In the last two articles I started to seek rough answers for the question how sustainable growth rate can be raised after the end of sharp contractionary period we are in. as you might note, the question is not on how we can overcome the contraction we are currently faced with. It is on sustainable growth rate of Turkey, thus is does not focus on the short term. Of course, the solution considered for the medium term might have a positive impact on the short term growth rate. For instance, you launch a highly credible reform program that everyone develops a brighter outlook on future of the economy in advance. Consumer and investor confidence improves and demand starts to go up. Moreover, Turkey can receive a bigger share from foreign capital the amount of which will be lower in the upcoming period.

In fact, the last two articles were written on the risk of the mentioned 'shortage'. In case Turkey cannot access sufficient amount of foreign funds and no precautionary measures were taken, we would face with the risk of failing to achieve sustainable growth rate at a desired level. For those unfamiliar with the issue, this risk can be defined as follows: If production level rises, amount of imported inputs also rises. Furthermore, when you increase investments to produce more in the future, you by imported machinery as well as domestically produced machinery. Therefore, you need foreign exchange.

If you cannot earn sufficient amount of foreign currency, you have to borrow a certain proportion of the foreign exchange you need for making production and investment. I refer to external borrowing with foreign 'funds'. If you cannot access the funds or cannot raise the level of foreign exchange earnings sufficiently, you cannot increase the level of production or investments. Thus, rate of growth is limited. This is the part pertaining to foreign exchange earnings. The issue also has a domestic savings tier. Assume that production and investment increase can be achieved not requiring a lot of imported inputs. So, you do not have a foreign exchange related problem. However, you need investment credit and operating capital to achieve the desired level of production and investment. So, you apply to banks to receive those funds. Your request cannot be fulfilled if banks do not have sufficient amount of funds (deposit). In that case, you will necessarily head toward overseas and appeal to the savings of 'others' (you will borrow). Consequently, if you cannot increase the level of domestic savings, level of production and investments will be limited in particular in the face of unfavorable external conditions.

In the context of this information, the outline of the solution appears automatically: First alternative is increasing domestic savings rate. Second is, as Turkey, contributing in the design of the way the new financial system transfers funds to countries like Turkey. I focused on these two alternatives on Sunday and Monday. Former could only be ensured by increasing public sector savings. And it did not seem easy to increase private sector savings. And the latter is about ensuring that institutions like the IMF and the World Bank are provided with larger monetary facilities; work differently than the past and transfer higher amount of resources to countries like Turkey.

Third alternative would be focusing on reforms that directly improve the competitiveness of Turkey and level of per capita income. The purpose of improving competitiveness of Turkey in terms of the problem in question is reducing foreign exchange requirement and increasing foreign exchange earnings. Reforms to advance per capita income level are related to improving the quality and productivity of the labor force as well as the level of technology. And the industrial policy to be implemented is related to increasing both competitiveness and per capita income.
These should be the main subjects to be discussed in the coming period. I am aware that these are broad subjects, but they can be narrowed down. To narrow the subject down to a fewer number of headlines, it is necessary to identify the priorities. And here we are back to the micro reforms issue. We were discussing micro reforms also in 2006 and 2007; but we did not do anything. Then, the crisis interfered. What a waste of time; isn't it?

This commentary was published in Radikal daily on 30.07.2009