The new Turkish political system (Turkish presidency) has ushered in a new theoretical approach to Turkish economic management. Instead of adhering to the principles of orthodox economic policies and regulating the indicator interest rate, the economy's management has preferred to lower it in order to control the country's high inflation. According to Erdoğan, high inflation was the result of high-interest rates in the country.
The Turkish minister of economy introduced this approach as a heterodox economic policy, despite the fact that none of the well-known heterodox economic schools have any policy recommendations similar to Turkey's. As a result, it is possible to argue that the Turkish approach to economic policy implementation is a new heterodox school of thought in the science of economics. However, no book or article has been published that explains the specifics of the Turkish school.
New Economic Policy Tools
Creating a new economic theory has resulted in the creation of some new economic policy tools. The new heterodox policy implemented in Turkey has resulted in an increase in inflation, with the officially declared inflation rate in April 2022 being 69.97%, the highest in the last twenty years. Refusing orthodox solutions to combat high inflation by insisting on decreasing indicator interest rates necessitates the development of new economic policy tools to deal with the situation.
When the public became dissatisfied with the large loss in the value of the Turkish Lira against almost all foreign currencies, Erdoğan announced a new economic recovery program that included a new economic policy tool invented for the first time by Turkish economic management: accounts with no risk of currency fluctuations.
The Turkish government announced that anyone or any company who sells their foreign currency and deposits it in any Turkish bank's foreign exchange fluctuation risk-free account will be guaranteed to be protected against this risk. In other words, the government would protect capital owners from losses caused by fluctuations in the Turkish Lira's foreign exchange value. The treasury pays for the financial resources required to fund this new tool, meaning this political decision results in a transfer of income from the general public to capital owners.
This new tool has cost nearly 30 billion Turkish Liras in the last three months, and the cost is rapidly increasing due to the rising value of the USD against the Turkish Lira. Worse, the rate of inflation is increasing every other day. In other words, this new tool has been unable to produce the desired results in three months. This program is also open to foreign investors. As a result, a foreign capital owner can purchase Turkish Liras and reap the benefits of this new economic policy tool by relocating capital to Turkey.
The Ministry of Economy and Treasure is currently working on another new economic tool that is very similar to the first: the inflation risk-free debit account. This new program will ask citizens to deposit their money into these accounts, and any losses incurred as a result of high inflation that may occur in the coming months (or years) will be financed by the Turkish treasury. The income transfer from the general public to capital owners will undoubtedly accelerate.
Expected Consequences of New Heterodox Economic Policies
The results of this approach's implementation in the last six months indicate that the expected results declared by Erdoğan or the Ministry of Economy and Treasury have not occurred. On the contrary, macroeconomic indicators are deteriorating. Because of this, Turkey has become a more risky developing country for international investors. In 2022, the calculated CDS premium for Turkey is nearly 700. According to these statistics, Turkey will have to pay a high interest rate to borrow funds from international capital owners.
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