Yogi Berra on the Turkish economy
I learned the basics of America’s favorite pastime only when the Red Sox were on their way to break the Bambino’s curse in 2004. Therefore, I won’t hold it against you if you have never heard of Yogi Berra.
However, the baseball great, who passed away on Sept. 22, was famous for his “wise” sayings, some of which apply to the Turkish economy really well.
With the Central Bank of Turkey delaying much-needed rate hikes, it looks more likely that they will have to raise their policy rates substantially eventually, just like in June 2006, October 2011 and most recently, January 2014. As Berra would say, “it’s like déjà-vu all over again.”
Bank officials would not admit that President Recep Tayyip Erdoğan would not allow them to hike rates.
Therefore, they have to force the borders of logic and economics to justify their policies, making statements that are not much less quantitatively-challenged than another famous Berra quote: “Baseball is 90 percent mental and the other half is physical.”
“A nickel ain’t worth a dime anymore.” With a minor change, this quote would fit the Turkish lira really well:
“A lira ain’t worth a dollar anymore.” It almost was once, though. Back in January 2008, when the lira-dollar exchange rate was below 1.15, I had a bet with a bond trader on whether it would hit 1 or 2 first. I won that bet in August 2013. If I had only increased the stakes and bet on 3 instead of 2.
“It is tough to make predictions, especially about the future.” People wonder why economists, at least most of them, did not see the global crisis coming. As I have argued many times in my columns, forecasting is no easy business. And despite me winning my exchange rate bet, forecasting currencies is extremely challenging, especially in the short-run, when economic fundamentals matter less.
“If you don’t know where you’re going, you might end up some place else.” This is probably the best description I have ever heard regarding Turkish economic policy. Without any real planning, sense of direction or goals, it has looked directionless after the economic program designed by Kemal Derviş and the International Monetary Fund (IMF) ran its course. The macroeconomic reforms of that program were simply not followed by microeconomic ones.
It wasn’t only that: “We made too many wrong mistakes.” Not striking a deal with the IMF during the global crisis turned out to be a “right mistake” in retrospect. But brushing the fiscal rule and an independent tax collection agency under the carpet and, more importantly, delaying structural reforms, taking nepotism to the extreme and replacing the rule of law with discretion are definitely “wrong mistakes.”
Thanks to ample liquidity flowing to Turkey and other emerging markets, these wrong mistakes did not end up damaging the economy. However, even though the Federal Reserve’s first rate hike did not come this month, its normalization is well in place, and “the future ain’t what it used to be.”
Therefore, while “it ain’t over till it’s over,” it seems to be finally over for the Turkish economy. But if you asked Erdoğan, he might take inspiration from Berra: “Slump? I ain’t in no slump… I just ain’t hitting.” The Turkish economy ain’t in no slump, either. The wheels just ain’t turning...