It can be argued that the stability program supported with the structural reforms initiated right after the 2001 crisis outdated around 2007, though it is hard to provide a concrete date. It was then the time to introduce a program which will increase the labor demand, advance the skills of the labor force, expand the tax base, improve the investment climate, boost the access of small firms to finance, tackle informality in order to prevent unfair competition, and transfer funds for the efforts to this end. Such reforms were discussed in detail in this column under the heading 'micro reforms'.

As you might also remember, in this column, per capita income level in Turkey in comparison with that in the EU and the USA was also addressed insistently. The comparison implied that Turkey made no progress in this respect since 1960. However, in 1960's some other countries at a similar state achieved convergence to developing countries; i.e. they made progress.

I believe this must be the goal of the new program. We still have opportunity to design and implement such program. But there is an important precondition to achieve all these: to secure economic stability.

Considering the current state of Turkey, it is relatively much easier to convince the economic actors that the stability will be achieved in the near future. After all, such efforts were successfully made between 2002 and 2006. During the election environment over 2007 and 2008 the agenda wandered from the subject. Should the fiscal rule implementation eliminate the problems with respect to auditing and transparency, it would be a significant step to overcome the said problems and guarantee that stability will be attained in the future.

The mentioned program shall also involve measures that will ease the 'valuable lira' problem which is widely discussed recently. As you might remember, one of the recommendations I made was to change inflation targeting regime after a reduction in inflation rate to 5-6 percent is achieved. This change was to be made by establishing a framework which accounts the real interest rate as well as the differences between actual and targeted inflation rate and between actual and potential level of production. On Thursday, I mentioned an important criticism to the scheme I recommended. It said: "monetary policy cannot have more than one tool. The Central Bank has just one tool, short term interest rate. You can achieve a single target (hit one bird) with a single tool (stone)." In the last commentary I tried to explain with a technical language why the criticism was incorrect. Today I would like to give up the technical language and try to explain what I mean in short. This way I can also leave the birds in the air alone, as I promised before.

Inflation targeting regimes involve letters to be delivered to certain destinations. 'Rigid inflation targeting' aims to deliver a single letter (inflation) to the right address (inflation target). 'Flexible inflation targeting', which is more commonly used, in addition seeks to deliver a second letter (production level) to the address (potential production level).

I have a car and a certain amount of gas. It allows me to ride only for 900 kilometers. I start off in Ankara. If the letters shall be delivered to provinces in opposite directions, I obviously cannot deliver both at the same time. I have to choose one; I cannot implement flexible inflation targeting. I can implement rigid inflation targeting regime and head to one of the provinces.

Then, how can a number of central banks implement flexible inflation targeting regime? The answer is obvious: The destination of the letters is located so carefully that I can go to both destinations by riding for 900 kilometers. I start off in Ankara and reach both provinces by taking a slightly longer route.

So, what I recommend is to deliver a third letter to a third destination. Of course the route will be longer. But in the end, I will be delivering three letters. I still have a single tool; but it allows me to reach all three destinations.

This commentary was published in Radikal daily on 25.07.2010