Let me continue from where I stopped last Monday: In the post-referendum Turkey, risk of political uncertainty decreased while that of policy uncertainty increased.  It is sort of a 'What the hell is this now' situation. I believe the growth figures announced the day before should be considered with this lens. Today, let us combine these two.

Why did I claim that this is a 'What the hell is this now?' situation? The reason is quite simple: political uncertainty brings policy uncertainty. If it is a matter of debate how the government will be shaped, the policies to be implemented are also matters of debate. But here the correlation between political uncertainty and policy uncertainty would be expected to be positive. When the former rises, the latter is expected to rise, too. However, in our case risk of policy uncertainty rises as the risk of political uncertainty falls. Because, we are talking about risk and possibilities. It is a quite significant possibility that budget means will be strained a bit in order to turn the possibility into reality. In this context, Honorable Prime Minister of Turkey has clearly stated during referendum talks why the fiscal rule anchor was not out of discussion. Years ago, Turgut Özal expressed the same issue with a concise style by saying 'Am I that dumb to announce price raises before elections?' Please recall. So, the evaluations of the Prime Minister for fiscal rule should be addressed within a similar framework. There is no need for panic; such is politics.

However, we should note that Turgut Özal referred to the single election ahead. What we have now is a series of elections. And the re-arrangement of politics will take at least three years. This process can last as long as four years, too. So, let me draw your attention to this difference. And in this case, there is a slight need for panic, indeed.

Now, let us talk about the potential impacts of the rising policy uncertainty on economic growth. Growth figures for the second quarter of 2010 were announced the day before. Turkey's economy achieved a double-digit growth rate in the second quarter of 2010 as in the first quarter. What does this mean? As TURKSTAT data suggests, Turkey's economy regained what was lost in 2008. The trough hit with the crisis was left rapidly as of the second half of 2009. This is a good thing.

It is of course a good think that according to TURKSTAT data, Turkey's economy gained back rapidly what was lost in terms of national income. But, how was this achieved? This was achieved with domestic consumption. Source of growth was domestic demand. However, exports did not overcome the trough yet. Private investments started to surge as of the second half of   2010. However, investment expenditures did not ameliorate yet. Firms still avoid taking prospective positions. Despite the bright figure signaling recovery, Turkey's economy is still weak due to the weakness of exports and the cautious rise in investments.

The main challenge starts hereafter. First, growth figures compare today with the trough of the crisis. The trough of the crisis ends as of the second half of the year. From this point on, recovery will be compared with recovery. Second, global developments do not seem to make a bright leap to enable the recovery of export performance. Third, rising policy uncertainty shaped by the lack of a fiscal rule does not seem to allow rallying of investment demand. Fourth, lack of a fiscal rule is bad also for the finance of current account deficit hiking due to weak domestic demand and export performance. Fifth, lack of a fiscal rule will eventually lead to a problem of sustainability.

We cannot go far without a fiscal rule. And the re-arrangement of politics cannot be achieved with fiscal rule.

A ship without an anchor flounders. And a floundering ship sails towards the unknown.

Rest of the route is harsh.

This commentary was published in Referans Daily on 16.09.2010