OPINION emre-deliveli

Please don't feed the bears!

HDN | 9/4/2011 12:00:00 AM |

I have been catching up with my readings on Turkey after returning from London, and I am impressed by the “Jackson Hole” tales.

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I have been catching up with my readings on Turkey after returning from London, and I am impressed by the “Jackson Hole” tales.

Since the Kansas City Fed’s annual conferencewas held the weekend before last, several columnists have written about the meetings they have attended. Inspired by them, I would like to recount my own experiences at Jackson Hole.

I would not dare say that I learned more about the global economy than my esteemed colleagues, as I don’t even remember reading the papers. But I definitely got there more easily, with a direct flight from Boston, compared to half-a-dozen flights for a policymaker from Ankara. And I sure had much more fun, as I was there on a skiing vacation.

Other than one of the most challenging terrains I have ever skied in, one of the highlights of that escape was the “please don’t feed the bears!” signs in the nearby Grand Teton and Yellowstone national parks. Funny, because that’s exactly what I would have told the government’s economics A-team if I were granted an audience with them.

On Friday, London-based Capital Economics became the latest of several research outfits predicting a recession in Turkey in the next year and a half. Part of this pessimistic outlook reflects global developments. For example, a serious bout of risk aversion would halt capital flows to emerging markets.

Turkey is especially vulnerable because of its high current account deficit and dependence on short-term external financing. As Neil Shearing, chief emerging markets economist at Capital Economics, noted, “Turkey has never managed to rein in its current account deficit by much more than 1-2 percent of GDP without experiencing a recession.”

Of course, the government has done its best to provide justification for these bearish pronouncements. Some ministers, such as Zafer Çağlayan, a.k.a. “the admiral,” are still talking about 6-7 percent growth this year and using what I call “the ostrich strategy:” Burying their heads in the sand and acting as if nothing is happening.

However, as I told Neil over an email exchange, for once, I am optimistic on the Turkish economy, and the main reason is the government’s Medium-Term Economic Program, or MTP, which should be released this month.

For one thing, several officials have noted that tight fiscal policy will be one of the pillars of the MTP. Economists focusing on Turkey have been burned byfalse fiscal promises several times in the last few years. Although I remained a skeptic in the past and was proven right time and time again, I am counting on the Central Bank: I do not think they would have gone for loose monetary policy if they weren’t sure tighter fiscal policies were on the horizon.

I am also hopeful that the government will take significant steps toward improving the investment climate in the last quarter. As Murat Üçer of Turkey Data Monitor notes, Turkey has a current account deficit because “our productivity is already lagging behind our income growth,” so reforms that would improve productivity would also help reduce the deficit.

I hope my friends behind the recent forecasts for Turkey are wrong. But they will probably be right, if my forecasting track record is any guide.

*Emre Deliveli is a freelance consultant and contributor to Roubini Global Economics. Follow his blog, the Kapalı Çarşı, at http://www.economonitor.com/emredeliveli/.



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