“It is still too early to proclaim victory”

Süreyya Serdengeçti is a former governor of the Central Bank… At the beginning of this year he completed his term in office and immediately received tens of offers from inside and outside Turkey. But the ones he accepted were to be a member of the teaching staff at Turkish Union of Chambers University of Economics and Technology (TOBB ETÜ) and a place on the board of Turcas. Also he developed the idea of the Stability Institute, which aims to promote the importance of economic stability: because he believes that Turkey has made significant progress towards economic stability but that it is too early to proclaim victory.

The Turkish business world has recently been discussing the IMF report on the state of the global economy. The report states that there is a risk of a slowdown in the global economy and that this will result in severe adjustments in developing economies. This report sent a shockwave through the economic agenda. There were those who read the report and announced that another crisis is looming.

When we asked Sürreya Serdengeçti, who handed over the governorship of the Central Bank to his successor in March, what the IMF report meant for Turkey, he noted that the Turkish economy has been open to the rest of the world for the last 20 years and that it is necessary to follow very closely what is happening in the world. Serdengeçti had the following to say to companies: “We always need to include the fact that negative developments can occur at any time in our calculations and carefully apply risk management strategies accordingly. We should pay close attention to factors such as foreign exchange risk and interest rate risk.”

He notes that it is difficult for people to get the thought of a crisis out of their brains. He argues that if the policies which have been followed for the last five years can be sustained for another five years then people will no longer fear a return to the past.

Serdengeçti thinks that Turkey has made significant progress towards economic stability but that it is too early to proclaim victory. He says that progress needs to be made in bringing inflation close to 4 percent, using structural reforms to create an environment of sustainable growth, institutionalization and management.

We spoke with TEPAV Stability Institute Director Süreyya Serdengeçti about economic stability, the problem of unemployment and his new jobs.

* Your term finished in March. How did your life change as you moved on you’re your previous intensive working schedule?
With the conclusion of my term as governor of the Central Bank I also handed over an important responsibility and left it behind me. In fact, the pace of my work did not slow. I entered into an intensive round of meetings about my future. I want to underline a very important point here: From the point of view of institutionalization the Central Bank has come a long way in 75 years. I saw that it would not be easy to adjust to a new lifestyle after working in such an institution for 26 years. It is difficult to find a similar level of institutionalization as in the Central Bank anywhere else in Turkey.

As you see, I do not regard myself as retired. So a short time later I began to work again. As you know I am at TOBB University of Economics and Technology. I have a job at TEPAV. I am a member of the board in the real sector. I mean, there has been no slowdown.

* You evaluated the offer from Turcas and became a member of the board of directors. Was there a specific factor which influenced your decision here?
One thing is that I preferred to work outside the financial sector. The fact that Turkey’s energy deficit is a very important problem also played a role. Without doubt, the management and leading shareholders of Turcas also had an impact. Turcas is a well-established company which follows very well what is going on in the world and knows how to do business with the rest of the world. I think that I can make a contribution.

* How do you see the current situation in the economy?
Since 2002 we have seen the benefits of the progress the country has made in economic stability, how uninterrupted, high growth has been secured over the last 4.5 years, how over the last three years the type of foreign investment that the country really needs has begun to come in, how the maturities and time periods in the economy have begun to lengthen, how the Turkish currency has been saved from so many zeros and really began to appreciate in value. This has made it easier to see why those who benefited from high interest rates and the continuous depreciation in the value of the Turkish currency opposed stability.

* Is the progress that Turkey has made sufficient?
It is too early to proclaim victory. In fact, this is the reason why we founded the institute. Progress needs to be made in bringing inflation close to 4 percent, using structural reforms to create an environment of sustainable growth, institutionalization and.

* Inflation has begun to rise in recent months. What does this mean in terms of the progress that has been made in stability?
I think that the inflation figures for April were misinterpreted by the public. We can see everything much clearer from the August figures. Look, there will be periods when there are difficulties in the struggle against inflation. This is the same all over the world. Things may not always go according to our targets. You can be affected by some negative developments which may or may not be under your control. These is the reason for using parameters in the inflation targeting regime. Oil prices have been having a negative impact for a long time. It is the same with the inflexibilities in the services sector. From time to time fluctuations in the exchange rate may also have an impact. But today I don’t see any reason why the Central Bank cannot achieve the medium term targets it has set for inflation. If we continue to do what we need to do without any deficiencies.

* What can you say about the future?
The one thing I can say is that if the will is there and the structural reforms in the stabilization programme are applied in a decisive manner without any deficiencies and we continue with tight monetary and fiscal policies, institutionalization, and we show the necessary sensitivity on the independence of the Central Bank, we shall continue to make important progress in economic stability. But there will always be negative impacts from outside developments and political developments. What is important is to reduce the vulnerability of the economy in the way I have described.

 “We Are Importing Because We Have Grown”
If interest rates fall then the inflow of foreign exchange and cheap imports will fall. If this happens we shall pass to an economy based on production. If this happens then growth will be reflected to every section of society in the way that people have been advocating. Is it true that, as some people are saying, Turkey is growing because of imports?
I do not know what growth not based on production means. Because if there is growth then there is production and expenditure. But, on the other hand, there is no doubt that if Turkey grows more than is expected then imports will definitely be too much. There is a close relationship between growth and imports. But these subjects are discussed in Turkey in a very superficial way. For one, the imports that you make enter the growth figures as minuses. This is not widely known. This is where the old wives’ tale about growth through imports comes from. We do not grow because we import. We import because we grow. It is now accepted that interest rates must fall and that this will not, as some people wished in the past, result in an increase in the exchange rate, and it has not happened to date. Because in Turkey what tend to drive exchange rates and interest rates are expectations. If expectations in Turkey are damaged for whatever reason and exchange rates rise then interest rates will also increase. When expectations improve and interest rates decline then exchange rates will also fall. As a result, I do not agree with this evaluation.

Ebru Firat
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