Domestic factors behind Turkey's economic woes - Daron Acemoğlu

The Turkish economy is bracing for difficult times ahead, prompted by mostly domestic factors, including the fast deterioration of institutions, economist Daron Acemoğlu said on Saturday.

The balance sheets of Turkish banks and companies are in horrible state and new resources must be created to remedy this situation, Gerçek Gündem news site cited Acemoğlu, professor of Economics at MIT, as saying during a conference organised by the Science Academy Turkey.

“Turkey has short and long-term problems,’’ the economist said. “Firstly, the (country’s) democracy must be strengthened… at the same time, the balance sheets of companies and banks must be improved macro-economically.’’

The Turkish lira has registered record lows this year, losing 30 percent of its value since January, after Turks bought dollars and euros to protect their savings against the erosive effects of inflation in the country.  Annual inflation in the country accelerated to 14 percent last month from 11.9 percent in October. 

Meanwhile, foreign investors have further contributed to the ailing economy by pulling money out of the country this year.

“At this point, Turkey cannot grow with institutional reforms alone,’’ Acemoğlu said, “because the balance sheets of banks and companies are so bad that there is need to create a new resource for this.’’

Speaking on  Ankara-Washington relations, Acemoğlu said these were “difficult times for Turkey.’’

But, added, “the biggest problems at this time are domestic. Over the last 10 years, there has been a low productivity growth, that is based on consumption, state spending and state banks.’’

The MİT professor stressed that the vehicles for strengthening Turkey’s economy included increased independence and autonomy of recovery tools in financial institutions, such as the strengthening and independence of the central bank.

Acemoğlu’s remarks echo those of investors in Turkey, who say the central bank should be given full authority to set monetary policy.

Turkish President Recep Tayyip Erdoğan has sacked two central bank governors in two years and repeatedly called for lower interest rates to help spur economic growth.