In politics we frequently hear the argument 'We follow from so-and-so.' They put this argument to pride on. But were those who are followed really successful? On which criteria will we measure success? Let me make things easier for you and limit ourselves with the field of economy. Still, it is hard to answer this question. Today's Turkey is considerably different than the Turkey in four or five decades ago. Of course the change was in a good direction. In that case, there is a success in being proud on 'following from someone'.

But, can we still be proud if we make a comparison at international level? In this column I wrote several op-eds comparing the per capita income in some countries with that of the EU and the USA. Between 1069 and 2007 countries such as Ethiopia or Nigeria get poorer while those like Korea and India get richer in comparison to EU and USA. Turkey, however, has not made a progress in its position since 1960. In this sense, there is no story of success to be proud about.

Of course per capita income is not the only or the most important criterion for economic success. However, this is still an important indicator and it implies that the significant gap - let us not say yawning gap - between Turkey and developed countries has not been narrowed over several decades.

There are several reasons for this. One is the failure to access 'finance'. Majority of the steps necessary to be taken in order to narrow the income gap requires monetary resources. And Turkey is facing challenges with this respect. Savings ratio is low, and investments to drive rapid economic growth can be made only via borrowing. One way to overcome this constraint is to boost public savings. In this lens, Turkey has a chance since the ratio of tax revenues to national income is quite low, far below the EU average. The driving force of this is that there exists a vast group which does not pay or underpay their taxes. Therefore, we have a potential to improve tax revenues.

Yesterday I was checking old working papers in the website of the Central Bank of the Republic of Turkey (CBRT). I came across a paper written by Emin Öztürk in 1992: "Monetary Policy Discussions in Turkey in the recent period. CBRT Working Paper No. 9206." In 1992, CBRT announced a monetary policy involuntarily upon the public finance indiscipline. The Bank imposes upper limits on some balance sheet items in order to control inflation. Table 1 of the working paper indicates that the upper limits for the year-end level of two important indicators are exceeded as early as the end of June. Then, the program becomes invalid.

Of course at the heart of this 'success' lies the hike in credits extended to the Treasury. Back than, CBRT was made to issue a significant amount of currencies as tax revenues remained low and the public sector could not cut expenditures.

Two decades have passed since then; but nothing has changed yet. Turkey cannot collect taxes and a significant proportion of the tax revenue is composed of indirect taxes. If the economy contracts as in 2009, tax revenues fall down. If the economy grows due to the basis effect as in 2010, tax revenues increase. Thus, we fail to secure permanent and high-quality fiscal discipline. Every time we face challenges, we bodge the budget. That is, we increase the price of the goods and services produced by the public sector.

Now, let us sit down and think; but focus strictly on the essence of the issue: What is the difference between the problem the CBRT faced in 1992 and in 2010? Back then the phenomenon was 'public deficit - monetary expansion from TCBRT to the Treasury - inflation'. Now it is 'public deficit - price hike in goods and services provided by the public sector - inflationary inertia'.

This comparison might seem unfair. It is indeed if we focus on the appearance.  At least, inflation rate is incomparably low now. But as I said before, please focus on the essence and consider the monetary policy side. First reflects a adjustment monetary policy implemented as a result of legal obligations, not the preference of the CBRT. Second reflects a non-reactive monetary policy. But this non-reactive stance corresponds to 'inferiority' of the fiscal discipline, does not it?

The response is not necessarily increasing the interest rate. There are certain conditions which must be responded this way; but there also are other ways to respond. All in all, the important point is that any response of the CBRT will highlight the low tax revenue problem, the main structural problem of Turkey, on the top of the agenda. This issue is much more important than the 'dignity' of the inflation targeting regime. Do we need such a shift of axis at the agenda?

This commentary was published in Radikal daily on 12.08.2010