Sour Blackberries and Apples
For those of you who are not gadget geeks, I am not talking about fruits, but of cellphones.
I decided not to buy a new Blackberry smartphone, and it is not because I am frustrated with the email outage of this past week. In fact, despite the urging of my Apple fanboy friends, I have no intention of switching to an Iphone. But after learning from the learned Finance Minister Mehmet Şimşek that cellphone imports are behind the country’s current account deficit, I have postponed buying one.
The long-awaited 2012-2014 Medium-Term Program, or MTP, was announced on Thursday, and it brought along another round of tax hikes. The Special Consumption Tax on cellphones will be raised from 20 to 25 percent, a change that Şimşek says is to reduce imports and thus the current account deficit.
This is a huge disappointment. Back in the summer, the government was saying that the current account deficit would be addressed with a multi-faceted strategy, which would include improving the fiscal position, advancing the investment environment, increasing employment and making Istanbul a financial center, among other things.
Government officials and bureaucrats recently shared their enthusiasm for this last item at the Istanbul Finance Summit, but apart from a little bit of infrastructure build-up, we have until now seen a lot of talk, but no deed. Similarly, the MTP is vague on the investment climate.
As for employment, according to the macroeconomic projections in the MTP, unemployment is expected to decrease to 10.4 percent in 2012 from 10.5 percent this year. As any Turkish labor economist would tell you, even the MTP’s optimistic growth scenario would not be enough to reduce unemployment.
The MTP’s biggest disappointment is, however, fiscal policy. A small minority of economists, including your friendly neighborhood economist and the IMF, argue that Turkey’s current account deficit should be addressed with tighter fiscal policy. While the new fiscal path is certainly tighter than in the previous year, it is not strong enough to tackle the deficit.
Besides, all the extra savings in the budget are coming from the revenue side, namely tax hikes and privatization revenues. This is not encouraging, as recent research shows that expenditure cuts are more effective than revenue increases in addressing current account deficits.
As a result, it is not surprising that the deficit falls only gradually to 8 percent next year from 9.4 percent this year in the MTP projections. This only confirms what I have been suspecting, based on the recent actions of the Central Bank: That Ankara has given up on inflation and the current account in favor of growth. Officials will cross their fingers and hope that Turkey does not experience a sudden stop, or that higher inflation does not find its way to price-setting behavior.
As for my part, in addition to foregoing the sour blackberries and apples, I have also started getting up early to save on electricity, as Energy Minister Taner Yıldız was recommending on Thursday. I guess you could call me a true patriot.
However, I suspect that it is Turkish economic policymaking, and not the fruits, that have turned sour
