The model put in place by President Recep Tayyip Erdoğan with the “high exchange rate-low rate” rhetoric promised record export growth and a current account surplus. However, the “new economic model” is not just about inflation; It also did not deliver what was expected in foreign trade. While inflation broke a record, the current account deficit reached its highest level in recent years. Although exports have started 2022 well compared to the last two years with the pandemic, the sharp rise in imports has increased concerns. Business representatives and economists speaking to DW Turkish are of the opinion that the model implemented by the government negatively affects not only the domestic market but also foreign trade.
The foreign trade deficit widens
The “new economic model” put in place by President Erdogan is not only due to the high cost of living created by high inflation; This also causes problems in Turkey’s foreign trade. According to data from the Ministry of Commerce, the government’s rhetoric of “low interest rates and high exchange rates” did not deliver the expected increase in exports, while it paved the way for a rapid increase in imports. . In the last 6 months since September 2021 when the Central Bank started cutting interest rates, a $165 billion import bill has emerged against $125 billion in exports. Imports topped the $30 billion mark in March.
The foreign trade deficit, which was 1.5 billion dollars in October 2021, when the first effects of the new economic model were felt, increased to 8.2 billion dollars in March 2022. Over the last 6 month, when the new economic model was implemented, a foreign trade deficit of 40 billion dollars occurred. Under the effect of the increase in the exchange rate, the money spent on energy imports alone during the period January-March increased by 188% compared to the same period of the previous year and increased reached $25 billion.
“We cannot exceed imports with this economic structure”
Murat Akyüz, vice-president of the Association of Emerging Brands, who was president of the union and board member of the Turkish Exporters Assembly (TIM) for many years, said: “Unfortunately, we see that exports are at the forefront under current conditions, but there is still a serious need for imports in our country.”
Expressing that the importation of raw materials and semi-finished products used for export purposes continues in Turkey and the import-driven domestic consumption continues, Akyüz told DW Turkish, “I can say that t would be a little optimistic to say that with this economic structure, with this production structure, exports can exceed imports.
Reaction to the sale of currencies at the Center
With a decision taken in January, it became mandatory to sell 25% of foreign currency obtained through exports to the Central Bank. Recently, this rate was increased to 40%. On April 19, it was made mandatory to make payment obligations in TL for contracts for the sale of securities other than contracts for the sale of vehicles indexed in foreign currencies. These regulations have provoked reactions, particularly in sectors with high foreign currency debt. Exporters are of the opinion that the exchange rate should be determined specifically for each sector.
“None of our competitors have such a rule”
Stressing that the obligation to sell foreign currency to the Central Bank negatively affects the competitiveness of exporting companies in Turkey, Murat Akyüz said: “There is no such rule in the country where our competitors are located. They can use and keep whatever money they want. , at whatever level they want. But they say it’s done for our Central Bank. Unfortunately, the support mechanism did not go beyond increasing the exporter’s costs.
“Our own resources are melting”
According to Bülent Aymen, vice-president of the Mediterranean Association of Furniture, Paper and Forest Products Exporters (AKAMİB), the interest rate cuts initiated with the new business model have not had a positive effect on credit opportunities for exporters.
Recalling that the Central Bank has reduced the interest rate from 19% to 14% in the last 6 months, Aymen says: “However, when we try to use loans from private banks, we encounter rates of interest twice as high as 14%. We cannot increase our export revenues as much as we need in the face of rising costs, which leads to the draining of our own resources.”
“We have been in our place in foreign trade for 300 years”
The depreciation of the Turkish Lira over the past year is not enough to create a jump in exports. Underlining that Turkey has held a share of between 0.7 and 1.3 percent of world trade over the past 300 years, Chairman of the Federation of Machinery Manufacturing Industry Associations (MAKFED), Adnan Dalgakıran , said: “Even though Turkey’s exports have increased significantly over the past 20 years, In fact, we have stood still for three centuries, we are not lengthening or shortening.
“Valueless TL does not make a positive contribution”
Stating that Turkey ranks last among European Union countries with an average national income of $8,000, Dalgakıran said: “It is very difficult to see a significant increase in foreign trade and national income without increasing the export of high-value products. “I’m not one of those who thinks it will make a positive contribution. If you look at the past, the best times for exports were when TL was most valuable.”
The current account has been too
With the foreign trade deficit, the “current account surplus” target, which is the biggest promise of the new economic model, has become a dream for 2022. In addition to having a current account surplus, the current account deficit current account hit a 4-year high in January, while the 12-month current account deficit hit $22 billion. The increase in the deficit was driven by rising imports and energy costs, as well as higher exchange rates.
The deterioration of Turkey’s macro indicators has also found its place in the analyzes of international institutions. In the recently announced International Monetary Fund (IMF) Global Economic Outlook and Global Financial Stability Report, Turkey’s growth in 2022 has been revised from 3.3% to 2.7%, while the account deficit current reached $45 billion over all of 2022. happen. According to the IMF, inflation at the end of the year should be 52.4%.
“One of the highest current account deficits in history”
According to economist Cüneyt Akman, the benefits created by the high exchange rate of exports were replaced by negativities in a very short time.
Speaking to DW Turkish, Akman said: “We had a current account deficit of over $12 billion in two months in January-February, and that’s one of the highest current account deficits around. Of the history.” Pointing out that the advantage of higher exchange rates for exporters at the start has started to turn into a disadvantage, Akman says: “Even most exporters are not happy with this model.”
Although the increase in exports is expected to continue from the past two years due to the effect of the pandemic in Turkey, the current account deficit is expected to eclipse the export rate in 2022.
“We can look for the current inflation”
So how will Turkey’s deteriorating external trade balance affect citizens?
Cüneyt Akman, pointing out that there have been times in Turkey in the past when there was a need for 70 cents due to currency shortage, expresses the following views: “I hope the result of this disastrous experience will not end with a need for 70 cents But the trend is going in. The result is this: first there is a huge shortage in the markets, queues, then there is has severe but current inflation, which means inflation, cost of living.”