"Negative Real Interest Rate is the Main Issue"

Prof. Dr. Işın Çelebi and Dr. Mahfi Eğilmez, who came together at the monthly Economy Talks held at Altınbaş University, stated that there was a transformation in the economy in the second half of 2023. Çelebi and Eğilmez mentioned that the steps to be taken to reduce inflation are not easy, and pointed out that Turkey's main issue is negative real interest rates.

Prof. Dr. Işın Çelebi stated that Turkey should develop foreign currency earning services and said, "While making real interest rates positive, Turkey should increase its competitiveness in the international arena and increase the ratio of exports to imports above 80 percent. The European Union full membership path is a very important road map in this sense. Unfortunately, we have moved far away from that point. However, that structure is a structure that will relieve Turkey."

Altınbaş University Faculty Member Dr. Mahfi Eğilmez pointed out that in environments where the real interest rate is negative, the income that people receive with the interest they receive when they deposit their money in the bank is not at the rate of inflation; "Seeing that their money is melting despite the interest rate and that their purchasing power is lost, the citizen is looking for some alternative ways to avoid being affected."

Explaining that disasters such as "secret funds", one of the most remarkable events of recent times, are caused by inflationary environments, Mahfi Eğilmez said, "Inflation was high during the banker disaster in the 80s. That's why these things happened. People can't find a place to go! It was not so free to buy foreign currency then. The stock market was not so developed. The real estate market was not like this. If you wanted a car, you couldn't find one. They all went these ways out of necessity. Now they went to real estate. When interest rates fell, the stock market went up and they bought automobiles. Some of them went to these types of funds. What is interesting is that society has not learned any lessons from these experiences. If you ask me, this is the aspect of the problem that needs attention, the socio-psychological aspect."

Pointing to the existence of unrecorded earnings and black money with all these approaches, Dr. Mahfi Eğilmez said, "People want to escape from this money. We have a good proverb: 'What comes from nowhere goes to hell.' Easily earned money is easily spent. And when they run away, they don't look at this and that. This is how they lose it. In addition to these, unfortunately, we also have people who have won rightfully but have lost and been victimized."

Referring to the PISA 2022 results, Işın Çelebi stated that he sees the level of education as the cause of all problems. Reminding that Turkey's PISA grades are below the European average, Altınbaş University Faculty Member Çelebi said, "Our children's reading comprehension rate is 456. Europe's average is around 480 in math, reading, writing, comprehension and Science. Among 35 to 40 countries, we are at the back of the pack. This research has been conducted by the OECD for 20 years. Not only is the level of education not rising, but inflation is also rising. People are not getting a good education. Luxury life is also sweet. The effects of social media and digitalization technology in this sense will cause huge problems in the future. I think the fact that these indicators are at this point makes it easier for these kinds of corruption issues to emerge. Everything is interconnected."

Explaining that digitalization has also developed the war industry and caused regional wars, Çelebi said, "It meets the war demands of politicians. How well democracy works in the world is a matter of debate. In the US, 3 rectors were interrogated and made to resign. Situations like these, climate change and water problems are not discussed at all when they should be the first issue. However, it closely affects the economy."

Çelebi stated that he found it positive that the CDS Risk premium, which means confidence in international markets, decreased from 700 to 323, and emphasized that the problem of inflation and income distribution continues. Çelebi reminded that 10 million pensioners still receive a salary of 7,500 TL and said, "We are becoming unable to compete with the world. While China, India and South Korea invested in technology, we invested in construction. Today, can an investor say, 'I am going to establish a bank, I am bringing 100 million dollars?' When converted into TL, it melts due to to inflation, so he thinks, 'Why should I invest'?"

Mahfi Eğilmez also pointed out that the real inflation is around 120%, 130% and said, "However, the announced inflation is half of this. Is it enough if we bring the interest rate, which is currently 40%, to 60%? Or do we need to take it to to 120? If we go to 120, many companies will be left in our hands. The debts are structured accordingly, the situation of the banks is structured accordingly."

Noting that what needs to be done is to focus on structural reforms urgently, Eğilmez reminded that Turkey was able to do this in the past. Eğilmez said, "We were able to do this after 2001. Inflation was still at 70%. Interest rates were also high, but Turkey managed to reduce this inflation and maintain growth. Because the steps it took were right. At that time, Turkey made a banking reform. It ensured public financial discipline. It removed six zeros from the currency. It started full accession negotiations with the European Union. The positive expectations created by all of these factors were able to keep inflation down and growth up. If we can do this, and it does not seem easy to carry out these structural reforms, then there will be no problem."

Answering the questions about obtaining Turkish citizenship by investing or buying real estate, Mahfi Eğilmez said, "This is a completely different issue. Those who want to invest or buy a house should be given a work permit or a 5-year residence permit. But Turkish citizenship is very valuable. There are elections, they will vote, but you don't even know the language. There must be certain criteria. Even Portugal is looking for these conditions, why can't we do it?"