"There is danger from all men. The only maxim of a free government ought to be to trust no man living with
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Wednesday, August 17, 2011

TURKEY: "Thank God we are not in the Eurozone"

An interview with Turkish business leader Göngör Uras

For years Turkey wanted to join Europe . . . now they are happy they didn't

Turkey’s having not thus far joined the euro has helped save it from the financial crisis wreaking havoc in many developed economies.

Turkey has avoided some of the worst of the financial crisis facing many advanced economies because the majority of its public debt is held in Turkish Liras, says an economic expert who in the past had called for the country to join the eurozone. ‘Thank God today we are not in the eurozone,’ says Göngör Uras.

Q: What exactly happened during the past two weeks, which have been extremely turbulent for the economy?

A: Part of the problem is that Turkey enters up and down cycles very quickly. We get psychologically too quickly affected [by external turbulence]. Turkish people are too sensitive to economy politics. In Turkey we monitor prices very closely. For instance the best-selling magazines are those about cars. Not because readers plan to sell their cars tomorrow – they want to monitor the value of their cars for times of trouble. Since we do not have social security we closely monitor prices. In other countries, people do not get up in the morning to see the value of the euro or the dollar. But since we have foreign exchange as a currency unit in addition to the lira, we closely monitor whether the dollar went up or down.

What happened over the past 10 days is a partial readjustment of the foreign exchange rate. For a long time we had distanced ourselves from realistic exchange rates. I have been saying since 2003 that there is a current account deficit problem and this is about cheap foreign currency. We have been implementing a high-interest-rate, cheap-foreign-currency policy. When interest rates are high, money enters the country and the value of foreign currency goes down.

There is a false conviction in the public opinion that we are spending too much with foreign currency, and that’s why we have a deficit. In no country can you spend first and then find the currency. If the currency is cheap, you spent it. When the currency is cheap, Turkish people start importing more. But what happens is that those in the production sector also import intermediate goods. Economy Minister Zafer Çağlayan said that in the 1970s we used to produce compressors to make refrigerators. Currently we have exported $600 million worth of refrigerators but imported $400 million worth of compressors. With cheap foreign currency, Turkish industry prefers to import rather than produce. I am against the current account deficit because cheap foreign currency has damaged the structure of Turkey’s industry.

Q: What will be the effect of the new crisis looming on the horizon?

A: I would rather call it a serious confidence crisis. This confidence crisis is getting deeper. Thank God in Turkey, the situation is different. Thank God we have not entered the eurozone. We used to say in the past, let’s enter the eurozone. The state’s debt in foreign currency is very little. The majority of public debt is held in liras. Turks are indebted to Turks. This is a big advantage for the government. This is not the case in Germany, for instance.

Q: So at the end of the day, do you believe the government correctly read the latest signs in the world economic situation and adopted the right measures?

A: We have learned to survive crises. For some others it is the first time that they have entered such a crisis. And some cannot get out of it. We have been in and out of crisis so many times. The Turks can easily adapt to changing circumstances.

Q: Has the EU lost its attractiveness for Turkey?

A: The European Union does not just mean the euro. The EU is very important for Turkey. It is our market. We should never say we no longer need the European Union. On the contrary we should keep our relations with it very warm and close.

Istanbul, Turkey

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