My last two commentaries started with the risk that the recent developments in the European Union affect Turkey's exports adversely. In particular I was interested in the steps that could be taken to tackle similar problems Turkey's exports can encounter in the future. So I will continue with this today.

First, we need an implementation framework that will secure that the fiscal policy does not go back to the state before the 2001 crisis. The current fiscal rule proposal must be strengthened particularly with respect to supervision, based on the opinion of the opposition parties as well.

Second, taking into account this strong anchor to the fiscal policy, the Central Bank might change the current inflation targeting regime. This new regime can be launched in the period where the inflation rate stands around 5-6 percent. The new regime can take into account the real value of Lira as well as the two indicators accounted before; inflation and output gap.

Third, as far as possible the Central Bank can increase foreign exchange (FX) purchases through regular auctions. To do this, supply of FX must be increasing while the demand for FX must be decreasing. Compared to the first to, the implementation of this policy is limited. Because, the liquidity to be injected in the market as a result of the purchase of FX can pose outcomes conflicting with the targets of the Central Bank.

Fourth, Turkey should start elaborating on disincentives for short term capital inflows and implementing these after due analysis. Before the global crisis, this was not an option. But now the conditions are mature; countries seeking this path do not get serious reactions. And if we can initiate such efforts in coordination with countries in similar conditions, the impact would be even stronger. As can be noted, all the recommendations so far are related with the real value of Turkish lira and the volatility of the value of Turkish lira. Therefore, the issue eventually locks at Turkey's competitiveness. However, the real value of the currency is not the only factor that affects competitiveness in the international market.

At this point, structural reforms that will clear the way for the corporate sector come to agenda. We have discussed these reforms frequently before the crisis. We will discuss these in the future, too. I will skip this issue for now in order not to speak broadly; I will address the issue in detail later. But for now I have to say that Turkey should have a structural reform priority that will solve the problems with respect to not only exports, but also and more importantly to high unemployment.

Fifth, as a structural reform priority, skill set of the labor force must be improved. We need an education attack at school level as well as for currently employed and unemployed. We have to enhance the average skill level. There are countries which did this upon the pressure of increasing unemployment rates and succeeded. News featured in press indicated that efforts in this context are launched; which is a good development. However the initial efforts alone are not enough; we need a full-scale attack. Let us leave the design of this attack to experts; but recommend them to examine the experiences of countries that succeeded in similar efforts. In addition let us advice them to seek answers for the questions: 'Are there unsuccessful reforms?' and 'If yes, why did they fail?'

But, where can we find the means to launch this full-scale education attack? We come back to the default theme again: the ratio of tax revenues to national income in Turkey is quite low compared to OECD countries. Increasing the ratio moderately by a couple points would provide the funds required for such a comprehensive reform. We can achieve this; more importantly we have to achieve this. So, let this be the sixth item in our economic policy list.

This way, we not only generate the funds required for skill-improving reforms needed for enhancing the quality of the goods and services provided by the labor force. We would also increase the saving rate of Turkey and thus reduce the foreign capital requirement. Moreover, real value of lira will be less sensitive to external conditions.

This commentary was published in Radikal daily on 20.06.2010