Daron Acemoglu: Rate hike is right, but other steps should be taken

Daron Acemoglu, a world-renowned economist and MIT professor, assessed the latest state of Turkey’s economy on his social media account. Acemoglu said, “We are at the beginning of the road to the right policies. Simply moving higher interest rates will not improve the economy.” Acemoglu said, “It is a step in the right direction, but I think it is unclear whether it will be followed or not. I think Turkey and the Turkish people are waiting for difficult times.”

Acemoğlu’s evaluations are as follows:

Some thoughts on the central bank’s interest rate hike: From an objective point of view, the 7.50% interest rate hike is a good decision.

– After last month’s disappointing and well below expectations, this new decision could be a sign that the Central Bank has really started the fight against inflation.

—but I think we’re at the very beginning on the right policy path. Simply moving higher interest rates will not improve the economy. There are four policy changes I always emphasize on this issue and which I consider necessary.

The first is to raise real interest rates above zero to raise interest rates and control inflation. This is very important to fight against inflation. We are at the beginning of this first item. I am still not sure whether public sector banks will be closed? The distribution of fare can be continued in other ways. So as of now, only a step has been taken towards the first part.

Second, simultaneously starting the institutional reform process. This is also very important. This process must begin with strengthening freedom of expression and democratic rights. But at the same time, structural reforms that have a direct bearing on the economy are also very important.

These include controlling corruption, preventing practices that reduce competition, ensuring the independence of judicial institutions, and facilitating investment. There has been no progress on these issues and I do not think there will be.

-In my analysis with Murat Üçer, it turns out that Turkey’s biggest problems are inefficiency and technological backwardness. These are problems that cannot be solved without institutional and major structural reforms.

As long as this inefficiency continues, wages will not increase in real terms and inflationary problems will always arise. The problem of poverty and unemployment will remain.

-Third: the fight against inflation with the introduction of reform of the institutional framework and the introduction of funds from abroad. These resources should be used to repair the deteriorating state of company and bank balance sheets and the large expenditure necessitated by the earthquake.

– Is there anything to be done about it? Economic workers certainly want to bring money from abroad. But I’m not sure how to use them properly. So far he has not discussed the real situation of Turkish banks and companies.

– During the previous ministry of Mehmet Simsek, there were too many resources and these resources were not used properly. This was the period when Türkiye’s productivity was at its lowest. Will they suddenly start making the right decisions now?

Fourth is to ensure that poverty does not increase. With resources coming in from abroad and institutional reforms well underway, it is necessary to both increase investment and strengthen the social safety net. I am not sure that the government will follow the right policies in this regard.

Overall, it’s a step in the right direction, but I don’t think it’s clear whether it will follow through. I think Turkey and the Turkish people are waiting for difficult days.

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