Fighting Inflation Is Our Most Important Source of Stress

CONSULTATION MEETING WITH THE PARTICIPATION OF MINISTER OF TREASURY AND FINANCE MEHMET ŞİMŞEK

Dear Minister,

We last had the pleasure of hosting you at our Chamber in 2017 during your tenure as Deputy Prime Minister. Today, after a seven-year interval, you have honored us by attending our “Consultation Meeting with the Bursa Business Community.”

Welcome, and thank you for gracing us with your presence.

You are well acquainted with the challenges facing our real sector. Your knowledge, experience, and solution-oriented approach play an important role in establishing a stronger dialogue between our Ministry of Treasury and Finance and our Chamber.

We are going through a period in which our national economy and production conditions, along with the rest of the world, are facing significant challenges. The year 2023 was a difficult one due to adverse global developments, the devastating earthquake disaster of the century that occurred in February, and geopolitical tensions in our neighboring regions. As a reflection of these circumstances, 2023 will likely be recorded as the year with the lowest growth rate of the past 30 years, following the global financial crisis of 2009 and the pandemic of 2020.

In our country, the determined fight against high inflation to ensure financial stability has been placed on a rational footing following the policy shift. Consecutive interest rate hikes, combined with rising input costs and exchange rates lagging behind inflation, have limited our access to financing. The burden on our companies has become even heavier during this period. As a result, we have left behind yet another challenging year, the effects of which have been felt closely by all stakeholders across sectors.

Following 2023, when we began to see the effects of policy changes on our economy, a cautious sense of optimism has started to emerge. The achievements we have attained as a country in exports, our growth performance, and the decline of our credit risk premium to as low as 300 basis points stand out as positive developments that help maintain our motivation.

In light of these developments, one of our greatest expectations for the new year is to experience a period in which risks decrease and both financial and price stability are achieved. We believe that, together with reforms focusing on structural issues, the resilience of our economy will increase in terms of public finance, the fight against inflation, the financial sector, and reducing the current account deficit.

At present, inflation stands out as the most significant source of stress for our business community. In this regard, we welcome the announcement by our economic administration that the fight against inflation will continue with great determination throughout 2024. On the other hand, the fact that exchange rate appreciation has not kept pace with inflation negatively affects the competitiveness of our exporters in global markets. Therefore, it is of great importance to implement support mechanisms that protect production, trade, exports, and employment through various financial instruments, particularly those provided by Eximbank, the Export Development Fund, and investment commitment advance loans.

In the new year, in addition to price stability, issues such as the climate crisis, green transformation, energy costs, and food supply security will continue to maintain their importance.

At this point in my speech, with your permission, I would like to share our members’ priority demands regarding financing.

As you know, with the regulation introduced in 2021, all credit limits held by companies at banks began to be denominated in Turkish Lira. However, due to rising exchange rates and high inflation, the credit limits of our companies—particularly exporters—have eroded in foreign currency terms, leading to financing difficulties. We therefore request that banks be allowed to re-establish credit limits in foreign currency terms, initially for exporting companies and firms utilizing export loans.

Increasing the daily utilization limit of rediscount loans for exporters from TRY 1.5 billion to TRY 3 billion and abolishing the requirement to convert 30 percent of export proceeds into Turkish Lira were important steps. We would like to express our gratitude for these timely measures. In this context, we also wish to state our expectation that rediscount loan limits be increased to TRY 4.5 billion.

The practice of requiring 40 percent of export revenues to be sold to the Central Bank harms the competitiveness of our companies due to the spread between foreign exchange buying and selling rates. Reducing this 40 percent requirement and increasing the foreign exchange conversion premium from 2 percent to 5 percent for companies converting their foreign currency into Turkish Lira are also among our members’ priority demands.

We believe that accepting finalized carried-forward VAT receivables as collateral for Eximbank loans would help companies address collateral deficiencies and increase their cash loan limits.

Among our companies’ priority demands are reducing the corporate tax rate, which will be applied at 25 percent as of this year, back to 20 percent, and maintaining the employer support for the minimum wage—set at TRY 700 for this year—at 6 percent, as was the case in previous years.

Dear Minister, in 2021, a decision was made to encourage businesses to use their own equity rather than borrowing by disallowing 10 percent of financing expenses from being deducted in corporate tax calculations. While this regulation was introduced in consideration of post-pandemic conditions, we believe it is no longer necessary today. Therefore, removing the financing expense limitation and allowing companies to deduct all financing expenses in corporate tax calculations is also among the demands of our business community.

At the end of our meeting, we will also present to you a report containing the issues identified by our professional committees and sector councils, along with their expectations for solutions.

I hope that this valuable consultation meeting, which has brought Your Excellency together with representatives of the Bursa business community, will yield beneficial outcomes for both our city and our national economy.

I respectfully extend my regards.