Policy uncertainty does not necessarily follow from political uncertainty. Political uncertainty implies that it is not certain who will govern. On the other hand, policy uncertainty implies that even it is certain who will govern; it is not certain which policy the government will choose. In other words, government policies keep changing continuously and unpredictably (does this sound familiar?). I started to think that in the current milieu, the intense policy uncertainty started to hinder more and more the economic recovery process. Recently, I heard the complaints of Jeffrey Immelt, General Electric CEO, on the US government and decided to note down what I think about this issue. Do not say "An elected government cannot be in policy uncertainty." First, hear me. Those of you interested are welcome to join me.

Now, please take a look around. A discussion as to whether it is time to tighten the belts or implement a new support package goes on between European governments and the US government. The discussions concentrate on the meaning of tightening the belts in a single country and at the center of the system. When this issue did come on the agenda? It came on the agenda at a time when the US corporate sector sat on a fund of almost $1.8 trillion and did not think what to do, for instance. The corporate sector does not appear to be in a strong investment attack. Everyone is waiting. What are they waiting for? They are waiting for the end of this artificial respiration; i.e. for the redefinition of the new-normal. They are waiting for the clarification of the public policies of the new period. This also applies for consumers. They also wait to hear the definition of the new-normal. While we, economists, discuss what the right thing to do in such an environment, and while governments also engage in the discussions, what do you think the corporate sector does? They are waiting for the end result of discussions. Those with cash or easy access to cash refrain from making binding future decisions and wait; whereas smaller-scale firms with harder access to liquidity put their thinking cap on. They close the day without making a sale. They discuss when to layout workers. I should underline that, for now, I am not talking about Turkey.

The same thing applies also for the new public regulation proposals that came on the agenda following the 2008 crisis. Nowadays President Obama seeks for the enactment of a new finance bill. The bill is a reaction; as is in all other countries. Last week Simon Johnson from Bloomberg wrote about the 'Kanjorski surprise'. Kanjorski is the Chair of US House Capital Markets Commission. He also made a contribution to the new draft bill on finance. According to this, regulators will have the power to limit the activities of financial institutions if they pose systemic risk and even intervene in the functioning of the system without any pre-determined restriction. What is this? If you were a bank manager, what would you do under these circumstances? You would wait. You would wait until the system matures. Before setting a strategy for your bank, you will sit down and wait for the flood to end. You would wait so that you would be sure of the magnitude of the damage. But you would never consider making an investment and refrain from making an irrevocable decision. This also applies for non-bank finance institutions, right? Any investment decision involves a sense of irrevocability. Once you make a certain investment, you cannot switch to another field without any loss. It is always of importance where the fortification is made. Then, what would you wait for? You would wait to see a clearer picture of the future; for the shaping of the decision making process of the bank you will apply for to finance your investment; for the attitude of regulators towards specific sectors to come into place; and to see which part of the support schemes would be permanent. This is what policy uncertainty evokes in my mind nowadays.

So, what is the case for Turkey? Though quite simpler, it is the same, in my consideration. First, considering economic policy, Turkey flies with autopilot. It depends on the will of the pilot how long the autopilot will be in power; but this is the case for now. We wait with desire that once the rest of the world recovers, consumer and investor confidence also recovers and steps in. It is believed that as of that date, global dynamics will shape Turkey as well, as did in the past. It is thought that until then, a couple of support measures from yesterday can keep the business world going. This, indeed, is an optimistic view: There exists no direct or indirect concrete active policy framework. Therefore, there exists an imported policy uncertainty. This is the first point to underline.

Second one is as follows: Do you remember any policy the government attempted and finalized since 2007? The only one I can think about is the ban on smoking. Please list all the proposed economic, political and social measures. And try to figure out for how many the government still argues for the same thing. This, I guess, is what policy uncertainty refers to.

The way to overcome this process is to make sure that everyone can see the future. If no one sees the future, the government should continue guiding them with a strong policy framework. However, the main duty of the government here is to define the new-normal as soon as possible and then step back. The government and the public should start thinking on the dynamics of the new growth strategy of the government as well as on measures to boost competitiveness. I guess this is exactly what differentiates Turkey-Mexico and Brazil-Korea. They have a horizon; we do not. Those with a story will benefit more from the new-normal.

The recent exchange rate regime discussions should be considered with this lens. What is the main challenge for Turkey? Exchange rate regime?

The recent extended discussions do not improve confidence.

This commentary was published in Referans daily on 13.07.2010