At
$6 billion, the January
current account deficit came in higher than market expectations of $5.5
billion, not to mention Economy Minister Zafer Çağlayan’s optimistic $4 billion
projection. According to Sabah, this would make Çağlayan a “karavanacı”
(someone who completely misses the target), as the Turkish daily has called
economists whose forecasts have been off.
High
oil prices are definitely taking their toll on the current account, but even
the non-energy deficit is not adjusting as quickly as expected. As anyone who
skims Turkish dailies would know, a high deficit is a risk because it makes the
country dependent on foreign financing, basically subjecting it to the whims of
global risk appetite. An economy where the Central Bank governor spends more
time worrying about the Fed and ECB than domestic developments is not
healthy by any means.
Argentinean
economist Guillermo
Calvo is reported to have jokingly said that “we don’t know much about
economics other than accounting identities”. The national income accounting
identity dictates that the current account is (more or less) equal to the sum
of public and private savings investment balances. As an emerging market,
Turkey needs to invest a lot to grow. But its savings rate, currently around 12
percent, is very low as well, which can easily be seen in international
comparisons.
Moreover,
savings have been falling since the end of the last millennium. While public
sector profligacy was behind the decline before the 2001 crisis, the fall in
savings over the last decade has mainly been a private sector phenomenon, as
the government started running a tight fiscal ship as part of the crisis
recovery program.
In
a
new study, which was released in Istanbul and Ankara last week, World Bank economists
go a step further by showing that the savings shortfall was due to the plunge
in household savings, as corporate savings actually increased, at least until
the 2008-2009 global crisis.
They
attribute lower household savings mainly to the “decline
in macroeconomic vulnerabilities”: The increased availability of credit,
fall in interest rates and postponed consumption more than offset the increase
in savings that would be associated with rising incomes. There was also less
need for precautionary savings as the economy normalized.
The
decline in woman’s labor force participation might have played a role as well,
as an
earlier World Bank study has found that households in which women work tend
to save even beyond the additional income effect. It seems working not only saves
lives for women, as I was arguing last week, but it also saves private
savings!
These
results are in line with earlier findings, which I had referred to when I
first addressed the Turkish savings problem more than two years ago. Economists
Murat Üçer and Caroline Van Rijckeghem have attributed
the decline in savings to the post-crisis credit growth and the rise in housing
prices, whereas research from Yapı Kredi has pointed
to the increase in middle classes’ share of consumption.
But
the real question is how to increase private savings. This is where I will pick
up next week, when I will conclude my savings trilogy.
March/19/2012