I’m not warning you, Ali Babacan is
When economy tsar Ali Babacan took the stage at the opening ceremony of the Istanbul Finance Summit on Sept. 18, I was expecting that he would adopt populist rhetoric and distort basic facts on the economy, just as Finance Minister Mehmet Şimşek has been doing on the social media platform Twitter for a while.
The deputy prime minister did indeed do some of that, emphasizing the government’s success in decreasing public debt over the last decade. When Daniel Dombey of the Financial Times asked him about the corresponding rise in private debt, he chose to dodge the question. However, most of the rest of his speech was quite balanced and objective.
Instead of boasting over the second quarter growth figures, Babacan emphasized that the quality of growth was much more important than its quantity. According to him, financially sustainable growth should be driven by the private sector rather than the public sector, investment rather than consumption, and domestic savings rather than external financing.
If you read my column on the latest growth figures, you already know that second-quarter growth is financially unsustainable based on Babacan’s definition. Dombey did indeed ask the minister about how the growth statistics fit into this description, but he got no response. Babacan is an elected politician, after all.
Babacan was also not too shy to pinpoint Turkey’s structural weaknesses. He emphasized that it was critical for the country to improve its human capital in order to reach the government’s $25,000 GDP per capita target. In fact, he noted that Turkey’s educational level was too low, even for its current GDP per capita. One would wonder why the government is not implementing the right policies, but Babacan also emphasized that democracy and the economy should improve together.
Most interesting were Babacan’s comments on the global environment. He noted, as I did in Monday’s column, that we were entering a new era. He emphasized that he had foretold this before May 22, when U.S. Federal Reserve (Fed) Chairman Ben Bernanke first made the tapering suggestion. I was present when he warned, during his keynote address at the Central Bank conference “Global Finance in Transition” on May 7, that we should not be deceived by the current liquidity flush and be very careful when that liquidity starts to retreat.
But if “the normalization of developed country monetary policies should not surprise anyone,” how come Babacan sees the recent market turbulence as “temporary repricing”? The market response to the Fed’s announcement on Sept. 18 that there would be no tapering for now would make him seem right. While all emerging markets rallied, the reaction has been strongest in countries like Turkey, which were expected to be affected most from the tapering.
I have always argued that the government and the Central Bank see the global turbulence as temporary. That was before I listened to Ali Babacan. Now I know they are deliberately sailing with the global winds. And hoping we don’t run aground.