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İsmet Berkan, in his column in the high-brow daily Radikal on 23 June 2006, assesses the possibility that current economic difficulties in Turkey may precipitate early elections. I have excluded the final paragraph of the column because it concerns a wholly unrelated matter. Translated from Turkish by Tim Drayton.

These days we witness the dollar on the verge of YTL 1.70. Is this situation temporary or permanent, I wonder?

This is the question that is on everyone’s minds.

Let us suppose that the situation we are experiencing is a transitional situation that has its roots in the international liquidity contraction. Do we know if, after the volatility dies down, the same amount of hot money as before will enter Turkey and the dollar exchange rate will return to the level of YTL 1.35?

Suppose that the liquidity contraction in international markets is permanent, then what level will the dollar reach in Turkey?

Thank goodness that public finances are in good order. Thank goodness we do not a face a situation in which the state is unable to refinance its internal debt.

In this sense, the economic developments we are facing are different from crises that we experienced in the past.

However, a 26% increase in the exchange rate of the dollar in a few months, in other words the devaluation of the TL, cannot be written off as a simple bit of volatility. This situation will have serious and painful consequences.

One set of such consequences will, for some of us, amount to a return to 2001.

Let me try to explain:

Last year Turkey invested 20 billion dollars in machinery and equipment. A large portion of this investment was made with loans that were obtained abroad. The Turkish private sector thus faces a major credit risk; this applies particularly to medium-sized enterprises. The rise in the dollar places such enterprises under a totally unanticipated risk.

Given the adequacy of available statistics, it is impossible to say how many of the enterprises facing this risk are exporters and how many are companies that serve the internal market.

Even if all the companies facing this risk were exporters, the rise of the dollar will nevertheless impact negatively on these enterprises that are carrying the risk.

In the coming period we may begin to see enterprises of this kind changing hands, or increasing demands for the introduction of debt repayment plans along the lines of, “Let’s implement the Kayseri approach” or, “Let’s implement the Kahramanmaraş approach”.

In every sector without exception belt-tightening meetings are being held; ways are being to sought to reduce costs in the environment of “volatility” that we have encountered.

We all know, unfortunately, one of the first ways of doing this is to make staff redundant. In the near future, redundancies will start in various sectors; they may well already have started.

This is not all. Those who receive wages in Turkish lira in jobs with fixed incomes have already started to see a significant decline in their purchasing power. We know about the increase in inflation; nobody can say that the rise in the exchange rate will have no effect on inflation; in other words, inflation will increase in the future and will probably reach double figures by the year end.

This decline in purchasing power has even found immediate reflection in the consumer confidence indexes. Less consumption means that the economy will slow. The price of this slowing will once more be paid by companies and their staff.

***

This gloomy picture that I have painted may entail a loss of electoral support for the Justice and Development Party (AKP) in the near future.

The adoption by the government yesterday of a number of hasty measures such as zero taxation aimed at attracting hot money to Turkey has to be taken as an indication that these gloomy scenarios have began to be discussed in the AKP.

The threat of three years’ economic progress going down the drain may force the ruling party into a shock early election.

An early election may serve to reduce the political tension in the country, but more importantly it may benefit the AKP.

I think it is already clear that we are in for a hot summer.