Denial ain’t just a river in Egypt

Denial ain’t just a river in Egypt

I am not sure if Mark Twain really made this remark, which is attributed to him anyway. But what I do know is that Turkey’s top economic policymakers are talking and acting like denial is just a river in Egypt.

Take Finance Minister Mehmet “Nominal” Şimşek: He has been warning for some time that Turkey cannot afford to have both a current account and budget deficit – and claiming that the election promises of the main opposition Republican People’s Party (CHP) would result in the latter.

I am surprised that the minister in charge of the budget is not aware that Turkey is already running a budget deficit. Simple national income accounting identities reveal that a country’s savings investment gap is roughly equal to the sum of its budget and current account deficits. While the latter is usually associated with the gap for Turkey, the former accounted for nearly 30 percent of it last year.

Foreign investors have a lot of confidence in him, but (outgoing) economy tsar Ali Babacan has not been faring much better. Speaking in Washington D.C. last month, he underlined the three “i”s of Turkey’s G-20 Presidency: Inclusiveness, investments and implementation (of structural reforms).

Such buzzwords sound nice, but they do not change the fact half of Turkish children are in severe material deprivation – or that around a million young people are not at school or in the workforce. I wonder how Babacan would explain investors’ exodus from the country. And I am also curious how a government that has not implemented serious structural reforms for the past decade, and is not likely to, would convince the G-20 to do so.

Both ministers love to compare Turkey to other countries. I’ll ignore Babacan’s recent stabs at the U.S. – on how Turkish “healthcare reforms” and the Atatürk Airport are superior to Obamacare and the Los Angeles Airport – but even Brazil, also with a rundown airport, can build airplanes while we Turks pride ourselves in building airports. Similarly, Şimşek claims that Turkey is in better shape than India, but the latter is seen as one of the most, and the former the least, prepared countries to weather the Fed’s imminent rate hikes.

Both have also been arguing for a long time that the recent lira weakness was a global phenomenon and was not caused by Turkey-specific developments, such as President Recep Tayyip Erdoğan’s tirades against the Central Bank. But even a cursory look at the data would reveal that the lira weakened much more than other emerging market currencies during this period.

Speaking of the Central Bank, Gov. Erdem Başçı was blaming food prices for inflation – and not even mentioning currency weakness and volatility – even though most Turkey economists thought those were his priorities. Following in the footsteps of the Bank’s latest Inflation Report, which was published on April 30, the one-pager accompanying last week’s rate decision finally admitted that “recently elevated volatility in the exchange rates has limited the improvement in the core inflation.”

But these denials pale in comparison to Erdoğan’s, who recently said he did not want to “act like Vladimir Putin,” referring to the Russian president’s confession to his Turkish counterpart that he was forcing businessmen to invest. I vaguely remember a “pool” – or something like that…