In September 2021, when the Central Bank started cutting interest rates, the management of the economy was talking about the “Chinese Model”. Then it changed its name to “Model Turkey”. The administration of the economy, which was looking for a rabbit out of its hat to curb the rise in the exchange rate today, said that the rise in the exchange rate would have beneficial results for the economy that day.
An increase in the exchange rate would increase exports, decrease imports, close the current account deficit, attract investors in cheap labor to Turkey, foreign currencies would become abundant, exchange rates would decrease, which would reduce inflation. This story, which recalls the story of Nasreddin Hodja, has had the opposite result.
The 12-month total foreign trade deficit, which was at the level of $ 43-44 billion in the months that the interest rate cut began, exceeded $ 71 billion in May, despite the exorbitant increase in the exchange rate. According to preliminary data from the Ministry of Commerce, the trade deficit amounted to 76.4 billion dollars in June. In a short period of 8 months, the trade deficit jumped 75%. The state of inflation, which is said to decrease in this way, is known.
The inaccuracy of the economic policy pursued by the government is indisputably revealed when looking at the details of the social figures:
– While total exports in 5 months increased by 20.36% compared to 2021, the increase in imports doubled to 40.82%. The effect of rising energy prices is great in this. However, there is a deterioration in the foreign trade balance net of energy and the ratio between exports and imports.
– If we look at sectoral developments, the trend is negative even in labor-intensive sectors. Even the rapid depreciation of labor with the increase in the exchange rate and high inflation could not produce the desired result.
– In the production of food products, 5-month exports increased by 29 percent, while the increase in imports reached 42.4 percent. There is a $ 4.1 billion foreign trade surplus in 5 months in food production, and the surplus increased by $ 624 million over the previous year. Although the increase in imports has been more rapid, there appears to be a limited improvement in the balance.
– However, when plant and animal products, which are the raw materials of food, are considered together, this is also deleted. While plant and animal product exports increased by 15.02 percent and imports by 27.20 percent, the foreign trade deficit increased by $ 897 million to $ 3.07 billion.
– Exports in textiles, one of the labor-intensive sectors, increased by only 2.66%, while imports jumped by 54.47%. In apparel production, the increase in imports reached 47.95 percent versus the 17.92 percent increase in exports.
– Despite the 24.78 percent increase in exports of base metals, which is one of the important export sectors, the increase in imports is 34.13 percent. Although the growth rate was close, the sector’s trade deficit increased by 52.23 percent to $ 7.7 billion.
– Chemicals are a sector where exports grow faster than imports. While exports increased by 41.36%, the increase in imports lagged slightly behind at 37.31%. Despite this, the external chemical deficit increased by 35.34 percent to $ 13.76 billion.
– There is a 13.59 percent decrease in imports due to the effect of the exchange rate in the automotive sector, the engine power of exports. But the increase in exports remained at a very low level of 1.38 per cent.
– When we look at country-level developments, we encounter a surprising result. Even in trade with the groups of countries behind Turkey with its economic and potential power, imports increased faster than exports. Exports to European countries outside the European Union increased by 11% and imports by 74%. Exports to South America decreased by 11%, while imports increased by 68%. Exports to North African countries increased by 26% and imports by 28.9%. Exports to the countries of the Near and Middle East increased by 18% and imports by 37%. While imports from the Turkish Republics increased by 32%, imports increased by only 3%. While exports to the Commonwealth of Independent States increased by 4%, imports increased by 105%. While exports to Organization for Islamic Cooperation countries increased by 18%, imports increased by 40%.
– It is necessary to add to this that the conditions of foreign trade are against us. According to April data, the unit price of Turkish exports increased by 13.3%, while the increase in the unit value of imports was 39.4. In other words, Turkey had to buy more expensive by selling relatively less.