Upset balances to be restored by lower growth rate

As one of the countries that was least affected by the global crisis, signs of deterioration, although belated, have begun to be seen in Turkey’s macroeconomic balances. The government started taking action when these signs first appeared. With the announcement of a 3 year economic program it has shown that it has opted for “recovering the macro balances by lowering growth rates.”

Growth rates have become a serious topic in Turkey recently. Even within the government, different views have emerged on the subject of growth. These discussions, which can be summed up as “Should we hit the brakes or the accelerator?” seem to have stopped with the announcement of the 3 Year Medium Term Program (MTP). The targets of the program that contains low growth rates have been shaped according to Deputy Prime Minister Ali Babacan’s pro-“fiscal discipline” stance. The fact that Prime Minister Recep Tayyip Erdoğan, who is a fierce defender of “more growth” in previous growth debates, has now accepted these rates, was especially welcomed by financial markets.

According to calculations, in economic activities where a shrinking was apparent this year as of the second quarter, there may be a boost to a certain extent in the last quarter of the year. The Central Bank’s monetary policy applications are also maintained according to this calculation.

In conjunction with these measures, the increase in the growth rate was set as 3.2 percent this year; and in 2013, the target was 4 percent for the economy to grow.

The government consented to lower growth rates to re-establish economic balances, however, the fact that an elections period will start as of 2013 lasting about two years creates concerns whether or not these targets will be met.

Taking into account Prime Minister Erdoğan’s now quite apparent “strengthened presidency” wish, the debate has already started whether or not the cautious stance in economy will continue during this period.
In short, the government seems to have made its choice on a cautious economic course; however, it is still debatable, due to the concern of gaining more votes in the election process, whether or not they would hit the accelerator at the cost of disrupting the balances.

Budget deficit for 9 months 14.4 billion TL
The Turkish economy also struggles with problems caused by cautious growth rates that it had to select because of the current account deficit risk. As growth rates decreased due to the irregularities in the tax system, budget incomes decreased to a considerable degree. When privatization incomes that had been collected previously could not be collected due to the crisis in global economy, the deterioration in the budget seemed to have multiplied.

The 14 billion Turkish Liras budget deficit for the first nine months of 2012, which was announced yesterday, clearly revealed the deterioration emerging in the financial discipline.

The government will try to regulate this tendency since one of the most important reasons why Turkey was minimally affected by the global economy was its maintaining of its financial discipline during that period and the confidence it generated to the markets through this. The government took action to regain this confidence. We cannot foresee yet how the election process will affect this effort.