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 a report released on Tuesday, The International Monetary Fund (IMF) has upgraded its 2017 growth forecast for Turkey by 2.6 percentage points.

In its latest World Economic Outlook – released before the annual conference of the IMF and World Bank, the IMF predicted Turkey to grow by 5.1 percent in 2017, up by 2.6 percentage points compared to a previous forecast of 2.5 percent.

In addition, according to the report, growth in Turkey is predicted to increase to 3.5 percent in 2018.

Turkey has already recorded a significant growth in 2017, making it the third fastest growing economy within G20 countries.

In relation to this growth, an IMF official stated that this was “the main reason for the upward revision” in Turkey’s growth forecasts.

Speaking at a news conference in Washington, which unveiled the IMF’s World Economic Outlook report, Deputy Research Director Gian Maria Milesi-Ferreti claimed that the Turkish economy “had already achieved pretty high growth for 2017 just with the level of output that it has reached at the end of the second quarter.”

When taken into consideration with aspects including regional security, the growth forecasts by the IMF can be interpreted as an achievement on behalf of the Turkish government.

Account deficit narrows in August

Further to the growth forecasts by the IMF, on Wednesday the Central Bank announced that Turkey’s current account deficit reached $1.23 billion in August 2017, down by almost $171 million year-on-year.

“The current account deficit recorded $1.237 million, indicating a decrease of $171 million compared to August of the previous year, bringing the 12-month rolling deficit to $36,972 million,” the banks stated.

It was further stated that the decrease in the current account had been derived from an increase of $637 million in the services surplus that recorded a net inflow of $3.51 million in August.

The globalisation of finance has produced a structural and ideological transformation in the financial system since the beginning of the 1970s. The globalization of the financial system in turn has accelerated the process of globalisation in other sectors, ever since states first made the decision to enter into the financial markets.  Such involvement has enabled some countries to assume prominent positions in the global financial system. This is clearly noticeable in the case of the Gulf Cooperation Council (GCC) countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).

These countries have achieved economic prosperity due to the accumulation of wealth generated from oil and gas revenues. However, the Gulf has struggled with regional troubles for the last few weeks. Although a regional diplomatic crisis has plagued the Gulf in the past, the recent crisis has gone beyond a diplomatic one with the imposition of tangible sanctions on Qatar. Although Qatar is a small country in terms of its population and land area, it is an example of the “small States, big politics” trend experts describe in literature about the region. Under these circumstances, the impact of the Qatar crisis on current politics and economics will be not only regional but also global, as can be understood from the official reaction by world leaders.

According to the IMF, Qatar had the highest GDP per capita in the world –  $128,000 GDP per capita (at purchasing power parity) in 2016. Beside this, Qatar, which holds the world’s 9th largest Sovereign Wealth Fund (SWF) worth some $350 billion, has invested in real estate, banking, automotive and technology sectors. This already means Qatar has a significant role in the global financial system. Furthermore, Qatar is one of the biggest financial supporters of professional sports – its SWF owns the French Paris Saint Germain football team, and sponsors the Barcelona Football Team through Qatar Airways. Qatar will host the 2022 World Cup, and is buying beIN Sport, one of the biggest sport channels in the world.

The Qatar crisis has had a negative impact on many markets, and Qatar’s stock market experienced a severe fall. The Qatar stock exchange underwent its largest price drop in 18 months, nearly 8 percent, after the diplomatic rift on Monday. According to Wednesday market data, Although the Qatar Stock Exchange became the world’s worst performer with 8,965.01 point since January, 2016, Qatar Stock Exchange reached the high of 9,237.86 point since Monday, when was started the sanctions against Qatar. Some companies, moreover, were uptrend on Wednesday and Thursday by contrast with Monday, when all companies were down. In addition to Qatar Stock Exchange, the investments of Qatar through SWF, which are, mainly, invested in abroad such as European and Asian countries, could be affected by Gulf crisis in the long term.

http://thenewturkey.org/what-is-behind-the-crisis-in-the-gulf/

In addition to the stock market, the crisis will lead to trade problems in the region, and will have an impact on Qatar’s import-dependent food sector. Food imports from Saudi Arabia account for about 90% of Qatar’s daily food consumption. According to 2016 data, Qatar’s trade volume was around $11 billion with the other GCC countries. However, Qatar’s trade volume with Saudi Arabia, the United Arab Emirates, and Bahrain, which cut diplomatic ties with Qatar, were around 85% of the total GCC trade volume of Qatar in 2016. This data shows that Qatar will be faced with a daily food scarcity in the short term, and a lack of food products in long-run if they don’t find alternative daily food suppliers from friendly countries.

Another impact of the crisis on Qatar’s economy is the changing air route of Qatar Airways, which will decrease customers because of the longer distance and cost-plus pricing the airline will have to follow. Lastly, the businessman who are visiting Dubai and Abu Dhabi, which are financial and business hubs for the region, will not prefer to visit Doha after their UAE visits due to travel difficulties to Qatar from the UAE. After mentioning the potential worst scenario of the Gulf crisis on Qatar’s economy, it is important to emphasise that this crisis will not affect the country’s gas production and its transportation to customers abroad, mainly Asian countries. Qatar may also have a shortage of cash to pay for imports, and the fact that its border with Saudi Arabia is sealed will further exacerbate this problem, but one solution is to find a trade partner the country can import from, in exchange for providing energy and raw materials for construction.

President Recep Tayyip Erdoğan has clarified that Turkey stands with Qatar, and is focused on mediating between the sides to calm the tension. Turkey’s parliament also approved draft bill allowing troop deployment to a new military base in Qatar on Wednesday. After these political and military steps, it is important to evaluate the impact of the crisis on the economic relationship between Qatar and Turkey, which has historically not been as promising as the political relationship.

In 2016, Turkey’s export to Qatar were around $440 million, mainly comprised of ships, yachts, appliances, furniture, and electronic products. In the same year, Qatar’s exports to Turkey were worth around $271 million, and were chiefly aluminium products, plastics, fertilisers, fossil fuels, and mineral oils.  Turkey has an advantage over Qatar because its products cover a wider range, and Turkey has an overall trade surplus. From this perspective, Turkey has positioned itself as a major supplier to Qatar in the new conjuncture. Turkey, thus, will find an opportunity to increase its exports in the near future. Furthermore, new products, which have not been sold to Qatar before, might be brought into line for export. The increase in Turkey’s exports to Qatar, therefore, would relax Qatar’s shortage of food supplies in the long-run. This trade partnership will initially bring extra cost for Qatar, mainly due to higher transportation overhead, but in the long term, if a viable system of trade is found and new channels opened, Qatar will meet its needs.

As we countdown the days towards the referendum, the process of changes that may come from the Presidency system have been discussed with various perspectives in a variety of different circles. What then will the presidential system, which will alter the politics of the country significantly, bring to the Turkish economy? A system of governance, which the social and cultural codes of a country make it successful in terms of providing political stability, serving predictable and inclusive policies, and activating a well-functioning bureaucracy, is certainly of benefit for the economic development of this country.

When we look at the history of the Republic of Turkey, it can be seen that stability was not achieved during the various coalition governments, politics were far from predictable or even being inclusive, and the cumbersome bureaucratic structure deadlocked the political system. The bottlenecks of the 1970s, the 1994 crisis and the 2000-2001 crises all took place during the periods when a coalition government was in place. In the single-party government periods however, the Turkish economy had made significant gains.

It would be unrealistic to expect any level of success from coalition governments in a socio-cultural environment where, due to conflicts and disagreements, even siblings have played havoc with family businesses and sustainable partnerships are rare. In Scandinavian countries where coalition governments are relatively successful in economic terms, success points at factors such as a small and homogeneous population, high social trust and their geographical position. Nevertheless, the countries where the coalition governments successfully worked have had a solid and successful economic infrastructure built over the last fifty years and consequently quick decision making has become a secondary priority. An economy like Turkey, which has lagged behind in the race of economic development, does not have the luxury to move with such a slow pace.

Despite the fact that Turkey has been governed by one-party governments for the last 15 years, the current system does not guarantee this indefinitely. The closest example of this was in the June 7, 2015 elections. The AK Party – which received 41 percent of the vote, and 15 percentage points ahead of its closest rival – failed to establish itself as a single-party government. Thus, the presidential system offers an important opportunity for the Turkish economy to avoid the friction that comes with coalition governments.

In terms of the economy, another weakness of the current system is that both the president and the prime minister go through an election process, which means that both these positions of authority also come with the potential that may arise from holding important forces in their hand. The respectable relationship between the presidents and the prime minister for the last decade has been based on strong human relations. It is not realistic to expect that the relationship between the two forces will have the same consistency and amiability in every period. If these authorities equipped with high power implement contradictory populist economic policies based their electoral agenda, these contradictory policies will increase uncertainty. Needless to say, an increase in this kind of uncertainty can cause serious damage to the economy. However, as is the case with the incident where a former president threw a constitution booklet to a former prime minister, nonsensical agitation between the president and the prime minister can also spark an economic crisis.

The current system also makes it difficult for decisions to be made quickly and for the bureaucracy to function properly. This country had experienced periods whereby the head of the execution, the prime minister, could not even choose his own bureaucrat. In 2006, despite the fact that important candidates such as the late Adnan Buyukdeniz and Deputy Prime Minister Mehmet Simsek were available to be appointed to the central bank, they were appointed due to the ideological defenses of the then president. Likewise, many projects put forward for the development of the country were deliberately postponed for unacceptably long times due to the cumbersome bureaucracy, taking advantage of the poor president-prime ministerial relations as well as duality of administration as an opportunity to delay these major projects. In a governance system in which bureaucrats cannot reach the speed of the politicians, it is impossible to make economic development move quickly.

The presidential system is critical in terms of Turkey’s role in the global economy. At the beginning of the 2000’s, Turkey was in a position of clinging onto the IMF. Thanks to the political stability and a decisively implemented economic policy, Turkey paid off all debts to the IMF. In addition to that, recent reforms in the IMF, along with Turkey and some other important emerging economies, has successfully seen them having a more important say, to a certain extent, in the governance of the IMF. As the share of developing countries in the global economy increases, this will also come with a power shift in the governance of international institutions such as the IMF and the World Bank. Nevertheless, the inadequacy and inefficiency of the Bretton Woods’ institutions, to fully address the problems of the ever-changing global economic structure also pushes developing countries to find different alternatives. The Asian Infrastructure Investment Bank, which was founded under the leadership of China, and of which Turkey is a founding partner, is a good example of this situation. Consequently, it is no surprise that the foreseeable future will see a substantial increase in the number of institutions that are all encompassing and focused on solutions in the international arena.

It is also very likely that there will be major changes in the international trade system in the coming years. The Brexit, the election of Donald Trump as President of the United States and the growing anti-liberal discourse in the EU will significantly alter the current international trade agreements as well as the future of the World Trade Organization. In addition, after such a long period of time, negotiations on the future of the international trade system will most certainly stiffen. In order for Turkey to gain a better position in international economic institutions and to be in a better position within the global trade system, Turkey must not have to deal with the struggle of political instability and must shake off any weak political will.

Energy is another area where Turkey has achieved an important position within the global economy in recent years. At a time when global economic growth is weak and concerns for the future of traditional energy sources are rising, the transfer of energy resources from the East to the West is crucial. Turkey is an important actor playing a critical role in securing and supplying energy because of its geographical position and has the advantage of being a rare country that can sit on the bargaining table with almost all the big energy producing countries such as Russia, Iran, Azerbaijan and Qatar. The fact that such energy projects are very long-term projects necessitates a political will that will follow through these projects outside of the daily political banter. This follow-up will be very difficult to take place within a coalition government or in a setting where this contention between the president and the prime minister.

Another important aspect of securing political stability, predictable policies and strong political will, from a global economic perspective, is that it will contribute to the creation of an environment in which Turkey can extend its assistance and support to a wider geographical area. Turkish Cooperation and Coordination Agency (TIKA), has been one of the world foremost important foreign aid donors for the past ten years even though until ten years ago no one had even had heard of their name. Turkey is one of the few countries making an effort to offer a “humanitarian” solution without prioritizing their own national interests against human tragedies. The fact that Turkey can continue to expand this work corresponds with its strong system of governance.

Turkey is a country that aims not only to increase its own economic power by accelerating the economic development process, but also to make it more inclusive for the underdeveloped and developing countries in order for them to have more say in the global economic arena. For this reason, Turkey needs a new system of governance in order to achieve this goal. The Presidential system, which will be voted on in the constitutional referendum on April 16th, is a valuable alternative that can respond to and meet these needs.