An inflation targeting regime that takes into account the real value of exchange rate after ensuring a low level of inflation. A regular foreign exchange purchase program as far as applicable that also makes sure that the resultant liquidity injection to the market does not lead to an inflationary pressure. Searching for ways to prevent short term capital inflows and for international cooperation possibilities to this end. An implementation framework that will secure the sustainability of fiscal discipline in order to create the environment suitable for taking the mentioned steps. A structural reform attack which realizes that the main factor that will improve Turkey's international competitiveness is to enhance the productivity of firms.

These are the main elements of the comprehensive approach reflected at this column in order to prevent the existing as well as expected problems of Turkey's exports. None of these elements are rival alternatives. That one commentary focused solely on the potential changes in inflation targeting regime and the other concentrated on short-term capital restrictions does not imply that the other options are insignificant.

These are complementary elements. However we cannot expect to see the results overnight. Besides, it is not likely to implement all at the same time. For instance, take the restrictions to be put on short term capital movements. First, you need to analyze country experiences. What were the experiences of the countries that recently implemented such restrictions? To what extent the restrictions proved successful? Why did earlier unsuccessful attempts fail? These issues must be addressed primarily.

Then, you need to search for international cooperation possibilities. After all, it might not be useful to take such a decision alone. What are the existing platforms for cooperation? G20? United Nations?

Therefore, these are not to be accomplished in one fell sloop, though vitally important. Take the structural reforms that will enhance Turkey's competitiveness. It is evident that all cannot be accomplished simultaneously. So, where should we start? It appears that we need to come up with a strategy that will both enhance competitiveness and tackle high unemployment problem. In this sense, trainings that will improve the skills level of the labor force and reforming the vocational training system can be considered.

It is obvious that such an education attack to improve the level of productivity is quite costly. How can funds for these be raised? There comes a familiar theme: We have to increase tax revenues without pushing up tax rates. Compared to the OECD average, Turkey's tax revenues as a ratio to GDP is more than 10 points lower. It seems that there is room to maneuver with this respect. We need to plan what to do in this field and extent the efforts over time in order not to disturb employment in informal sectors. These are not problems to solve overnight, either. But if we succeed, need for foreign fund inflows will decrease. And if so, short term capital inflows will not be as disturbing as it is now. Therefore, these all are complementary reforms.

However, designing, implementation and getting results on structural reforms will take a long time. What will we do in the meanwhile? What is more, in the couple of years ahead, the developments in the European Union will have the potential to affect Turkey's exports adversely. If inflation rate is reduced a bit further, we can initiate a technical change in the implementation of inflation targeting regime, cannot we? Moreover, there are theoretical models that consider the existing and 'balance' level of the real exchange rate in inflation targeting. It is of course true that the 'balance value' of the real exchange rate is not a pure certainty; but this is not an important problem at this stage. In fact, I hope that was the sole problem.

So, the moral of the story is, enhancement of the competitiveness in foreign markets should not be tied solely to changing monetary and exchange rate regime. It is necessary to design a way more comprehensive economic policy. But only a few elements of this economic policy can be realized in the short term. And those elements are also related with monetary and exchange rate regimes. This determination never implies that structural reforms are insignificant. On the contrary, it implies that the problems at hand need a serious solution that accounts the priorities. Of course, it is also possible to underline solely the necessity for structural reforms and say nothing on short term steps; i.e. to swing the lead. But let us not do it for once.

This commentary was published in Radikal daily on 12.07.2010