP ratio is 53%. When compared to other countries such as Germany (141%), Spain (167%) and France (213%), it becomes apparent that Turkey has a very low level of external debt-to-GDP ratio.

On the other hand, like all economies, the Turkish economy has its own problems. The biggest problem for Turkey for the last two decades is her relatively high current account deficits. However, Turkey has learnt to live with this problem as she has tried to overcome it. Moreover, Turkey’s current account deficit is considerably lower right now than previous years.

When all of these factors taken into consideration, it is clear that the steep rise in the TL/Dollar exchange rate does not have an economic explanation. Not to mention that the abrupt increase in the exchange rate would require an “equally abrupt” economic cause. We know that there is none. So we are left with politics. The only viable and “abrupt” explanation left is the “surprise” snap elections, which will be held on June 24.

So, how should Turkey respond to this severe financial attack? First, it is wrong to see policy interest rate as almost the sole monetary policy tool, as assumed widely now.  The Argentinian experience is illuminating in this respect. After Argentine Peso lost 15% of her value last month while inflation was around 25%, the Central Bank of Argentina altered the interest rate three times within a week, increasing it from 27.25% to 40%. So, what happened in the end? Argentine Peso lost another 15% of its value.

The Turkish Central Bank (TCMB) increased the de facto interest rate by 300 base points, from 13.5% to 16.5%, on May 23 in order to address the financial attack, resulting in a further tightening in monetary policy and making Turkey an outlier among emerging countries in terms of real interest rate. After the steep rate hike, TL/Dollar exchange rate decreased from 4.80s to 4.40s gradually, only to increase 4.60s again swiftly with no apparent “economic” reason.

To address this “mindless” financial attack, respective ministries, such as the Ministry of Economy, along with the TCMB should establish communication channels with citizens and try to relieve their concerns. On the other hand, both the government and TCMB ought to establish good relations with financial circles that are only economically-motivated. Achieving these, Turkey will be able to weather these financial attacks. At this point, Turkey has an important leverage: the current level of the TL/Dollar exchange rate renders Turkey a tremendously attractive country for investment.

Lastly, it should be noted that TL/Dollar exchange rate will sooner or later return to normal levels, particularly after the snap elections. The Turkish state and the TCMB’s strong communications with both Turkish citizens and financial circles that are “economically motivated” would ease up this process.

Turkey has been experiencing one of the most severe speculative attacks in its open-economy era since the beginning of May 2018. The Dollar/Turkish Lira parity, which was 4.1 on May 1, rose to 4.92 on May 23. Such a sudden surge on the currency does not reflect the reality of the Turkish economy. There is a strong economic growth performance, fueled not only by consumption expenditures, but also by investment expenditures and export. The Turkish economy created around 1,2 million new jobs in the last year. The unemployment rate is declining, albeit slowly. As in every country, Turkey also has some economic problems – the high current account deficit and double-digit inflation are two main problems of the Turkish economy. These problems are not new, plus they have not shown a significant deterioration for the last two months.

With the loss of the value of the Turkish Lira, rising food and energy prices were the main triggers of this high inflation rate. Since Turkey’s costs of imported intermediate goods and energy soar in periods when the country enters a phase of rapid growth, an increase in its current account deficit is unavoidably being experienced. Reducing the current account deficit and inflation require supply-side structural reforms. The government is aware of that. Turkish Deputy Prime Minister Mehmet Simsek tweeted: “None of Turkey’s macroeconomic problems are insurmountable. We’ve fixed problems in the past, we can do it again.” President Erdogan said that after the election serious measures will be taken without delay to reduce inflation and the current account deficit. In sum, inflation and current account deficit are not acute problems that could cause such a high jump in exchange rates in such a short time period.

So why is the Turkish Lira depreciating? Although there is no serious deterioration in economic indicators, it is obvious that there is an intense effort to worsen the economic perception as snap elections approach. The deterioration of economic perceptions is paving the way for speculative attacks that cause a surge in exchange rates. The international economic press is circulating news suggesting that the Turkish economy is overheating. In addition to this, international media outlets misinterpreted the statements regarding the future of economic management, which President Erdogan had made in interviews during his London visit.

Many economists and analysts claimed that Turkey is moving away from a free-market economy. This is a cock-and-bull story. But this type of distortional or fabricated news made financial investors anxious. The Turkish Lira depreciated with speculative movements. Following, some foreign investors began to sell their Turkish Lira assets even more to offset the loss. When Turkish companies, which have foreign currency-denominated debt, started to buy foreign currencies, the Turkish Lira depreciated even further.

After an emergency meeting, the Central Bank of the Republic of Turkey (CBRT) raised its late liquidity window rate to 16.5 percent from the previous 13.5. In the speech he made the day the Turkish Lira depreciated, President Erdogan clarified his previous statements as follows: “Turkey is a country that practices free market economy with all its rules and policies. As it is today, we will continue to adhere to global governance principles in monetary policy in the new (presidential) system.” With the statements of President Erdogan and Prime Minister Binali Yildirim, which calmed the financial markets, this rate hike prevented the Turkish Lira to depreciate further. It is not yet over. There will be further speculative attacks before the election. The current level of exchange rate is also disturbing for Turkish companies.

So, what should be done to bring the Turkish Lira to levels that reflect economic reality? First, the CBRT should be more pro-active and take more timely decisions. The last move of the central bank was late. The CBRT should have increased interest rates a week or ten days ago. Until its next meeting, which is on June 7, the CBRT should use forward guidance to steer market expectations and monitor market movements closely. If exchange rates do not loosen as expected, the CBRT should restart to fund the banking system through 1 week repo and tighten its monetary policy further.

Economic ministers should make informative and guiding explanations of the latest developments in the markets and the policy measures taken. The economic management team, including ministers, high-ranking bureaucrats and advisors, should not allow manipulative news circulation on the market by communicating with markets closely. Last but not least, all presidential candidates and political parties should explain their potential economic policies, which will be implemented with the start of the presidential system after the elections.

These are potential short-run policies and moves. In the medium and long-run, Turkey should reduce its reliance on foreign capital inflows by speeding up structural reforms (especially on imported medium- and high-tech intermediate goods, and energy resources) that can reduce its current account deficit, and by diversifying its financial instruments that can increase domestic savings and channel domestic savings to financial markets.

There are three major global rating agencies in the world, namely Fitch, Standard & Poor’s and Moody’s. Hence the concentration ratio in the rating industry is shockingly high (95 percent). While Moody’s and Standard & Poor’s have around 40 percent market share each, Fitch has approximately 15 percent.

Like in any oligopolistic industry, it is markedly susceptible to collusion and corruption. Moreover, when the abstract and highly subjective nature of assigning ratings taken into account, it becomes apparent that the extent to which the collusion and corruption level could reach is off-limits.

This “agency risk” emanates naturally from the fact that these corporations try to maximize profits in an unregulated and tremendously concentrated industry. So, if for one reason or another, attaining more profit means zooming in on weaknesses and overlooking strengths in a national economy or industry, and more importantly amplifying or fabricating political risks when there is little or none, then the rational action to take is obvious on the part of these “unchecked” credit rating agencies: go for it. This is the “financialization of ratings.”

Furthermore, one should not disregard the fact that these corporations have their headquarters in New York (all of them) and London (one of them, Fitch, has dual-headquarters). So, though almost always goes unmentioned, the U.S. – global hegemonic power – is home to these agencies and it is more than clear that there could be a “political collusion” between the U.S. and these credit rating agencies, if this is to the interest of both parties. This is “rationality” after all. Credit rating agencies could easily be used as expedients in an effort to further political goals and their ratings could be employed as some kind of an “economic sanction.” This is the “politicization of ratings.”

With the onset of neoliberalism, the global economy has increasingly become interconnected in terms of both trade and finance, hence financialization of the world. In the end, developing countries have found themselves in a delicate financial position, resulting in a myriad number of financial crises in the 1980s and 1990s. In this dramatically intertwined and financialized world, both the absolute size and concentration level of the financial industry have grown exceedingly, resulting in an unspeakably powerful financial industry, with all its “sidekicks,” such as credit rating agencies. In addition, one has to mention that investment funds based in the U.S. have a share of 47 percent in the world, of which just 25 investment banks have a total share of 76 percent in the U.S.

Therefore, when you are the center of global finance and home to the global credit rating agencies that literally dominate the industry almost entirely, it is unimaginable not to collude and form alliances with these financial corporations and to use them to an extent to achieve political goals. After all, this is an expedient among other tools.

This is probably why credit rating agencies do not make “economic” sense sometimes partly and sometimes terribly for both industrialized and developing countries around the world, not to mention gross failures of credit rating agencies in the cases of Enron and the global financial crisis of 2007-8.

Therefore, one will have a very hard time finding an “economic rationale” behind the downgrading of Turkey’s credit rating by Standard & Poor’s recently. It becomes more suspicious when one adds that planned schedule for reevaluating Turkey’s unsolicited credit rating was due on August 2018. And it becomes even more so when one points out that this downgrade came days after Turkey decided to go to snap elections to be held on June 24, 2018. Maybe, it is politics, stupid, after all.

What are the ratings of credit rating agencies themselves, then? It is well below “credibility” for most people around the world, apparently. With a negative outlook. And no (upward) revision is on the horizon.

In my previous column, I touched upon how neoliberalism and the financialization of the globe have rendered countries around the world susceptible to the caprices of the financial industry. Because of the pervasive influence of the financial industry, many developing countries including Turkey have found themselves in the last two to four decades unable to pursue a growth – and development – conducive monetary policy regime, which features a low policy interest rate and an undervalued exchange rate.

Two main developments, namely global liquidity abundance and unnecessarily strict monetary policy on the part of the Turkish Central Bank (TCMB), have accentuated wrong type of monetary policy in Turkey, which features a high policy interest rate and overvalued exchange rate regime in the 2000s. Between 2002 and 2008, the real interest rate hovered well above a staggering 10 percent for the most part. Only with the onset of the global financial crisis, TCMB lowered policy interest rate, albeit very slowly, and hence eased its monetary policy stance. However, the nature of the monetary policy regime did not change and once Turkey recovered from the crisis amid fears of the overheating of the Turkish economy in the 2010-2011 period, TCMB tightened its monetary policy stance too fast and too much, though resulting in not as pronounced a tight monetary policy as before the crisis, one should note.

Since then, TCMB has pursued a (somewhat) strict monetary policy as before purportedly with a view to decreasing the inflation rate, which has already been in moderate levels, but to no avail. This should not come as a surprise, because the Turkish inflation rate experience between 2004-2018 has shown that policy interest rate and real interest rate have had no (negative) discernable effect on the inflation rate. For example, when the real interest rate was 11.8 percent on average between May 2006 and November 2008, the inflation rate averaged out 9.75 percent, surpassing the long-term inflation rate in the 2000s significantly. On the other hand, between 2011 and 2013, real interest rates were well below 10 percent and the average inflation rate was around 7.6 percent, somewhat below long-term average.

Unlike “official monetary policy understanding in the world” and as Post-Keynesian economists advocate, inflation results mostly from cost-push factors, not demand-pull ones, and the Turkish experience in the 2000s attests that clearly as shown in an empirical paper in a refereed-journal by TCMB itself. According to the study, half of the inflation in the period of 2006-2016 in Turkey cannot be explained at all, and more than 90 percent of the other half has not been demand-driven, but cost-driven, which is agonizingly at odds with the “weak” theoretical fundamentals on which TCMB constructs its “strict” monetary policy stance.

All in all, the TCMB purportedly has long been trying to contain the inflation rate by a strict monetary policy regime in Turkey, only to no avail on the part of inflation rate, and – unfortunately to the detriment of the Turkish economy and “common people.” The whole “strict” monetary policy stance in the 2000s has debilitated the real economy in favor of the financial industry, hence the deindustrialization of Turkey. Of course, not to mention the aggravated income inequality emanated from this monetary policy regime. One should add that the same deindustrialization process happened in developing countries such as Brazil in the 2000s. Then, time is more than ripe for the TCMB to reconsider its monetary policy stance and take into account real factors such as employment, economic growth, income inequality and, last but not least, the development process of the country when constructing monetary policy function. After all, central banks are for the people, right?

Snap election decisions have usually reasonable explanations. In Turkey, for example, political instabilities and/or economic downturns paved the way for snap elections. But, this time is different. It is known that Turkey is not confronting any political turbulence at the moment and the economy has not been in decline either. The Turkish economy surged 7.4 percent last year, beating market expectations and becoming fastest-growing economy among G20 countries. As leading indicators, such as industrial production and export activities are considered, it is predicted that the Turkish economy will grow around five percent this year. Although some economists argue that the economy is overheating, as I explained in this column before, over-heating discussions have no solid background. Although unemployment rate has not reduced to the desired level yet, the Turkish economy is creating hundreds of thousands of new jobs. So, does the decision to hold snap election constitute a bad choice in economic terms? The answer is definitely no.

Since the constitutional amendment referendum held on April 16, 2017, Turkey has been experiencing a transition period from the current parliamentary system to a new presidential system in Turkey. This new governance system is expected to provide important contributions to the development of Turkey’s economy by providing political stability, serving predictable and inclusive policies, and activating a well-functioning bureaucracy.

This transition process was supposed to be completed on November 3, 2019. The prolongation of the transition period makes it increasingly difficult to produce predictable policies. Therefore, expediting this process is a conceivable choice in terms of increasing predictability, which is especially a critical factor for the economy. Besides, as Turkish President Recep Tayyip Erdogan underlined, the dysfunctions of the old system have continued to slow down Turkey’s progress.

Politicians and bureaucrats are required to work in coordination between themselves and each other for a more rapid implementation of the investment and reform decisions that would resolve the problems directly concerning citizens such as unemployment and inflation. However, various problems have so far been observed in developing and maintaining such a coordination due to the malfunctions caused by the old system.

Although Turkey has achieved to take major steps since 2002, the country could not increase the effectivity and quality of its bureaucracy by enabling institutionalization to the full extent. The bureaucracy has failed to keep pace with the political realm in terms of ideals and practices. Unfortunately, the bureaucracy has been reluctant to take even the slightest risk on the pretext that the transition to the new system was supposed to be an extended period. Accordingly, many projects and reforms could not be implemented as desired whereas the system has been clogged. In sum, the old system has been making it difficult for decisions to be made quickly and for the bureaucracy to function properly. In this sense, the presidential system provides a good opportunity to introduce an effective bureaucracy.

In Turkey, the state has been giving support to multi-billion dollar private investments to upgrade its technology level, to increase its economic complexity, to diversity its energy mix, to improve its export performance, and to reduce its current account deficit. Notwithstanding, it is also required to see the future of the private sector in order to get productive results from these investments. Since most of these investments will start to take their form two years later at the very least, handing this crucial responsibility to the new governance system is the right choice as an action to ensure continuity. After the election, the president, ministers and bureaucrats, who will have longer terms in office, can implement stronger measures and incentives to practice the projects more smoothly and effectively.

Seeing their future more clearly after the consolidation of stability in the country, the companies can invest all their energies in their future investments or the technologies they will develop. In his official statement, the Union of Chambers and Commodity Exchanges of Turkey (TOBB) President Rifat Hisarcıklıoğlu said that “June 24th, 2018 is a very choice to enable us to throw off miasma of uncertainties hindering the business community so that we may better focus on the economic reform agenda. Turkey will proceed to pursue its goals after June 24th.” As the Istanbul Chamber of Commerce (ITO) Chairman Sekib Avdagic stated: “Snap election offers good prospects for the real sector at most. The business world will move investment decisions ahead. With the stronger system of governance in the country, the competition for production will start a year and a half earlier.”

Uncertainty is one of the primary aspects that markets fear. Under normal conditions, early elections mean uncertainty. But this is not the case for the current state. For about six months now, economy circles have been discussing the possibility of a snap election. In an atmosphere where early election speculations were made, although there was around a year and a half before the elections, uncertainties inevitably started to arise. Uncertainties could create a risk of slowing economic activity.

Such environments only favor the speculators who feed on risks at most. For a while, those engaging in speculative moves on exchange rates by giving the emergency state and geopolitical risks as a pretext have exerted intensive pressures on the economy in line with their own interests. The early election decision has impeded the efforts of such speculators and the ones seeking to change the course of domestic and foreign policies by putting the economy in a tight spot.

The fact that there are only two months before the elections means that the government cannot resort to populist policies that will unsettle the fiscal discipline during this period. This is another reason why the financial markets perceived this snap election decision positively, as the stock market soared and Turkish Lira rebounded. The Justice and Development Party (AK Party) governments have never implemented populist policies during any electoral period by considering the future of the Turkish economy even though it went against their own political interests. The government would probably not have used this political card even if the elections were held on the scheduled time. Bringing the elections forward has also enabled the government to demonstrate to the markets that it is not motivated by frivolous political interests and attaches importance to the fiscal discipline by ending the nonsensical election economy debates revolving around the finance markets.

Early elections usually stand as the second-best choice but it can be the first choice under the above-mentioned conditions. In fact, the rise in the stock market and the fall in exchange rates just after the snap election decision indicated this. With its new governance system, Turkey can implement reforms and policies in a systematic, predictable, coordinated and decisive way, making the future of the Turkish economy brighter.

There are two main types of monetary policy regimes particularly for developing countries: high policy interest rate – overvalued exchange rate and low policy interest rate – undervalued exchange rate. While there are certain pros and cons for each of these monetary policy regimes, the right one for developing countries is certainly the latter one. However, a majority of developing countries have increasingly found themselves – for the most part inadvertently and/or unwillingly – in a position of embracing the former regime since the advent of neoliberalism together with the financialization of the world.

For a relatively closed economy, pursuing monetary policy conducive to the needs of the country is relatively easy. This was the case for developing countries before neoliberalism, which had been implementing import-substitution industrialization (ISI) roughly up until to the 1980s. During the ISI period, the government had controlled the financial system outright or to a great extent. Even in a large number of developing countries, all or most banks had been owned by the state. Besides that, countries around the world had also controlled credit and deposit interest rates in that era. Further, central banks had directly been controlled by the state. These countries were also rather closed in terms of both foreign trade and international capital flows. Therefore, it was rather effortless for these countries to pursue a low policy interest rate – undervalued exchange rate regime in that period.

However, with the rise of neoliberalism, developing countries one-by-one dropped ISI and embraced an export-oriented industrialization (EOI) strategy. With this switch in economic policy, foreign trade has expanded tremendously and international capital movements increased dramatically. Moreover, the financial system was liberated and the caps on interest rates were removed totally. This era also witnessed the privatization of state banks, alongside other state firms, thanks to the privatization wave, which originated from the aura of the Washington Consensus. Hence, developing countries have become much more open both economically and financially. This transformation diminished the capacity of the state to pursue an independent monetary policy from abroad via her central bank.

Ironically, the emphasis on the independence of the central bank from the state in neoliberal ideology gained much ground at the same time. In the end, central banks did not become independent from everybody as generally assumed, but their subjugation and independence has changed its nature. In the ISI era, states were the masters of central banks and international markets were not important in that regard at all. On the other hand, in the EOI era, the international financial industry became the master of central banks in developing countries to a great extent, and the influence of the state over central banks dwindled tremendously. Note that states in the developing world also became much more susceptible to international influence both economically and financially within the neoliberal regime.

All in all, pursuing a low policy interest rate – undervalued exchange rate regime has become much harder in the neoliberal era. However, in order to complete industrialization processes, developing countries such as Turkey should adopt this regime. This regime is certainly not enough to the industrialization end, but is a must.

The protectionist economic policies pursued by the Trump administration are now signaling a global trade war. In the early days of March 2018, new tariffs were taken into action by the U.S. government.

On March 1, 2018, Trump announced that his administration will impose 25% and 10% tariffs on steel and aluminum imports in order to promote struggling American industries. He announced the tariff move during a meeting with steel and aluminum executives at the White House.

The tariffs President Trump signed on March 9 did not apply to Canada and Mexico, which are NAFTA countries.

In his justification Trump said: “…You like the tariffs where they won’t be dumping on our country. What they do is they dump massive amounts of product on our country, and it just kills — it destroys our companies and our jobs. And it’s been happening for so many years, and we are not the beneficiary.”

Many countries reacted to the new tariffs imposed by Trump. Chancellor Angela Merkel called for the European Union to be excluded from such schemes. European Commission President Juncker made it clear that the EU trade bloc would not sit “idly” if Trump goes ahead with these planned tariffs. Trump’s new tariff threat on European cars against the possibility of bloc’s retaliation on US tariffs increased the tension more.

Besides reactions from other states, there is a strong opposition from some Republicans who are traditionally free trade advocates.

On March 22 the U.S. imposed new tariffs on China. These are estimated to be at a worth of 50 billion U.S. dollars. The Trump administration strongly claims that China is committing intellectual property theft crime and is causing the U.S. its largest trade deficit of all times – a 375$ billion trade deficit with China.

“This is the first of many. This is the number one but this is the first of many,” President Trump said just before signing the tariffs on China.

Is China the target?

Earlier in March 2018, the EU’s trade commissioner stated that the bloc would “stand up to the bullies.” Due to reactions and critics, the Trump administration announced exemptions that cover the EU and six other countries including Argentina, Australia, Brazil, Canada, Mexico and South Korea. Below we can see that out of the top 5 steel exporters to the U.S., 4 of them – except China – are exempted.

                                                  Source: Wood Mackenzie

China is going to impose reciprocal tariffs on the U.S., which are worth 3 billion dollars. The Chinese Commerce Ministry stated that this imposition is a response to the steel and aluminum tariffs imposed on China by the U.S. The Chinese government could hit the U.S. with tariffs on agriculture and vehicles meaning that U.S. soybeans, airplanes, cars and cotton could be targeted.

“China cannot be seen to be weak,” Nobel Prize-winning U.S. economist Stiglitz said in an interview.

Now that Trump has expanded his list of exempted countries from new tariffs, this brings into mind two questions: Is this protectionism only rhetoric? Is China the target?

Both sides leave ways to negotiation open. President Trump emphasized that if any country imposes tariffs, the U.S. will do the same. In the upcoming days, we will see whether the two biggest economies of the world will find a common way.

Moody’s downgraded Turkey’s sovereign rating to ‘Ba2’ from ‘Ba1’, and changed its outlook to “stable” from “negative”, the global rating agency announced Wednesday.

The downgrade of Turkey’s rating was driven by two key developments, according to Moody’s.

First is the continued loss of institutional strength, further weakness in monetary policy, and delays in implementing core structural economic reforms.

Second is the increased risk of an external shock based on Turkey’s wide current account deficits and higher external debt.

The reason for changing the outlook to stable derives from the country’s economic and fiscal strengths, mostly based on Turkey’s large and dynamic economy and favorable government debt metrics, Moody’s said.

The rating agency said Turkey’s rating would be revised up if there are structural reductions in vulnerabilities, such as a significant and sustained narrowing is observed in the country’s current account deficit.

“Reductions in political risk emanating either from the geopolitical or domestic political environment, while credit positive, would not necessarily result in upward rating actions in the absence of sustainable improvements in external vulnerability,” Moody’s explained in a statement.

Turkey’s rating would be revised down if the possibility of a balance of payments crisis increases, there is a sustained lower growth, and the government’s fiscal strength would be worsened, in addition to further weakening in institutional strength, the agency said.

Source: AA

In 2017 the Turkish economy grew above the expectations of many international organizations. With figures examined it becomes clear that this performance was driven by both domestic and foreign demand. Stimulus packages and support provided to the real sector by the government and the tax reductions addressing consumers contributed to the recovery of the economy to a great extent. A substantial increase in total export last year made 2017 one of the best years for Turkey in terms of export performance since the global economy crisis in 2008. All these developments indicate that the Turkish economy is more than ready to take off when appropriate policies are implemented and when clouds of uncertainty over the country dissolve.

Leaving a highly positive year behind, the Turkish economy welcomed the new year with high hopes. The Turkish economy is expected to grow around 5 per cent in 2018. The high rate of capacity utilization ratio in industry and a raising appetite to invest in new areas show that the wheels of the Turkish real sector are turning again. The global economy is also expected to display a strong performance in 2018, which constitutes a positive indicator in terms of Turkish export performance.

Although there are some signals that the government will gear down to a certain degree, several important economic factors that will help revive the economy – such as credit guarantee funds and employment incentives – are expected to remain in certain proportions this year. The omnibus bill proposal the government submitted to Parliament includes incentives that will revive investments and employment. Given that easing monetary policy will be difficult in 2018 due to high inflation and volatile exchange rates, the role of fiscal policy in reviving the economy comes into prominence. While it is reasonable for the government to slow down a little by taking several parameters such as inflation into account, gearing down more than necessary, as occurred in 2012, could have a negative affect on economic activity. This year, it would be more reasonable for the government to adopt a more selective and target-oriented approach in terms of the incentives given to medium and large sized companies. More, the regular cash flow in the real sector can be a priority while supporting small sized companies.

Since Turkey’s costs of imported intermediate goods and energy soar in periods when the country enters a phase of rapid growth, an increase in its current account deficit is unavoidably being experienced. Diversifying incentives on exports and supporting companies that have a potential to produce imported intermediate goods are of critical importance in terms of enabling a sustainable 5 percent growth and minimizing Turkey’s vulnerability to external shocks by decreasing the current deficit. In this scope, it is crucial to implement the plans to incent domestic production of intermediate goods that Turkey has imported, which is included in the Input Procurement Strategy Action Plan (2017-2019) issued by the Ministry of Development.

In order to decrease the current account deficit, Turkey needs to diversify its export markets. Although countries have become keen to protect their own markets with new types of measures, Turkey should utilize available opportunities to diversify its export markets with a focus on regions like Asia, Africa and Latin America.

Increasing domestic energy generation is also crucial to reduce Turkey’s current account deficit. The geopolitical risks and increases in demand driven by global growth contributes to the rise in oil prices. Oil prices that could possibly see $70 this year are creating pressure over the current deficit. The Ministry of Energy and Natural Resources took considerable steps last year in regards to increasing domestic energy generation. Policies aiming to diversify domestic energy sources are expected to continue at the same pace during 2018.

While the Turkish economy experienced significant progress in growth and export last year, statistics regarding inflation and unemployment were worse than expected. Inflation and unemployment rates were in double digits almost the entire year. With the loss of value of the Turkish Lira, rising food and energy prices were the main triggers of this high inflation rate. While it is possible that inflation will return to single digits at the beginning of the second quarter of 2018, the future of exchange rates along with the prices of food and energy will decide whether such single digit rates will be sustainable or not. With Fed signaling that it will continue to increase interest rates, uncertainty regarding the future decisions of the European Central Bank, and due to high inflation and volatile exchange rates, the Central Bank of the Republic of Turkey is expected to maintain its tight monetary policy.

Since the high inflation rate is mostly being caused by supply-side factors, implementing a tight monetary policy will not be enough to achieve the inflation target alone. Structural reforms regarding problems that hinder domestic production and increase its costs are necessary for the inflation rate to return back to single digits. Policies regarding agriculture and livestock sector, and domestic energy projects that will diversify energy resources are of utmost importance regarding medium to long-term inflation trends.

Another reason for the CBRT’s insistence on a tight monetary policy is highly volatile exchange rates. Speculative movements caused by the increased regional risks during the northern Iraq referendum process, fabricated news suggesting that some European banks will stop lending to Turkey, the visa crisis with the U.S., and the Iran sanctions case in the U.S. caused great fluctuations in exchange rates during the previous year. Latest developments in Syria and the result of the trial process in the U.S., which will be announced in April, will be closely followed by the financial markets. Decisions of major central banks, especially of Fed, regarding interest rates will be another factor that will affect the course of exchange rates.

Even though the Turkish economy is creating new job opportunities, the demand for labor falls short of the supply due to the high labor force participation rates among the youth and women. Combined with the disparity between the skills taught by the education system and demanded by the job market, the Turkish economy fails to achieve its targeted unemployment rate.

In order to solve the unemployment problem, the government has begun to provide important support and incentives addressing employers. Through these incentives and the high economic growth rate, unemployment decreased from 13 to 10.3 percent. Such a decrease is an important achievement. However, there is room for improvement regarding unemployment. To ensure that the increase in welfare caused by economic growth reaches the entire population, the unemployment rate must fall below 10 per cent in the short and stay around 7-8 percent in the medium to long-term. If the Turkish economy does grow around 5 percent this year (as is expected), it can be estimated that the unemployment rate will fall back to single digits. This is likely especially when considering the fact that incentive programs aimed at decreasing unemployment rates last year are still continuing and new incentives aimed at increasing employment among women, young people, and people with disabilities are going to be implemented. However, to reach unemployment levels of 7-8 percent, structural reforms are needed in a wide range of critical subjects such as education, immigration policy and labor regulations.

The strong economic performance Turkey displayed in 2017 despite formidable problems has increased hopes and expectations for 2018. Turkey will enter 2019, a year with two critical elections, much stronger if economic growth continues and certain improvements are made in fields that currently seem problematic.

Published by the SETA Foundation and written by Sadik Unay and Serif Dilek, “Neo-Protectionism and Trade Wars” seeks to address neo-protectionist measures that have emerged following the Global Financial Crisis. Taking into account the changing trend of protectionism practices, which find themselves on the agenda in the context of the political and economic crises that have emerged on the global level, the analysis provides an extensive evaluation of “neo-protectionism” trends. The steps taken by industrialized countries during their development process reveal that “protective trade policies” are critical thresholds of success stories. As illustrated by the recent decision made by U.S. President Donald Trump to increase the customs duty on imports of solar panels and washing machines up to 30 percent, conservative policies will take up much of the global economy agenda.

In the last quarter of the 20^th century, rather than approaches that require intense government intervention, free trade has increasingly been adopted for socio-economic development and growth. This also draws attention to the widespread adoption of murky protectionism. The analysis reflects on how the slowing down of the liberalization of trade caused countries not only to isolate themselves but also to adopt protectionist policies. It is emphasized that the discourse of liberal commercial integration in the enlargement periods of the world economy are transformed into cyclical demands of regulatory and protectionist demands in times of contraction and crisis.

The analysis underlines how there has been an increasing level of protectionist understanding within the G20 countries.

The analysis evaluates the rise of Neo-protectionism in the post-global financial crisis atmosphere, recent examples of its practices and trade and currency battles. Specifically, the analysis underlines how there has been an increasing level of protectionist understanding within the G20 countries. The on-going race between states in the fields of industry and new technology are inherently an extension of a multidimensional and global power struggle.

Hence, it can be observed that in the post-global economic crisis, where the discourse of free trade in the global economy has abated and where right-wing movements have been increasing their power, “economic nationalism” approaches and neo-protectionist policies have increasingly been occupying the international agenda. The United Kingdom’s decision to leave the EU (Brexit), Donald Trump’s adoption of a more fierce foreign policy and his appreciation of an economic competition discourse, and the increasing centralization of right-wing movements in European politics reflects the fact that the desire to race for liberal values on the international sphere has dissolved.

Turkey ought to utilize neo-protectionist strategies in order to adapt and to survive trade and currency wars in an era in which science, industry and technology policies and public activism are on the rise.

This study by Unay and Dilek concludes that approaches such as liberalism, mercantilism or protectionism should not be viewed from an ideological perspective but should be appreciated as policy instruments serving national interests. The analysis highlights how in the new era the international system will increasingly witness trade, science, industry and technology wars, rather than being occupied with conventional warfare. More, the analysis illustrates how states have diverged from solely resting on hard power to adopting soft and smart power in their race to project their power. The authors suggest that similar to emerging economies, Turkey ought to utilize neo-protectionist strategies in order to adapt and to survive trade and currency wars in an era in which science, industry and technology policies and public activism are on the rise.

The PDF of the analysis can be downloaded at: https://www.setav.org/analiz-yeni-korumacilik-ve-ticaret-savaslari/

Terrorism has been affecting the Turkish economy through many channels since the 1980s. In general, terrorism creates uncertainty, reduces investment expenditures and household consumption, increases regional inequality, restrains human capital formation, and forces people to migrate from their homelands. These negative effects of terrorism have hindered the Turkish economy from reaching its potential for almost the past 40 years.

Although terrorist incidents slowed down after the initiatives of the AK Party, with the deepening of the civil war in Syria, terrorist attacks have increased over the last three years. Due to both these attacks and geopolitical strains in the Middle East, total exports to Iraq and Syria, tourism revenues of south-eastern Anatolia and regional investment activities have decreased. The failed coup attempt also affected the Turkish economy negatively, especially in the third quarter of 2016. All these incidents combined led to the Turkish economy ending 2016 with a weak growth performance.

Thanks to the government’s fiscal measures to support the economy and a vibrant real sector, the Turkish economy recovered faster than expected by many economists and international institutions.  In the third quarter of 2017, Turkey outperformed all G20 countries in terms of economic growth. After many predicaments over the last few years, the Turkish economy learned how to deal with both internal and external shocks. If for example a Scandinavian country had experienced similar incidents, the economy would not have recovered easily and smoothly.

Regional risks have not disappeared for Turkey yet. It seems that 2018 will be a strenuous and critical year for fighting terrorism. Although Turkey had carried out diplomatic efforts to persuade regional and global actors, especially the United States, to stop providing weapons and ammunition to terrorist organizations and to halt terrorist activities along the Turkish-Syrian border, Turkey’s security concerns were not fully addressed. Recent news about the formation of a 30,000-member border force with PKK/YPG members in northern Syria was the last straw. The PKK/YPG terrorist organization tried to occupy the majority of the Turkish–Syrian border, thus posing a threat to Turkey. As a result, the Turkish General Staff started Operation Olive Branch in order to “establish security and stability along Turkey’s borders and the region as well as to protect Syrians from terrorist oppression and cruelty.” 

Despite fighting with many internal and external terrorist organizations, the economic outlook is quite positive this year. The Turkish economy is expected to grow by around 5% in 2018. According to a Bloomberg analysis which is based on many indicators, Turkey is seen as one of the most attractive emerging markets in 2018.

Striking a blow against terrorist organizations is crucial to maintain not only political stability, but also economic stability. Finance Minister Naci Agbal indicated that “Turkey is carrying out the ongoing operation with determination and its accomplishments will go on to eliminate risks to the economy.”

Since military operations are inherently risky, it is generally expected that macroeconomic variables will fluctuate at the first stage. However, this was not the case for the Turkish economy. The Borsa Istanbul stock exchange broke an all-time record more than once during the first week of the operation, reaching 120,000 points. The Turkish lira appreciated against the dollar. The surge of the stock market and the appreciation of the TL are indicators that both domestic and international investors have confidence in the future of the Turkish economy and that they do not consider Operation Olive Branch as a potential threat for the economy. With a few exceptions, most of the major global actors underlined that Turkey has a legitimate interest to protect its borders. While this is minimal support, given that as a NATO member Turkey deserved both military and logistic support from its allies, the given support was important for investor confidence.

Since military operations have monetary costs, increasing military expenditures can also cause pressure on public finance. However, as a country whose public deficit and debt figures are well below the world average, Turkey has more than enough fiscal space to finance OEB. The short-term economic costs of this operation are low. Besides, it is highly probable that the long-term effects of this operation are positive for the Turkish economy. By ensuring border security, alleviating the risk of terrorism, and by promoting regional stability, the ongoing operation in Afrin is expected to contribute to the Turkish economy, paving the way for new investments in south-eastern Anatolia, to increasing the volume of exports from Turkey to the Middle East.

While there were important developments transpiring in the cryptocurrency market throughout the last year, Bitcoin was the most prominent among these currencies. This is due to Bitcoin’s market volume, its high number of users and the fact that it has become an accepted currency by certain firms and companies. Since its conception after the Global Crisis, Bitcoin has become a phenomenon of the last couple of years, increasing its value tremendously in terms of trade volume and market capitalization.

Growing twenty-fold within 2017, the value of Bitcoin was around $20,000 by the end of the year. Beside its increase in value, piquing individual and corporate interest in Bitcoin, its acknowledgement as a legal entity for example in Japan, and cryptocurrencies being managed in prominent derivative markets (CME, CBOE, Nasdaq) were some of the most important developments. These developments aimed to increase interest in cryptocurrencies, while also decreasing the fluctuation in terms of their value. The instability and over-volatility of Bitcoin and other cryptocurrencies still raise the question as to whether they have a future in the markets.

The rise of Bitcoin

What makes Bitcoin different and special is that it can be exchanged between buyers and sellers digitally without the requirement of any third-party authority such as a state or central bank. Even though Bitcoin is defined as the brainchild of a utopian crypto-anarchism due to the fact that it is decentralized and encrypted, it has transcended their control. The introduction of Bitcoin into the market and its ever-increasing demand has led to the creation of diverse cryptocurrencies – currently over 1469 different types. Meanwhile, within the approximately 7814 markets, the trade of these cryptocurrencies increase day-by-day.

The most distinguishing feature of Bitcoin is that unlike fiat money (for example the Dollar or Euro), which is controlled by a central authority, Bitcoin is controlled through a software algorithm. Backed by an advanced technology called “blockchain,” Bitcoin’s creation and exchange relies on encryption (cryptography) principles. Being the most prominent cryptocurrency, Bitcoin was founded to be limited to 21 million units, 16,814,000 of which are currently in circulation. The limited supply of Bitcoin indicates that its increase in value is inevitable due to recent skyrocketing demands. Bitcoin’s supply was limited as it is intended to be used as the gold-standard.

When introduced in 2010, the value of Bitcoin was around $0.07, by early 2011 it had increased to around $1. Valued at $13 in 2012, Bitcoin continued to rise to $266 in 2013 and reached $960 by the end of 2016. By 2017 however, Bitcoin skyrocketed to the value of $20,000. This tremendous rise was widely covered by news outlets and Bitcoin was labelled the “digital/virtual” gold. The performance of Bitcoin triggered many individuals to re-direct their investments to cryptocurrencies. This interest in cryptocurrencies increased the demand of Bitcoin and led to the growth of its trade volume and increase in its value. Bitcoin’s swift rise in terms of value transcended its purpose and its fluctuations allowed it to become a speculative investment. Causing loss to investors and users, this extreme fluctuation sparked discussions regarding Bitcoin being some sort of a bubble.

Despite not being based on any legal currency, there are various platforms (such as online exchange markets) where users can exchange Bitcoins. Bitcoin and altcoin markets are different than conventional markets. Dubbed as cryptocurrency markets, these platforms are independent from countries and do not have opening-closing hours. There are also other platforms that allow the exchange of Bitcoin into real money.

While Bitcoin has become increasingly widespread over the internet and online shopping, there are also an increasing number of companies and ATMs that accept Bitcoin. Many establishments such as eBay, Amazon, Dell, Microsoft, Subway, Tesla and Bloomberg, accept Bitcoin as a method of payment. Currently, Bitcoin is accepted as a payment method for over 11,000 establishments worldwide. Besides being a popular digital currency, Bitcoin is also – physically – available at 2088 ATMs across 61 different countries. 35% of these ATMs also allow transactions with select altcoins. 60% of ATMs that allow Bitcoin transactions are located in the U.S.

In terms of numbers, the U.S. has 1197, Canada 316 and the U.K. has 104 ATMs. In respect to continents, 96% of the ATMs are located in North America and Europe, while only 2.4% of them are located in Asia. The increasing number of Bitcoin ATMs indicate that on average, every 2.5 days, a new Bitcoin ATM is placed.

Bitcoin in Turkey

The Japanese Yen and the U.S. Dollar are the two currencies that are used the most while buying and selling Bitcoin. Looking at the share of currencies, the Japanese Yen stands at 46%, the U.S. Dollar at 26%, the Korean Won at 18.76% and the Euro stands at 5.1%.

The demand to cryptocurrencies also attracts users in Turkey. The Turkish Lira stands at 0.3% in terms of usage and is among the top 10 currencies. There are four cryptocurrency markets in Turkey: Paribu, BTCTürk, Koinim and Koineks. The 24-hour volume of these four cryptocurrency markets were $42 million by the end of 2017. Even though the majority of transactions were realized through Koineks, Paribu is the most valuable Turkish cryptocurrency market (worth approximately $19 million) with the largest 24-hour volume. These markets allow for the exchange between some select cryptocurrencies and obtain a share of transactions for acting as an intermediary between buyers and sellers. Although the interest in cryptocurrencies in Turkey has increased visibly, with the number of users increasing from 9000 to 42,000 within the last 6 months, the latency experienced by users during their transactions constitutes a prominent issue.

Similar to how Bitcoin has become a payment method on many international platforms, it is also accepted by numerous establishments in Turkey. There is news about Bitcoin becoming a payment method in sectors such as the real estate, food and education. BTCTürk, one of the intermediary cryptocurrency markets in Turkey, has announced that it was working to establish the infrastructure which would protect establishments against the sudden shifts in exchange rates and allow users to use Bitcoin online and during shopping. In this respect, it’s definite that Turkey needs certain laws to regulate the usage of cryptocurrencies. While cryptocurrencies and their markets, along with the backing blockchain technology is spreading internationally, Turkey should implement regulations which will transcend individual initiatives.

Security and risks

Despite having significant volumes, Bitcoin and altcoins are prone to volatility and speculations. Meanwhile, as they may be used for money laundering and other illegal activities, these currencies are as dependent as they are independent. Thus, due to the risks and opportunities they pose, cryptocurrencies will be addressed by governments all around the world. Indeed, many countries have already implemented certain regulations, while others have been observing cryptocurrencies and legitimizing them.

While the interest in Bitcoin increased after a crisis in Southern Cyprus, it has become especially useful in European countries where banks are unable to provide services to the public, like in Greece, Italy, Spain and Portugal. Due to the fact that Bitcoin allows people to realize various transactions such as withdrawing and transferring money independent of the financial system in the country, they have become popular. As it could be remembered, the Finance Minister of Greece, one of the countries that suffered from the Euro Crisis, had threatened the troika with making Bitcoin the national currency of Greece.

The production and transfer of Bitcoin, which could be defined as a tax and cost-free currency, could be observed by anyone. While the amount of dollars, euros or liras in circulation are unknown, Bitcoin is monitored with ease. Everyone is able to see the amount of Bitcoin in circulation and observe the transfers between wallets, including the amount and the date. In this respect, Bitcoin is established on a transparent system.

Besides their advantages, Bitcoin and altcoins possess certain risks. While their simplicity and cost-free transfer are advantageous, the lack of management or control by an institution or central authority poses certain risks in terms of security. For instance, while paying university tuition fees, or paying employees their salaries with Bitcoin is an opportunity, the fact that JP Morgan’s CEO deemed Bitcoin as “fraud” and expressed that he would “fire anyone buying Bitcoin,” affects not only the demand but also the value of Bitcoin to an extent.

Meanwhile, there are newly emerging altcoins, whose numbers are over a thousand, that do not have a future and are a get-rich-quick scheme. Inspired by the de-centralized Bitcoin, the arms race between altcoins in terms of hash processing power, excessive power consumption and Bitcoin mining becoming monopolized as an industry are some of the negative aspects of cryptocurrencies. Moreover, prohibitions against cryptocurrency investments and mining are being implemented in Asian countries. As is known, China has prohibited the exchange of cryptocurrencies, while Korea may put an embargo on cryptocurrency markets.

Cryptocurrencies are an important component of the great digital transformation. As discussed in various circles, Bitcoin and similar currencies might be a bubble that could burst. However, the technological development suggests that these kinds of currencies will become an inevitable part of our daily economic activities. In this respect, Bitcoin and altcoins have influenced the globe within a short time.

Despite being new, not having any legal status and having the possibility of being used for illegal activities, the swiftness, low costs and risks render Bitcoin and other cryptocurrencies attractive. In fact, even though Bitcoin has yet to prove itself, cryptocurrencies have tremendous potential in the mid and long-term. Rather than dis-regarding, governments should take initiatives that will prevent people from being victimized and allow the employment of blockchain technology. The increasing number of users and investors, both individual and corporate, make it necessary for governments to implement regulations and enact laws in order to keep up with this transformation.

According to data released by the State Highways Directorate on Wednesday 20 January, Turkey earned 1.46 billion Turkish liras ($387 million) in tolls from two bridges on the Istanbul Strait as well as toll roads in 2017.

The July 15 Martyrs Bridge and the Fatih Sultan Mehmet Bridge – both spanning the Bospohorus and connecting Europe and Asia – together yielded around 362.32 million liras ($96.2 million), while toll highways throughout Turkey earned almost 1.09 billion liras ($290 million) last year.

The figures published state that over 458 million vehicles paid tolls to the use facilities in the same period. Drivers in Turkey used to pay 7 liras ($1.85) for bridge tolls, with higher fees for vehicles with more than two axles.

On January 1, 2018, Istanbul Strait bridge tolls increased to 8.75 liras ($2.32).

Last December nearly 47 million vehicles used Turkey’s toll bridges and toll roads, paying a total of nearly 124.9 million liras ($33.18 million).

In 2016, 417 million vehicles used Turkey’s toll bridges and roads, paying a total of 1.2 billion liras ($318.81 million). On the Istanbul Strait, the bridge toll at that time was 4.75 liras ($1.26) per passage.

On Monday 15 January, the Turkish Statistical Institute (TurkStat) announced that the unemployment rate in Turkey dropped to 10.3 percent in October – down 1.5 points from the same month in the previous year.

According to information provided, the number of unemployed people aged 15 and above declined to nearly 3.3 million last October, a decrease of 360,000 from October 2016 when the unemployment rate stood at 11.8 percent.

According to TurkStat, the figure also reflected a 0.3 percentage point drop from the previous month, when unemployment stood at 10.6 percent.

From the same period in the previous year, the employment rate in October increased by a 1.4 percentage point to 47.6 percent,

Labor force participation also increased by a 0.7 percentage point, going up to 53.1 percent.

The number of women participating in the workforce climbed a 1.1 percentage point from the previous year to 34.2 percent.

Being more than just a type of metal or paper, money is an element of a trust-based relationship between the creditor and debtor. In this respect, rather than being a measure that assesses the value of a commodity, money is the measure of trust in other people. Essentially, all monetary systems are based on trust and today’s coins and banknotes are not actually evaluated according to a standard established on precious metals. While states render banknotes trustworthy and financial regulations make electronic funds credible, crypto-currencies have the same trust via the blockchain technology, which offers security to the increasingly popular crypto-currencies. Developments in technology, international trade and the globalization of finance brought innovations for money. With the emergence of the electronic fund, money began to be transferred through electronic means defined as Electronic Fund Transfer (EFT).

EFT was then followed by the credit card and Automatic Teller Machine (ATM) technologies. With the onset of millennium, monetary transactions via credit/debit cards instead of cash, and along with the new technological developments rendered money increasingly digital and virtual. Today, banknotes have been replaced by electronic funds – two thirds of personal transactions in the United States are conducted through credit and debit cards. As money has entered the cyber world, various electronic payment methods emerged. Electronic funds and methods of payment, such as the credit card, PayPal, e-cash, electronic check, mobile payment, eScrip, IPIN, PcPay, and First Virtual, have increased in terms of both volume and variety. This spread of electronic funds created issues such as information security and high costs in transactions. In this respect, people need systems that are secure, low on cost and swift in order to freely handle their transactions.

The blockchain technology and cryptocurrencies

There are various approaches to the concept of cryptocurrencies. The most significant of these is the decline in trust in central banks and other financial institutions following the 2008 Financial Crisis. The 2008 crisis brought many changes to the global financial system – national stock markets collapsed, credit-rating agencies lost reputation, financial institutions and companies were on the verge of bankruptcy while certain worldwide banks went bankrupt. More important than all, the public perception of the finance sector slipped, leading to a feeling of increased distrust towards banks. As a result of this increasing distrust, Bitcoin was proposed as an alternative to powerful reserve currencies such as the U.S. Dollar and Euro. The crypto-currency Bitcoin was first mentioned in an article written by Satoshi Nakamoto, titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’

A technical analysis on an alternative currency and its timing was intriguing, as it was brought at a time when following the crisis, people were distrustful towards the financial world. In the mentioned article, Nakamoto defines Bitcoin as a peer-to-peer electronic system that relies on encryption. In his work Nakamoto criticizes intermediary services conducted by banks and argues that banks are not required for trade due to the increasing trend of electronic trade. While the article technically explains how the blockchain infrastructure was developed and how it functions, it also attempts to provide a new perspective as to how to resolve the post-crisis issue of trust through technology.

Even though crypto-currencies were being discussed prior to 2009, the introduction of the blockchain technology made them more appealing. So, what is blockchain? It is a distributed database in which all records are connected to each other through cryptographic elements (hash functions). Not being a centralized system, all data is stored by users integrated into the system. Blockchain, the distributed database that tracks encrypted transactions, is kind of a digital ledger known as Distributed Ledger Technology (DLT). With blockchain, crypto-currencies remove the intermediary and replace the prerequisite mutual trust with a mathematically-precise technology, thus establishing a trust mechanism. The trust here is actually in the security of crypto-currencies backed by the blockchain technology. Besides not requiring an intermediary and being transparent, the most prominent aspect of the blockchain technology is its high security. In this respect blockchain possesses a great potential as it accelerates transactions , decreases costs, increases security and expands operational capacities.

Acting as a digital registry without a particular storage, blockchain is a precious database that can be used for various purposes including storage of property ownership documents, birth and death certificates, management of smart contracts and financial documents. Blockchain provides an unprecedented opportunity for its users to control their digital identity. A transparent global registry, blockchain is used for various purposes such as securing, managing or storing in numerous fields. The facilities it provides to digital identity renders blockchain the key of trust economy. In this respect, blockchain offers the same advantages to businesses as well. For this reason, some argue that blockchain will rock the markets and will be at the center of the fourth industrial revolution.

While Sweden was the first country to take steps in utilizing blockchain in order to secure and manage documents by storing land registry on the database, Bitfury signed the largest state blockchain deal with Ukraine, which will see the transfer of all the country’s electronic information to the database. Similarly, South Korea struck a deal with Samsung for blockchain-based technologies, and Hong Kong and Singapore announced that they were going to use blockchain technology in order to resolve their trade issues and to unify trade platforms.

Various steps are being taken in order to integrate multiple international sectors together with blockchain technology. In order to facilitate international trade, IBM is attempting to establish a digital trade consortium through blockchain by including the largest banks of Europe such as Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit. IBM’s interest in this technology continues as it has announced a partnership with UBS, Bank of Montreal, CaixaBank, Erste Group and Commerzbank for the establishment of a blockchain-based trade finance platform. These kinds of developments indicate that the finance sector will quickly adapt to future digital technologies such as blockchain.

Bitcoin and the future of virtual currencies

Blockchain’s popularity increased in tandem with the crypto-currency Bitcoin. Expanding its volume and market share tremendously after its inception in 2009, Bitcoin has become a phenomenon in itself in recent years. Being the most valuable crypto-currency, the value of Bitcoin increased from $970 to $20,000 in 2017 alone. Today, Bitcoin’s share in the crypto-currency market is around 45% and its volume is around $265 billion. The crypto-currency market is worth around $600 billion in total. Following the introduction of Bitcoin to the market and the ever increasing demand for it, hundreds of other virtual currencies have emerged. Crypto-currencies other than Bitcoin such as Ethereum, Ripple, Bitcoin Cash, Litecoin, Cardano, IOTA, and Dash are defined as alt-coins (alternative coins). As of late 2017, there are 1367 crypto-currencies in the market. However, Bitcoin is still the most discussed crypto-currency not only because it has the largest share in the market but also because it is accepted by certain firms and companies.

Technological developments may allow for the digitalization of money to take a different turn. The risks and opportunities posed by Bitcoin will not only be observed by governments. Despite its high profit margin, Bitcoin is a volatile currency prone to speculation and can be used for money laundering and other illegal transactions. As is observed in the case of Bitcoin, crypto-currencies are an attractive and lucrative means for transaction due to their swiftness, low costs and minimal risks. Even though they are new to the market, they have no legal status and therefore can be used for illegal activities. In this sense therefore, crypto-currencies possess the potential of becoming an alternative means for investment or even currency. Indeed, it is argued that blockchain, the underlying element of digital currencies, will have the most impact on our lives in the near future, taking over social media, big data, robots and artificial intelligence. Some even claim that its affect will be the “real” revolution.

It is becoming compulsory for states to implement legal regulations that will enable them to adapt to this level of change. As is known, crypto-currencies already have a stock market. Some countries deem virtual currencies as a commodity and tax profits gained from their transactions. It could be asserted that governments will attempt to control digital currencies through blockchain technology in the upcoming years. Thus, for this reason, instead of deeming them as a hoax, Turkey should evaluate the possible advantages and risks of digital currencies through observing their usage, while enacting laws to protect individuals.

Turkish economy is set to record a growth rate of more than 6 percent in 2017, President Recep Tayyip Erdogan said on Monday.

While speaking at an award ceremony at the Ankara Chamber of Commerce, he said, “It won’t be a surprise if the Turkish economy grows by more than 6 percent. Probably around 7 percent in 2017.”

The expectations for higher economic growth have increased on account of the positive confidence generated by the economic growth that surpassed forecasts in first two quarters – 5.2 in first and second 5.1 in quarter, Turkish Statistical Institute (TurkStat) stated.

The International Monetary Fund (IMF) forecasts had already been signaling the positive outlook. Latest World Economic Outlook released before the annual conference of the IMF and World Bank, the IMF outlook set the forecast at 5.1 growth rate up from its earlier forecast of 2.5. World Bank has also upgraded its economic growth forecast for Turkey by 0.4 percent to 4 on October 19 from

Turkey achieved more than 20 percent rise in investments during the first three quarters of 2017, he said. “I suppose we will set all-time high record at the end of this year.”

President Erdogan added that country’s national income stands at $853 billion and it can reach $1 trillion with little efforts.

“Our goal is to rank among the 10 biggest economies of the world,” Erdogan said. The Turkish economy ranked 17th in terms of gross domestic product and 13th in terms of purchasing power parity, he added.

*Written by Waseem Ahad. 

During Turkish President Recep Tayyip Erdogan’s visit to Qatar, bilateral agreements were made between the two countries in a variety of areas including tourism, law, meteorology, agriculture, food, media, science and humanitarian aid.

On Thursday the Turkish Central Bank announced that the central banks of Turkey and Qatar signed a memorandum of understanding to develop bilateral cooperation in Qatar’s capital, Doha.

In a written statement the bank informed that the pact was signed by Murat Cetinkaya, the Turkish bank governor and Sheikh Abdulla Bin Saoud Al-Thani, the Qatari governor, under the auspices of visiting President Erdogan and Qatari Emir Tamim bin Hamad Al-Thani.

The bank stressed that the pact includes plans to organize joint training programs, conferences, seminars, workshops, temporary appointment programs and mutual study visits.

The bank explained that the Turkish Central Bank signs such pacts “with foreign central banks in the framework of its strategic objective of improving international relations by developing bilateral relations.”

The statement also added that to this date the bank has signed a memorandum of understanding with 25 foreign central banks.

http://thenewturkey.org/the-quest-for-financial-stability-in-a-financialized-world/

On Wednesday figures published by the Turkish Statistical Institute (TurkStat) showed that Turkey’s industrial production rose by 10.4 percent in September, compared with the same month last year.

In September, the annual increase in electricity, gas, steam and air conditioning supply indices were 13 percent, while the manufacturing, mining and quarrying indices were up 10.4 and 4.6 per cent respectively.

Official data reflected that among all sections and main industrial groupings, the highest increase year-on-year was seen in the durable consumer goods index – which had a 36.5 per cent hike.

TurkStat noted that on a monthly basis, Turkey’s industrial output increased by 0.6 per cent in September, compared to August.

In addition, Turkey’s industrial production increased by 1.9 per cent in the third quarter of 2017, compared with the period of April-June, while the third quarter’s annual increase was 10 per cent.

According to the institute, the purpose of calculating a monthly industrial production index is to measure the evolution of the economy and to see the positive and negative effects of economical political decisions in the short term.

Turkey’s first indigenous automobile

While industrial production has been on the increase, important steps have also been taken to ensure a national automobile is ready for 2019.

On Thursday President Recep Tayyip Erdogan, Prime Minister Binali Yildirim and Science, Industry and Technology Minister Faruk Ozlu attended the launch of the automobile industry’s joint domestic venture at the presidential complex in Ankara.

President Erdogan announced that five automobile supplier firms – Anadolu Group, BMC, Kiraca Holding, Turkcell and Zorlu Holding – will jointly manufacture Turkey’s first national car.

The president expressed his warmest gratitude to the firms and promised his “full support” for the venture.

He also added that he “will closely follow the developments.”

The initiative came after President Erdogan repeatedly called for a joint car project of the Union of Chambers and Commodity Exchanges (TOBB), and the Science, Industry and Technology Ministry.

The president stated that he expected the prototype of the first domestically-produced car to be ready in 2019 and for sales to begin in 2021.

“Provided that I pay for it, I want to own the first automobile,” he said.

“No one should hesitate. We will produce Turkey’s car with the best design and technology, both for our country and for the world.”