$25K GDP per capita in 2023? Or $8K in 2015?
President Recep Tayyip Erdoğan claimed on March 24 that Turkey’s Gross Domestic Product (GDP) per capita would surge from $11,000 to $25,000 by 2023 if the country swiftly adopted the presidential system.
Except that GDP per capita is not $11,000 anymore! According to statistics released on March 31, Turkey’s GDP turned out to be 1.75 trillion Turkish Liras in 2014. With an average lira dollar exchange rate of 2.19, that would translate to $799 billion. Dividing this number by the 2014 population of 77.7 million would yield a GDP per capita figure of $10,284.
In fact, GDP per capita is even smaller at the moment. Thanks to Erdoğan’s tirades against the Central Bank and the dollar strength, the lira depreciated 12.5 percent against the greenback in the first quarter of 2015. Assuming that the economy barely grew during this time, GDP per capita should be lower than $10,200.
But let’s not waste time with such small details and look at the big picture: Is the $25,000 goal achievable? I have argued many times in my columns that without a radical change in Turkey’s growth model, it would be very difficult for the country to grow by more than 3 percent per year in the absence of strong capital flows.
Erdoğan and his spin-doctors in pro-government “newspapers” masquerading as columnists or journalists claim that the presidential system will enable the country to grow faster because it would end the plurivocality in the government and allow better economic policy coordination. I am having difficulty seeing why it would be any more efficient than a single-party government.
But I’ll give them the benefit of the doubt and assume an annual growth of 5 percent - above Turkey’s long-run average. Pencil in an average inflation of 5 percent, and nominal 2023 GDP would be 4.2 trillion liras. The Turkish Statistical Institute (TÜİK) estimates the 2023 population to be 84.2 million. Therefore, for GDP per capita to be $25,000 in 2023, the lira dollar exchange rate would have to be 2. As you can see, even with rosy assumptions, Erdoğan would need a strong, not weak, lira for his $25,000 target to be realized.
I’ll shove this pipe dream aside and tell you what would really happen if Erdoğan managed to change the constitution to become the official ruler of the realm. Although Prime Minister Ahmet Davutoğlu has claimed otherwise, economy tsar Ali Babacan would be “retired,” followed by his friend and protégé Central Bank Governor Erdem Başçı. Key economy posts would be filled with Erdoğan’s advisers and other loyal subjects, who would then start implementing his “new economy paradigm” of ultra-low interest rates and a weak lira.
It would be a matter of months, if not weeks, before the lira-dollar exchange rate hit 3. Erdoğan would bail out his dollar-indebted cronies, but not everyone would be so lucky. The country would end up with ultra-high rates and a recession. I don’t know about 2023, but assuming zero real growth and an average lira-dollar exchange rate of 2.9 for the whole year, GDP per capita in 2015 would then end up at slightly above $8,000 - which is in fact a rosy scenario if you remember that it plunged nearly 30 percent during the 1994 and 2001 crises.
Or maybe I will be wrong, and Turkish GDP per capita will hit $25,000 by 2023 - and Turkey will also build a spaceship. There is only one way to find out, so I sincerely hope that Erdoğan gets his “400 deputies” on June 7.