Guest column, on party economic programs
Not that it matters (Sunday’s Turkish elections already have a winner, although the AKP’s win margin is going to be quite important in terms of the post-elections economic and political landscape), but below is the promised guest column from my friend Ozlem Derici at Erste Securities on the three main parties’ economic programs. I have a few words of my own right below the colum:
“As AKP, CHP, MHP are the most likely parties that would make it to the Parliament we got a glimpse of how they consider the current economic issues and what they offer within their term after the elections. Somewhat contrary to previous elections, parties mostly focused on long term targets probably due to voters` increased sensitivity to the long term stability in business environment. In general AKP`s program was mostly restating the current policy implementations, while CHP and MHP mostly provided their plans on the basis of their economic choices and priorities.
GDP target in AKP`s program for 2023 was set as TRY 2064bn compared to TRY 1150bn in 2010 almost the same as CHP`s TRY 2600bn. CHP projects 7% annual growth. Exports which they make more emphasis due to rising current account deficit are projected to be USD 500bn in 2023 in AKP program compared to CHP`s USD 650bn. To put into perspective, Turkey`s exports reached almost USD 114bn at the end of 2010. A bit inconsistent with the GDP growth and ambitious export target, current account balance in CHP`s program was projected to decline to 2.5% of GDP.
The main concern of all parties is undoubtedly unemployment. AKP sets its unemployment rate target for 2023 at 5% while CHP targets 6%. Both parties state their intention to increase training activities as technical schools are reluctant to give sufficient education for a person to have a self-sufficient job. Projected increase in employment is 800K per year for CHP while women labor force participation rate will be increased to 40% from its current level of around 25%. Besides, unregistered employment especially in agriculture and homeworkers should be kept registered in order to fight unemployment says parties. CHP announced in its program that social security coverage of agricultural workers will be improved and small producers `premiums will be paid.”
CHP thinks that the state should be actively involved in reducing the unequal income distribution among regions and subsidize farmers and craftsman. Tax on fuel oil sold to farmers are said to be removed according to their economic program while MHP provided a detailed set of to do list in agricultural sectors among which increasing subsidies to 1.5%of GDP, eliminating VAT and SCT on fuel oil, fertilizer, seed and chemicals for small farmers, and reducing it by 50% for medium and large scale farmers, lowering electricity prices for farmers and increasing budget transfers to stockbreeding by 50% are worth quoting.
In terms of tax policy, besides setting common targets as increasing tax base, introducing more fair taxing system, alleviating the burden on worker`s income, MHP lists a set of measures like eliminating taxes on minimum wage while worker`s income up to minimum wage will be exempt from tax and income tax on wage will gradually be declined to 10%. It plans to increase tax on interest earnings from securities but reduce transaction taxes.
As for privatization policy, AKP seems committed to its portfolio including sugar factories, bridges and highways, telecommunication and electricity distribution and production facilities. Contrary to AKP, CHP says that it won`t privatize state banks (Halkbank and Ziraat) and subsidies provided by those banks to farmers and craftsman will be increased. MHP on the other hand also doesn`t think to sell Ziraat Bank while they won`t allow Halk Bank to be privatized via block sale. The public ownership in Vakifbank is planned to be reduced as well.”
Thanks to Ozlem for letting me post this here. I agree with her that having a 2.5% deficit with USD 650bn of exports is a bit inconsistent: It would mean that 1. Turkey adopts an export growth model, rather than the current domestic demand one. 2. It means that the country has been able to get rid of the import dependency of exports. These are not impossible to do, but the CHP does not show how it will attain these. But in other aspects, I found the CHP’s program consistent throughout other than a few glitches here and there, failure to explain how they will manage to get the private savings rate up…
6 Responses to “Guest column, on party economic programs”
ThePrisoner • June 10th, 2011 at 11:10 am
Emre,I've been reading in the TDN and other english speaking newspapers that the Lira will strengthen in value after the election and it is artificially weak against the Euro,Sterling and dollar. This goes against comments made by your good self in the past and the advisers at my bank plus economic columns in periodicals abroad. I'd love to read what you think of this and it's influence on say, tourism, in the South West especially.
edeliveli • June 10th, 2011 at 11:30 am
I actually mentioned once that the lira could strengthen after the elections: http://bit.ly/iEZC5m But that scenario is not valid anymore, as it seems that the CBT will stay on hold for longer. But nevertheless, as you mention as well, there is support for the lira from tourism during summer months, so that may work in lira's favor as well. Barring a road accident, like a new bout EM risk aversion, I am neutral over the lira for the summer and + starting September.
L_G • June 12th, 2011 at 12:29 am
I think it is not just about the lira in this case. The ECB is stuck with the Greek debt, and Trichet says they are against restructuring. Which means two possibilities for the EUR:
1. it will be underpinned by fresh taxpayer money – unprobable
2. the ECB will create money just as the US Fed has done – means a weakening euro and a stronger EURTRY.
**edit: actually weaker EURTRY, which is a weaker euro and a stronger lira.
edeliveli • June 12th, 2011 at 7:54 am
@ L_G: Great points, but what about USDTRY? For EURTRY, both global and domestic factors are in lira's favor, but for USDTRY I am not so sure…
L_G • June 12th, 2011 at 7:24 pm
USDTRY I have no clue about. It appears to me I do not understand the US monetary policy at all. That is I really don't have the slightest idea how this "easing", ie. creating money out of nothing, can solve any real problems, like how the US economy does.
On the other hand, a broker acquaintance of mine says the market will demand a QE3, and then there will be a great deal of inflation in the US and a depreciating dollar. Maybe his prediction is not good, but according to an article I've read at ZeroHedge, titled the Bernanke Chronicles, the Fed has a firm conviction that these easings can work. I doubt it, but let it be their turn. What is your take on that?
edeliveli • June 14th, 2011 at 5:49 am
I am obviously not the best person to comment on US monetary policy, but most economists I reed and trust think that there will be a QE3. But I am not sure it will lead to inflation and a depreciating dollar….
