"Negative Real Interest Rate is the Main Issue"

Altınbaş University's monthly Economic Forums brought together Prof. Dr. Işın Çelebi and Dr. Mahfi Eğilmez, who expressed that there has been a transformation in the economy in the second half of 2023. Emphasizing the difficulty of taking steps to reduce inflation, Çelebi and Eğilmez pointed out that Turkey's fundamental issue is negative real interest rates.

Prof. Dr. Işın Çelebi stated that Turkey needs to improve its foreign exchange-generating services and increase its competitiveness internationally while making real interest rates positive. She commented, "Full EU membership is a crucial roadmap in this regard. Unfortunately, we are very far from that point right now. However, that structure is a structure that will ease Turkey."

Dr. Mahfi Eğilmez, a faculty member at Altınbaş University, indicated that in environments where real interest rates are negative, the income people receive from the interest they earn when they deposit their money in the bank is not at the inflation rate. He said, "People who see that their money is eroding despite the interest they receive and that their purchasing power is lost are looking for alternative ways to avoid being affected."

Mahfi Eğilmez, referring to recent events such as "secret funds," stated that disasters like these are caused by inflationary environments. He expressed, "In the 80s, during the banker crisis, inflation was high. That's why these things happened. People couldn't find a place to go! At that time, buying foreign currency was not as free as it is now. The stock market was not as developed. The real estate market was not like this. If you wanted a car, you couldn't find one. They all had to go this way. Now they went for real estate. Where interest fell, the stock market rose, they bought cars. Some went to such funds. The interesting thing is that society doesn't learn anything from these experiences. If you ask me, the real aspect to pay attention to the problem is here, the socio-psychological aspect."

Dr. Mahfi Eğilmez, pointing out explicitly the existence of informal income and black money with all these approaches, said, "People want to escape from this money. We have a nice proverb: 'What comes from ill-gotten gains goes to sorrow.' Easily earned money is spent easily. While running away, they don't look at this and that. They lose it like this. In addition to this, unfortunately, there are people who have lost and become victims even though they have earned fairly."

Referring to the PISA 2022 results, Işın Çelebi saw the level of education as the cause of all problems. Reminding that Turkey's PISA scores are below the European average, Çelebi, a faculty member at Altınbaş University, said, "Our children's reading comprehension rate is 456. The European average is around 480 in mathematics, reading, writing, understanding, and Science. We come last among 35 to 40 countries. This research has been conducted by the OECD for 20 years. Both the education level is not increasing, and inflation is increasing. People are not getting good education. A luxurious life also seems sweet. The effects of social media and digital technology in this regard will lead to significant problems in the future. In my opinion, the fact that these indicators are at this point causes such corruption issues to be easily revealed. Everything is interconnected."

Stating that digitization has also developed the war industry and led to regional wars, Çelebi said, "It meets the war desires of politicians. How much democracy works in the world is a subject of debate. In the USA, three rectors were questioned and forced to resign. Such situations, climate change, and water problems should be the first issues, but they are not discussed at all. However, they closely affect the economy."

Çelebi, who found the decrease in the CDS Risk premium, which means confidence in international markets, from 700 to 323 positive, emphasized that the problems of inflation and income distribution continue. She reminded that 10 million retirees still receive a salary of 7,500 TL. "We are becoming unable to compete with the world. While China, India, and South Korea are investing in technology, we have buried it in construction. Today, an investor can say, 'I'm going to set up a bank, I'm bringing in $100 million.' Can he say that when converted to TL, it erodes due to inflation, and he thinks, 'Why should I invest?'" she spoke.

Mahfi Eğilmez, drawing attention to the fact that the real inflation is around 120%, 130%, said, "However, the declared inflation is half of this. Is it sufficient if we increase the current 40% interest to 60%? Or do we need to increase it up to 120? If we go up to 120, many companies will remain in our hands. Debts are structured according to that, and the situation of banks is structured accordingly."

Stating that what needs to be done urgently is to focus on structural reforms, Eğilmez reminded that Turkey was able to do this in the past. Eğilmez said, "We did this after 2001. Inflation was still in the 70s. The interest was high, though. Turkey managed to reduce this inflation and maintain growth without falling. Because the steps taken were correct. At that time, Turkey made banking reform. It provided public financial discipline. Six zeros were removed from the currency. It started its negotiation process with the European Union. All these created positive expectations, reducing inflation and maintaining growth without falling. If we can do this, which does not seem easy to implement these structural reforms, then there will be no problem."

Answering questions about obtaining Turkish citizenship by investing or buying real estate, Mahfi Eğilmez said, "This is a completely different issue. Let a work permit or a 5-year residence permit be given to those who want to invest or buy a house. But Turkish citizenship is very valuable. There is an election, and they will vote, but you don't even know their language. There must be certain criteria. Even Portugal requires these conditions, why shouldn't we?"​