Corruption, economics and voting behavior

In my piece on Saturday (“Is the Turkish economy resilient to political shocks?”), I pointed out two issues: First, I argued that the actual corruption scandal will not affect macroeconomic stability.
In other words, the speculative attack against the Turkish lira will deflate sooner or later. However, one must expect non-negligible damage to the real economy caused by lower growth and higher unemployment. Let me remark that yesterday the Bourse İstanbul (BIST) was up more than 2 percent and the exchange rate was down slightly. As for my second point, I argued that the most critical political issue will be the share of the vote won by the incumbent Justice and Development Party (AK Party) in the local elections on March 30. Indeed, the extent of the probable decline in this share will decisively affect the future of Turkish democracy. Once I had sent my article to my editor, I became acquainted with two stories regarding corruption, economics and voting behavior. A colleague from the Bahçeşehir University Center for Economic and Social Research (BETAM) sent me a piece by Joshua Tucker, a professor of politics at New York University, that was published on the website of The Washington Post on Dec. 26 and titled “Talking Turkey: How does corruption affect voting behavior?” In it, Tucker summarizes the findings of a recent article he co-authored titled “The economy, corruption, and the vote: Evidence from experiments in Sweden and Moldova” (Electoral Studies, September 2013). Then, I met in the hall a Greek colleague, Byron Matarangas, who is a guest academic at Bahçeşehir University. He reminded me of the saga of the economist and late Prime Minister of Greece Andreas Papandreou (the father of Georgios Papandreou) at the end of the 1980s. Let's begin with the article in Electoral Studies, which used a novel design for two original survey experiments in Sweden, considered a “low corruption” country as it is ranked third on Transparency International's Corruption Perceptions Index, and Moldova, a “high corruption” country ranked 102 among 177 countries on the same index. What are his findings? I quote from the article. “First, there is indeed an interactive effect between economic conditions and corruption in our low corruption country (Moldova): when economic conditions are poor, incumbents are punished for corrupt behavior. However, when economic conditions are better, the effect of corruption is significantly diminished. In Sweden, on the other hand, corruption is always punished by voters regardless of the state of the economy. Moreover, Swedish voters react more strongly to prompts regarding corruption than do Moldovan voters.” Andreas Papandreou, founder of the Panhellenic Socialist Movement (PASOK), faced a graft probe scandal at the end of the 1980s. A 35-year-old young man, George Koskotas, who had been living in the US, returned to Greece. Although he was not known as a wealthy fellow, he bought a small bank, the Bank of Crete. He then bought -- with the bank's money -- two newspapers having financial problems and shut them down. Coincidentally, these newspapers were known as fierce opponents of PASOK. However, Mr. Koskotas was not satisfied with this coup. His next step was to purchase Kathimerini, an influential newspaper that was also in financial distress. This was too much, and the Greek media started shouting of a scandal. An investigation was opened; Koskotas flew to Brazil in a private jet. While abroad, he claimed that Papandreou had ordered state companies to deposit funds into the Bank of Crete and had taken bribes of stolen money. Meanwhile, Papandreou alleged that local collaborators were part of an international plot aiming to overthrow him. Koskotas was later forced to return to Greece, where he was tried and sentenced to 25 years in prison. PASOK lost the general elections in 1989, won by a coalition between the New Democracy Party and the Communist Party. Three ex-ministers of PASOK have been tried and sentenced for helping Koskotas in his dubious affairs, including his escape to Brazil. It is still unknown how Mr. Papandreou escaped trial. One can only note that President Konstantinos Karamanlis declared it would better that Papandreou go back home than to prison. Out of curiosity, I checked the International Monetary Fund (IMF) database: The Greek economy grew 4.3 percent in 1988 and 3.8 percent in 1989. I have to note that one cannot know if, at that time, a love story between Mr. Papandreou and a jolly flight attendant for Olympic Airways, Dimitra Liani, who became his second wife after he divorced, also played a role in this electoral defeat. Either way, we do not have such a factor in our case. So, I will leave it to you to guess the elections results for the incumbent party on March 30, keeping in mind that Turkey ranked 55th on the 2013 Corruption Perceptions Index, midway between Sweden and Moldova, and that the damage to the Turkish economy until this time will probably be limited but felt to some extent.

Is the Turkish economy resilient to political shocks?

The easy answer to this question might be “let's see.” That said, I would like to try to posit a rather nuanced and difficult answer: Personally, I believe that Turkey's macroeconomic stability will be resilient to political shocks, but the real economy, i.e., economic growth and unemployment, will not.
Since the corruption scandal erupted, Bourse İstanbul has lost almost 13 percent and the Turkish lira has lost 7 percent against the US dollar, according to Friday morning's figures. The impact of the political shock is obvious. Political uncertainty is at its zenith. The short-term concern of financial market players is, of course, both the stock market and the exchange rate. Right now, speculators are dragging these indicators down. If this adverse reaction persists -- in other words, if the stock exchange and the Turkish lira continue their dive or even remain at current levels -- the impact on the real economy will be devastating. Indeed, Turkish private companies have heavy debts in other currencies, and a significant depreciation of the Turkish lira could drastically hurt their balance sheets. In such cases, we know that investment plans are cut back, layoffs begin and bankruptcies increase. Moreover, as inflation rises as the lira depreciates, interest rates would be pushed up and demand for consumer durables and investment goods pulled down; a recession would be unavoidable. However, I don't think that the dumping of Turkish lira-based assets will persist. At the same time, I expect the exchange rate to rally, basically for two reasons: First, I think that the policy roadmap announced by the Turkish Central Bank on Tuesday is consistent and realistic. I have confidence in the expertise of its managers and their independence. Periods of political turmoil are occasions to appreciate the importance of this independence in isolating the economy from politics. Furthermore, I believe that the sale of a total of $6-7 billion planned up to February might be enough to curb speculation, all the more so because the central bank can recover what it sells through its reserve option mechanism. On the other hand -- and this is my second argument -- the fiscal anchor is in place. While 2013 might be considered a year of political turmoil, the budget is in better shape than it has been in decades. The budget deficit is expected to be well below 2 percent and the public-debt-to-GDP ratio down to 35 percent. This government's insistence on fiscal discipline despite the upcoming elections -- and despite the current turmoil, I hope -- will constitute a bulwark against speculation. Nevertheless, I am less optimistic for the medium term. I think the critical question that all economic players are asking can be formulated as follows: Who will govern Turkey in the coming years and how will it be governed? We may begin to glimpse the answer to this question on March 30. I think Prime Minister Recep Tayyip Erdoğan's new government will be able to hold out until the local elections. Then the critical issue will be how much electoral support the Justice and Development Party (AK Party) gets. We have to consider two scenarios: First, a substantial decline in its public support, which some estimated at 50 percent before the corruption scandal; let's say it falls under 45 percent, at least. Second, the party could sustain very little damage to its support. Neither of these scenarios disperses the clouds of political uncertainty. If the damage to the ruling party is limited, I think the path toward an authoritarian regime à la Vladimir Putin, including a Russian-style presidential system, will be basically cleared. This would augur nothing good for investment in general, and for foreign direct investment (FDI) in particular, since a drift toward authoritarianism would jeopardize Turkey's EU bid and damage investor confidence in the rule of law. Let me also note that most of Turkey's FDI comes from the EU. If the damage is substantial, I'm afraid that political uncertainty will not decrease. On the contrary, it will get even worse. Will Mr. Erdoğan insist on pursuing his presidential ambitions? If the answer is yes, the result of the presidential election in July must be awaited. If the answer is no, another question arises: Will he give up political life? The answer to this question doesn't matter. Should one expect a split in the ruling party if that happens? As long as these questions remain unanswered, political and economic reforms will be postponed and all kinds of investment will be discouraged. This means lower growth and higher unemployment.

Siyasal belirsizlik had safhada

Siyasal belirsizlik had safhada

            Dün sabah 2014 Para ve Kur Poltikası raporunu sunanTCMB Başkanı Erdem Başçı’yı dinlerken ekonomi yönetimiyle siyasal yönetim arasında mesafenin adeta bir uçuruma dönüştüğünü düşündüm. Ekonomik istikrar konusunda fazla endişeli değilim. Bu konuya aşağıda döneceğim. Buna karşılık siyasal istikrarsızlık hayaleti Türkiye semalarında ayan beyan göründü. Gündeme bir bomba gibi düşen büyük yolsuzluk soruşturmasına karşı AKP Hükümeti’nin verdiği yanıt önümüzdeki dönemin büyük siyasal çalkantılara gebe olduğunu gösteriyor. Hükümet yargı sürecinin arkasında olduğunu söyleseydi, bu yanıt siyasal istikrara hizmet edeceği gibi, AKP iktidarına da aklanma fırsatını verecekti. Tabi eğer ortalaya saçılan onca şabeli olgular iddia edildiği gibi düzmece değilse...

Hükümet farklı bir tercih yaptı. “Saldırı en iyi savunmadır” mantığı ile yolsuzluk soruşturmasının “iç ve dış mihrakların” AKP’yi iktidardan uzaklaştırmak amacıyla tezgahladığı bir komplo olduğunu idda etti. Cemaate yönelik büyük cadı avı başlatıldı. ABD ile ipler iyice gerildi. Dahası yargı sürecine açıktan müdahale başladı. Hükümet alelacele yürütme ile yargı arasındaki güçler ayrılğının en önemli teminatlarından olan adli soruşturmaları yürütme erkenin adeta iznine bağladı.

İktidarın oyları

Bu ortamda yargı sürecinin nasıl sonuçlanacağını kestirmek zor. Sonuç ne olursa olsun AKP iktidarının “savunma için saldır” tercihi otoriterleşmenin dozunu iyice arttıracağa benziyor. Bu koşullarda peşpeşe yapılacak üç seçimden çıkacak sonuçlar demokrasimizin ve Türkiye’nin jeopolitik konumlanması açısından hayati önemde olacak. Soru şu: 30 Martta AKP oy oranı düşecek mi? Düşecekse ne kadar düşecek? Kestirmek zor. AKP’nin demir çekirdeğinin dışında bu partiye oy veren en azından bir kaç milyon seçmen var. Çoğu ekonomik ve siyasal istikrar için veriyor çünkü güvenilir bir alternatif görmüyor. Bu seçmenlerin tepkisi ne olacak?

Eğer iktidar partisinin oylarında belirgin bir düşüş olmazsa, ki doğrusu bu şaşırtıcı olur, Türkiye’nin Rusyalaşmasının önü açılır. Ama eğer iktidarın oy desteğinde en az 5-6 puanlık bir düşüş olursa AKP siyasal oyun planını değişmek zorunda kalır. Yolsuzluk soruşturmasına iktidarın verdiği yanıtla iyice derinleşen polarizasyon koşullarında, Başbakan Erdoğan’ın cumhurbaşkanı seçilmesi ile yapılacak erken genel seçimlerde referandum çoğunluğunu (330+) elde ederek bir çeşit “Türk usulü” başkanlık sistemine geçişi içeren planın başarı ihtimali çok azalacaktır. Anakara kulislerinde 3 dönem kuralının değişebileceği tartışılıyormuş. Doğrusu şaşırmadım.

Ekonomik çıpalar sağlam

Tüm bu gelişmeler zaten var olan siyasal belirsizliği zirveye taşıdı. Gelecek yıllarda Türkiye’yi kim ve nasıl yönetecek? Kürt sorunu barışçıl bir çözüme kavuşturulabilecek mi? Bu çözümün önkoşulu olan temel siyasal reformlar yapılabilecek mi? Batı ile ortaya çıkan gerilim daha da derinleşecek mi? Ve tabi kritik soru: Ekonomi ne olacak?

Siyaset sorularına benim yanıtım yok. Bu alanda gelecek iyice bulanıklaştı. Ekonomi için bir kaç şey söylebilirim. Makoekonomik istikrarı tehlikede görmüyorum. Erdem Başçı’nin dün sabah çizdiği dengeli büyümeye ve kur istikrarına yönelik yol haritası tutarlı. Başarılı olacağını tahmin ediyorum. Siyaseten en çalkantılı yıllardan biri olarak tarihimize geçecek 2013 yılını yüzde 1,5 gibi çok düşük bir bütçe açığı ile kapatacağız. Banka sistemi de sağlam. Ama artan siyasal belirsizlik daha az yatırım, dolayısıyla daha düşük büyüme ve daha fazla işsizilk demek olduğunu da unutmayın.           

PM made the wrong choice

I have been taken aback by the statements made by Prime Minister Recep Tayyip Erdoğan during multiple rallies in various cities over the weekend. Clearly, he opted for a defensive attack strategy concerning the corruption scandal that is shaking up the Justice and Development Party (AK Party) rule.
PM Erdoğan at the Ordu rally this week-end Despite the arrests of the sons of two ministers by court decision, Economy Minister Zafer Çağlayan and Interior Minister Muammer Güler, who are indirectly involved in the corruption scandal, did not resign as was suggested by former AK Party minister Ertuğrul Günay, who is still a deputy of the ruling party. Erdoğan seems determined to protect them. Dozens of high-ranking security bureaucrats as well as the managers of the state-owned Turkish Radio and Television Corporation (TRT) have been discharged from their duties, and the Ministry of Justice has appointed two new prosecutors to the investigation. Obviously, this reaction appears to be an operation to involve the political authority in the judicial process. But the most striking feature of the prime minister's discourse is that he has also decided to portray the corruption allegations as an international plot against his government. Erdoğan put under the spotlight US Ambassador to Turkey Francis Ricciardone by stating: “Recently, very strangely, ambassadors have gotten involved in some provocative acts. I am calling on them from here to do your job. If you leave your area of duty, this could extend into our government's area of jurisdiction. We do not have to keep you in our country.” These caustic sentences prove that the AK Party has decided to declare a war not only against the Hizmet movement but also to provoke tensions with the US. Since they have opted for a defensive attack strategy, this reaction does not surprise anyone. At the heart of the corruption machinery lies the bypassing of the US embargo against Iran. Personally I am not against this; the US embargo is not only unfair but also against the economic interests of Turkey. That said, it is quite possible that Halkbank was unofficially charged by the government with organizing this bypass. Washington's discontent about a possible avoiding of the embargo by Halkbank was documented by the Turkish press months ago. However, I do not think the prime minister and most of the ministers were aware of the commissions that were paid. When you create a fuzzy area out of a legal context, you must be very careful about the possibility of corruption, all the more since the commission money involved amounts of hundreds of millions of US dollars, even if we heavily discount the alleged and quite unbelievable $87 billion euro amount of concealed transactions with Iran. In my last piece I suggested that the AK Party is facing a choice between two alternatives: It can either expand its authoritarian mode of governance and use all the coercive instruments at its disposal to try and prevent a decline in the AK Party's electoral support, or it can make a shift to a collaborative strategy in respect of political reforms, leaving behind Erdoğan's presidential ambitions and allowing the judiciary to independently handle the corruption case. A close friend of mine told me I was being rather naïve regarding this second choice. He was probably right, but it was the optimal one concerning the interests of the country as well as those of the AK Party. Unfortunately, the party has chosen the first strategy. I am afraid that this strategy has little chance of convincing even the AK Party supporters that the corruption scandal is just an international plot with domestic collaborators. From now on we should expect a widening of the existent political fractures and growing polarization in Turkish society. I believe that this strategy, implying increasing tensions with the West, will weaken the AK Party. Political uncertainties will increase and the risks of political instability will thus be reinforced. As I claimed in my last piece, a full-fledged economic crisis should not be expected, but economic growth may slump further, thus pushing up unemployment. I think the AK Party made the wrong choice. Now the critical issue will be the level of the AK Party's electoral support in the local elections to be held on March 30. I do not think there will be a massive reduction in the AK Party's electoral support. Nevertheless, a sizable decline in its share of votes may be a benign warning for Erdoğan and maintain hopes for the future of democracy in Turkey.

Is the Turkish economy facing a political impasse?

I had asked myself this question in the title a long time before the present graft probe scandal was making headlines. Prime Minister Recep Tayyip Erdoğan's focus on maintaining power by winning the three  pcoming elections has not only halted progress towards a new constitution but also postponed all decisive economic reforms.
This exclusive focus on Erdoğan's presidential ambition, which reveals his desire for the concentration of executive power in the figure of the president, developed in the aftermath of the June 2011 elections. Now this has become the sole focus of Justice and Development Party (AK Party) rule, excluding not only reforms in the labor market and tax system but also the political reforms capable of resolving the Kurdish issue and making Turkey a modern democracy. Then the corruption scandal blew up. I am sure the readers of Today's Zaman are well informed about the nature and scope of this scandal, as well as about the importance of the individuals involved, so there is no need to repeat these facts. But what must be stressed is that this scandal, a real bombshell in Turkish politics, has increased pre-existing worries about the maintenance of political stability and the AK Party's ability to govern safely and competently in difficult times. I would like to share an anecdotal event in this context. Almost two months ago, I gave an interview to a journalist from a German economic weekly. Once I had spoken my thoughts on the state of the Turkish economy, and I was rather optimistic about the country's economic governance other than in terms of reform, I asked for his impressions. He explained that when he met with some important German investors, they stated that they had suspended their investment plans because of political uncertainty. That claim was something new for me. I was also worried about the effects of political uncertainty, but I was not aware that it was already damaging foreign investment at that point.   Now the risk of political instability is much greater than before. My friend Yavuz Baydar wrote recently in his column: “The AKP was elected in 2001 by a massive voter base which was sick of the deep corruption of the 1990's that brought Turkey to financial collapse. The word 'ak' means 'white' or 'pure,' and it was the masses' hope for a new Turkey, with a new moral order, that kept the AKP in power. These revelations thus pose an existential question for the AKP... Thus, it is no exaggeration to say that the AKP is now closer to a moment of reckoning -- because it seems to have reached a political impasse -- with no moral compass. We can only hope that Erdoğan does not make erratic moves that might make things worse.”   I believe that this is the right way to define the political issue at hand. What strategy will Erdoğan follow from now on? I think there are two possibilities. Firstly, he can pursue his presidential ambition, which requires more authoritarian governance, and at the same time fight to control the corruption scandal and thus prevent a decline in the AK Party's electoral support. I doubt this strategy will be able to lessen the country's political uncertainty. On the contrary, deepening political fractures and growing polarization in Turkish society might weaken the AK Party even further, perhaps leading to a split. The risks of political instability would be reinforced, encouraging greater damage to the economy. A full-fledged economic crisis is not to be expected, since macroeconomic stability rests on the still-independent central bank, a firm belief in the virtues of fiscal discipline and a healthy banking system. However, rather weak economic growth, which is at around 4 percent, may slump even further, thus pushing up unemployment. Erdoğan's other choice might be a return to a reformist agenda in terms of politics and economics. This requires, of course, the abandonment of his presidential ambition and a strategy of compromise both with the Republican People's Party (CHP) and Peace and Democracy Party (BDP) to draft a new constitution, guaranteeing democracy and a true separation of judicial power from the executive, and also to reform the electoral system as one of the key issues in the Kurdish settlement process. Greater order and predictability in the political sphere might allow the AK Party government to implement these economic reforms more efficiently, regardless of the political setbacks in the short term.   It is up to the AK Party rulers to choose between these alternatives.

İşgücü piyasası normalleşiyor

Bu başlık doğal olarak “Yakın geçmişe kadar işgücü piyasasında gelişmeler anormaldi artık normale dönüş başladı” şeklindeki bir iddiayı ima ediyor. Ben böyle düşünüyorum. TÜİK’in pazartesi günü açıkladığı eylül dönemi işgücü rakamları da bu düşüncemi doğrular nitelikte. Önce anormal olan neydi onu hatırlayalım. Büyüme-istihdam ilişkisi bakımından çok farklı iki dönem yaşadık. Kriz öncesinde 2004-2008 arasında ortalama büyüme yüzde 5,1 oldu. İstihdam ise yılda ortalama 390 bin arttı; bir puanlık büyümeye 76 binlik ek istihdam. Bu düşük artışta tarım istihdamındaki hızlı azalışın önemli payı olduğunu not edelim. Buna karşılık 2010-2012 arasında ortalama büyüme hızı yüzde 5,4 olurken ortalama yıllık istihdam artışı 1 milyon 100 bin oldu: Bir puanlık büyüme 204 bin ek istihdam yarattı. Bu şaşırtıcı gelişme işsizlik açısından elbette iyi oldu. Geçen yıl yüzde 2,2’ye gerileyen büyümeye rağmen işsizlik yatay seyretti. Ama bir bedeli de oldu: Emek verimliliği düşerken kişi başına gelir artışı çok yavaşladı.

İstihdam artışı yavaşlıyor
Son dönemlerde işsizlikte tedrici bir artış söz konusu. Geçen yıl eylül döneminde genel işsizlik oranı yüzde 9,1’di. Bu eylülde yüzde 9,9’a yükseldi. Keza tarım dışı işsizlik oranı da yüzde 11,6’dan 12,3’e yükseldi. Mevsim etkilerinden arındrılmış rakamlar işsizlikteki ılımlı artış eğiliminin devam ettiğini gösteriyor. Eylülde ağustosa kıyasla işsizlik oranı yüzde 10,1’den 10,2’ye yükseldi. Tarım dışı işsizlik oranı ise yüzde 12,6’da sabit kaldı.

Ancak esas vurgulanması gereken, işgücü ve istihdam artışlarındaki gelişmeler. Tarım dışı istihdam artışında yıllık artışlar son dört ayda milyon mertebesinden istikrarlı bir şekilde gerileyerek eylülde 468 bine düştü. Mevsim etkisinden arındırılmış serilerdeki tarım dışı istihdam artışları da bu yavaşlamayı doğruluyor: Tarım dışı istihdam nisandaki zirve noktası olan 19 milyon 557 binden eylülde 19 milyon 441 bine geriledi. Verimlilik açısından iyi işsizlik açısından kötü. Bu gerilemede yüz binin üzerinde istihdam kaybeden sanayi belirleyici oldu. Aynı zamanda hizmet sektöründeki yüksek istihdam artışları büyük ölçüde yavaşlayarak 80 binle sınırlı kaldı. Buna karşılık tarım dışı işgücü artışı hız kaybetse de artmaya devam etti. Nisanda 22 milyon 162 binden eylülde 22 milyon 234 bine 72 bin yükseldi. Bu sınırlı artışın baz etkisi içerdiğini not edelim.

Yüzde 4 büyüme yetersiz
Gelişmeler şunu gösteriyor: İşgücü artışları kararlı bir şekilde yıllık 600 bin civarındaki trend artışına yöneliyor. Buna karşılık kriz ertesinde gözlemlenen büyümenin normalin çok üzerinde seyreden istihdam yaratma kapasitesi de hızla geriliyor ve normale dönüyor. Kriz öncesinde yüzde birlik tarım dışı büyüme yaklaşık yüzde yarımlık istihdam artışı sağlıyordu. Bu düzeydeki büyüme-istihdam esnekliği de oldukça makul verimlilik artışları demekti. Bundan böyle büyümeye istihdam ve verimlilik daha dengeli katkı yapacaksa, yüzde 4’lük büyüme 600 binlik ek istihdam yaratmaz. İstihdam artışları en iyi ihtimalle 450-500 bin civarında kalır. Daha fazlası için büyümenin yüzde 5’e çıkması ve sermaye stoku-istihdam artışından daha fazla katkı alması gerekir. Ekonomi yönetimi bu sorunun farkında. Orta Vadeli Program 2014-2016 döneminde ortalama büyüme hızını yüzde 5’e yakın öngörürken, yıllık istihdam artışının da yaklaşık 600 bin olmasını bekliyor. Burada kritik nokta büyümenin cari açığı yükseltmeden yüzde 5’e yaklaşması. Bunun için de talep yönünden büyümenin daha fazla ihracat ağırlıklı olması şart. Yapısal reformların sürekli seçimler sonrasına ertelendiği bir ortamda AK Parti hükümetinin bunu başaracağından emin değilim.

Turkey continues to grow pretty well

The third quarter growth statistics revealed by the Turkish Statistics Institute (TurkStat) on Tuesday showed that the economy continued growing but, more importantly, that growth had became more balanced, or less unbalanced, if you prefer. The annual growth rate reached 4.4 percent in the third quarter while the seasonally adjusted quarterly growth rate was estimated to be 0.9 percent, making it 3.6 percent when annualized. Those growth rates are higher than both market and government expectations. The prime minister thus did not miss the occasion to show his jubilation. Moreover, the contribution of net exports changed from negative during the first two quarters to positive in the third quarter. I was expecting such an improvement: I had written in this column on Nov. 15 (“Recent developments in Turkish economy”) that the advanced indicators of the third quarter allowed me to be moderately optimistic. I had also noted that Bahçeşehir University Center for Economic and Social Research's (BETAM) forecast pointed to a “possible comeback for balanced growth.” However, it would be too early to declare a victory on the economic front. Since the devil is in the details, let me go through the details of the third quarter growth performance. When the quarterly changes of the expenditures composing the gross domestic product (GDP) are seasonally adjusted (see BETAM's last quarterly research brief on economic growth), we observe the following particularities regarding the growth performance from the second quarter to the third quarter. The biggest contribution to growth came from private consumption. It increased by 1.5 percent and contributed 1 percentage point (PP) to quarterly growth. This appetite for consumption allowed firms to liquidate their inventory which had attained excessive levels in the second quarter. So, the destocking also contributed positively to growth. Maybe it would have been preferable to have less appetite for consumption and more willingness for saving but in the days of low growth, this is better than stagnating consumption. That being said, there is some good news: Private investments continued to increase, contributing 0.5 pp while the contribution of net exports was also positive at 0.7 pp. This was not the case in the first two quarters. However, exports fell by 2.6 percent compared to the previous quarter and this positive contribution was obtained by a higher decrease in imports (minus 4.7 percent). This is not promising for the future. The most striking and somehow surprising aspect of the third quarter growth is the harsh halt on public expenditures. Indeed, public expenditures declined by 6.6 percent compared to the previous quarter, lowering the growth rate by 1 pp. Both public consumption and investments decreased but the decrease in public investments was quite high. Public investments had also decreased in the second quarter, by 0.8 percent, but this decrease was much more moderate. Clearly, the budget deficit this year will be much lower than the planned deficit, probably lower than 2 percent. No doubt, the government has firmly decided to stick to its fiscal discipline despite the approaching elections. One can also consider this break very harsh in terms of growth. Nonetheless, it constitutes an important anchor for macroeconomic stability while the current account deficit (CAD) is still high, over 7 percent. I expect a growth rate of around 4 percent this year. This performance would be better than the forecasted 3.6 percent of the Medium-term Economic Program (OVP). This will makeTurkey a high-growth country compared to EU countries and some emerging countries. But what can we say about the future? Repeating this performance next year will basically depend on better export performance while imports, excluding gold, must continue to moderately increase. This seems the case actually. But we do not know yet if a structural change is under way or if this is just a temporary situation. As for exports, the Turkish industry has to progress more rapidly in the value-added chain. Economy Minister Zafer Çağlayan presented on Thursday important research conducted by his ministry about the links between R&D, patents, trademarks, etc. and export performance. I will come back to the results of this research on Monday, but would just like to note that among 83,000 exporting companies, three out four are neither spending a cent on R&D nor do they possess a single patent or trademark.

Eğitimde iyileşme var ama yetersiz

Son haftalarda dershane tartışması bizi çok oyaladı. Tartışmaya katılacak fırsatım olmadı. Görüşlerimi kısaca özetleyeyim. Dershaneleri ‘dönüştürme’ projesinin faydasız, aynı zamanda da pek çok olumsuz yan etkiye sahip olduğunu düşünüyorum. Kestirmeden gideyim: En alttan en yukarıya eğitim kurumlarımız arasında büyük kalite farkları var. Bu farklar sert rekabet yaratıyor; rekabet de ekstra ders talebi. Zenginler çocuklarını butik dershanelere, orta sınıf ise kitlesel dershanelere yolluyor. Yoksulların sadece yetenekli çocukları dershanelerin verdiği burslarla yarışa katılabiliyor. Piyasa ekonomisinde talep varsa arz da vardır. Arzı çeşitli yollarla kısıtlamak pek çok olumsuz yan etki doğrur. ‘Dönüşüm’e verilecek teşvikler özel okullar arasında haksız rekabet yaratır, iflaslar artar. Kamu ‘dönüşemeyen’ dershanelerin açıkta kalacak tüm personelini istihdam edemez. Etmeye kalkışırsa kadro bekleyen yüz bini aşkın öğretmene haksızlık olur. Dershanelerin ortadan kalkması özel ders ile butik dershane fiyatlarını arttırır, yarış daha da eşitsiz hale gelir vb...

Hükümet bu anlamsız projeden çıkış yolları arıyor, iyi de yapıyor. Dershane ‘kavgası’ bir bakıma da faydalı oldu: Eğitim sistemimiz tartışmaya açıldı. Bu arada OECD’nin 2012 PISA (Uluslararası Öğrenci Değerlendirme Programı) sonuçları açıklandı. Basınımız konuya önceki yıllarda göstermediği kadar ilgi gösterdi. PISA puanlarını 2006, 2009 ve 2012 itibariyle değerlendirdiğimde şu üç sonuca ulaşıyorum: 1) Türkiye’nin ortaöğrenim eğitim performansı dikkate değer ölçüde iyileşmiştir. Buna rağmen OECD sıralamasında sondan üçüncü olan yerimizi (bizden kötü Meksika ve Şili var) korumuş bulunuyoruz. Bunun nedeni çok geriden geliyor olmamız ve yükselen puanlarımızın sıralamadaki yerimizi değiştirmeye yetmemesi. Buna karşılık, eğitimde eşitsizliği azaltma açısından belirgin bir ilerleme söz konusu.

PISA 15 yaş öğrencilerini üç alanda sınıyor: Matematik, fen ve okuma. Sırayla gidelim. 2006, 2009 ve 2012 matematik ortalama puanları şöyle: 424, 445, 448; fen puanları: 424, 454 ve 463; okuma puanları: 447, 464 ve 475. Türkiye 19 ile 28 puanlık artışlar sağlamış. 34 OECD ülkesinin yarısı puanlarını arttırmış. Türkiye eğitim performansını en çok arttıran ülkelerin arasında. Diğer 17 ülkenin performansı ise düşmüş. Örneğin, Yunanistan’ın matematikte 459 puandan 453 puana gerilediğini, Türkiye’nin ise 448’e çıkarak aradaki farkı büyük ölçüde kapattığını not edebiliriz. OECD’nin normalize edilmiş ortalamasının 500 puan olduğunu dikkate alırsak, her üç alanda da, ama bilhassa matematikte iyileşmeye rağmen bir hayli geride olduğumuz açıkça ortada.

Buna karşılık eşitsizlikte bir hayli iyileşme var. PISA sonuçlarının bu yönü basında hiç vurgulanmadı. Puanlar 5 gruba ayrılıyor. Düzey 2 altı çok kötü eğitim kalitesine işaret ediyor. Düzey 5 üstü elit öğrencileri içeriyor. Türkiye test sonuçlarına göre 2006’da matematikte öğrencilerin yüzde 52’si düzey 2’nin altındayken 2012’de bu oran yüzde 42’ye gerilemiş. Fen ve okuma alanlarında oranlar sırasıyla şöyle: Yüzde 46’dan yüzde 26’ya, yüzde 32’den yüzde 22’ye. Elit öğrencilerin paylarında ise artışlar söz konusu: Matematikte yüzde 2’den 6’ya, fende yüzde 1’den 2’ye, okumada yüzde 2’den 4’e. Kısacası, orta düzey öğrenci miktarı önemli ölçüde artmış, elit havuzumuz da genişlemiş. Bu gelişme ileride işgücüne katılacak kuşakların daha donanımlı olacağını gösteriyor. Ancak bu iyileşme Türkiye’yi oldukça geri olduğu inovasyon, dolayısıyla da yüksek katma değerli büyüme konusunda sıçrama yaptırmaya yetmez. Dershaneleri bırakıp eğitim reformuna odaklanmakta yarar var.

The exchange rate debate

Economy Minister Zafer Çağlayan on Thursday, answering a question from a journalist about the actual level of the exchange rate, criticized Turkish Central Bank Governor Erdem Başçı for his announcement of the real exchange rate level.
Minister Çağlayan & Governor Başçı Indeed, Governor Başçı had said in August that it would not be a surprise if the US dollar-Turkish lira exchange rate drops to TL 1.92. Mr. Çağlayan said he thinks the governor should not have announced a figure for the exchange rate and that this was an error because it is not realistic. Mr. Çağlayan added that economic managers must not set such targets in a floating exchange rate regime. This intervention by Mr. Başçı is considered by economic actors as setting an implicit target for the exchange rate. According to standard macroeconomic theory, in a floating exchange regime, central banks cannot target both an inflation rate and an exchange rate since capital can freely move in and out. I also have some doubts about implicit exchange rate targeting from a theoretical point of view but I know that at the same time, the standard macroeconomic theory is evolving under the pressure of events but nevertheless still lags far behind them. Governor Başçı had made this announcement when the lira was under speculative attack because of increasing US Treasury bonds interest rates caused by the Fed's intention to gradually end its asset purchase program. The depreciation of the lira seemed uncontrollable at the time. I believe that Başçı's announcement contributed to stopping speculation against the lira. Indeed, the dollar exchange rate has since been rather stable. Considering the exchange rate volatility in emerging economies, Turkey was the best performer. In other words, it is the country with the least exchange rate volatility in recent times. Mr. Çağlayan's criticism of the Central Bank of Turkey is not new. The economy minister is more focused on foreign trade as well as on current account performances. The central bank governor is responsible for inflation performance. Mr. Çağlayan prefers an undervalued lira in real terms while Mr. Başçı prefers the value of the lira to be as stable as possible in real terms around the equilibrium real exchange rate level. The usual problem is, quite naturally, how to determine this equilibrium level. Macroeconomic theory does not have a magic formula in this respect. In practice, it is admitted that the real exchange rate level which produces a balanced or sustainable current account balance -- with sustainability defined specifically for each country -- might be accepted as the equilibrium real exchange rate. Thus, considering the Turkish case, the graph below can help us predict an equilibrium real exchange rate and, at the same time, better understand the arguments of Mr. Başçı. The real exchange rate graph starts in 2003, the year where the current account deficit (CAD) was quite low. Let me point out that at the end of 2001, the lira had lost almost 30 percent of its real value in real terms compared to its real value just before the infamous crisis of February 2001, causing a terrible exchange rate shock. Taking the 2003 mid-year real exchange rate level as the basis point (=100) and increasing it by 2 percent each year for productivity catch-up (the famous Balassa-Samuelson effect) -- i.e., for higher productivity gains compared to our trading partners -- the index indicates that 120 can be accepted as the equilibrium level for 2013. As can be observed in the graph, the real exchange rate evolved often over the path of the equilibrium rate (the first line in the graph) except in the last two years. According to figures published a few days ago, the index, standing at 110 in September, maintained this level in November, 10 points below the so-called equilibrium level. So, the bottom line of the debate is this: According to Mr. Başçı, the lira is slightly undervalued and there is thus room for appreciation without jeopardizing the external balance. A 5 percent appreciation, for example -- bringing down the nominal exchange rate to TL 1.90 -- would not be a surprise. However, according to Mr. Çağlayan, the actual level of the real exchange rate or, in other terms a dollar rate of over TL 2, is good for exporters and thus for the economy.

Tasarruf açığı artıyor

Bir süredir cari açık yerine daha çok tasarruf açığını tartışıyoruz. İyi de oluyor. Makroekonomide cari açık ile tasarruf açığı, yani yatırımlar ile iç tasarruflar arasındaki fark aynı gerçekliğin iki ayrı yüzüdür. Ama yine de tartışmanın iç tasarruf yetersizliğine odaklanması yararlı çünkü sıradan vatandaşa cari açığı düşürmenin meşakkatli bir yol olduğunu anlatma fırsatını veriyor. Tabii hükümetin iktisatçı olmayan üyelerine de...

Son yıllarda iç tasarruf oranı (özel + kamu tasarruflarının GSYH içindeki payı) süratle düştü. 2011’de bu oran yüzde yüzde 10,7’ye kadar gerilemişti. 2012’de durağanlaşan tüketim ve net ihracata dayalı büyüme sayesinde yüzde 14,5’e yükseldi. Ancak aşağıdaki tabloda görüldüğü gibi bu yıl yüzde 12,6’ya gerilemesi bekleniyor. Kalkınma Bakanlığı’nın 25 Ekim’de yayımladığı ‘ekonominin genel dengesi’ tablosu yatırım-tasarruf-cari açık-büyüme etkileşimlerini tartışmak açısından son derece yararlı çünkü hem mevcut durumu hem de hükümetin gelecek yılda temel ekonomik dengelerle ilgili öngörülerini sergiliyor.

Düşen yatırımlar ve tasarruflar 

Bu yıl hükümet yüzde 4’ün biraz altında bir büyüme bekliyor. Şahsen büyümenin yüzde 4’ün biraz üzerinde olacağı kanaatindeyim ama yüzde 4’e yakın bir büyüme de geçen yılın düşük büyümesine (yüzde 2,2) kıyasla başarı sayılır. Ama bu başarı temel dengelerdeki bozulmayla gölgeleniyor. Kalkınma Bakanlığı’nın tahminine göre geçen yıla kıyasla bu yıl yatırımıların payı düşüyor (eksi 0.4 puan) ama aynı zamanda iç tasarrufların payında da 1.9 puanlık bir düşüş bekleniyor. Bu düşüşün iki nedeni var: Özel tüketimin payındaki artış (1.3 puan) ile kullanılabilir gelirin payındaki azalma (-0.5 puan). Tek teselli kamu tasarruflarında düşüş olmaması. Bu gelişmelerin sonucunda cari açıkta 1.5 puanlık (yüzde 6.1’den 7.6’ya) bir artış bekleniyor. Kısacası, bu yıl dengeli büyüme açısından kayıp bir yıl olacak gibi duruyor. Büyümeyi bir türlü daha az tüketim daha fazla ihracat patikasına oturtamıyoruz. 

Ekonominin genel dengesi (yüzde olarak GSYH payları)

	2012	2013	Değişim	2014	Değişim
Yatırımlar	20.6	20.2	-0.4	20.0	-0.2
İç tasaruflar	14.5	12.6	-1.9	13.7	+1.1
Özel      Kamu	11.6   2.9	9.7   2.9	-1.9   0.0	11.3   2.4	+1.6  -0.5
T. açığı=Cari açık	6.1	7.6	+1.5	6.3	-1.3
Özel tüketim	73.2	74.5	+1.3	73.4	-0.9
Özel kullanılab. gelir	84.8	84.3	-0.5	84.7	+0.4

Umutlar 2014’e kaldı 

2014 ekonomi programı temel dengesizliklerde büyük ölçüde düzeltme öngörüyor. Bu programa göre gelecek yıl yatırımların payında 0.2 punalık bir azalma olurken, özel tüketimin payı da 0.9 puan azalacak. Buna karşılık kullanılabilir gelirin payı 0.4 puan artacak. Kısacası, harcayabileceğimiz gelir artarken tüketimi çok daha az arttırıp özel tasarufları önemli ölçüde arttıracağız. Bu arada kamu tasarruflarının payının da 0.5 puan azalmasının planlandığını not edelim. Ne de olsa 2014’te çifte seçim var. Kamu tasarruflarındaki düşüş kullanılabilir gelirdeki artışla tutarlı. Artık vergi yükümüz mü azalır yoksa sosyal transferler mi artar ya da her ikisi de mi olur, onu bilemiyorum. Bu gelişmelerin sonucu olarak da cari açık oranının 1.3 puanlık düşüşle yüzde 6.3’e gerilemesi umuluyor. Daha düşük cari açıkla en az bu yıl kadar büyümek; doğrusu kulağa hoş geliyor.

Yine de kritik soruyu soralım: Bu öngörülerin gerçekleşme şansı nedir? Özel tasarrufları arttırmaya zorlayan yegâne iki politika kredi kartı taksitlerine getirilmek istenen sınırlamalar ile son aylarda artan kredi faizleri. Bu politikalar vatandaşın tüketim iştahını gerektiği kadar kesmeye yeter mi? Şüpheliyim ama umarım yanılırım.

Where German Social Democrats gave up

I do not remember when I last wrote about the European crisis, but it was a long time ago, for sure. The reason is simply because there was nothing worth writing about; belt-tightening programs were under way in the south with increasing difficulties, while the north, like Germany for example, was getting on pretty well.
In fact, everybody was waiting for the German elections that were held in September. They resulted by a forced “grand coalition” between the Christian Democratic Union (CDU), which lacked a few seats to form the majority in the Bundestag, and the Social Democrats (SPD). The painful negotiations for a coalition program only finished last week. The SPD, once it received its main exigency -- a national minimum wage that did not exist in Germany, has aligned with the economic principles of Chancellor Angela Merkel regarding the eurozone problems. According to French newspaper Le Monde, the “change is not for now”, the most frequently used words in the 11 pages of the coalition agreement consecrated to Europe are “competitiveness,” “fiscal discipline” and “durable growth not founded on public debt.” One can read in the agreement that “every form of mutualization of the risks related to public debts would put in danger the indispensable adjustments of the national policies in each member state.” Clearly, solidarity as defended by the SPD is out while responsibility as defended by the CDU is in. The SPD was a firm partisan of eurobonds which would make possible to share the huge public debt burden of the south. Moreover, the SPD had supported the principle of a one-time debt write-off for Greece in its last party congress. Apparently, the Social Democrats could not convince the iron chancellor to change her approach with respect to the necessary rebalancing in the eurozone. The German government will continue to insist on a rebalancing through budget deficit reductions and wage decreases in the south. Merkel believes that economic growth would follow almost naturally. She might be terribly mistaken. While the coalition agreement was ready, the European commission decided for the first time in the EU's history to monitor a member country -- Germany, of course -- for “excessive current account surplus.” Kemal Derviş, former Turkish economy minister and current vice president of the Brookings Institution, recently published a remarkable article in Project Syndicate titled “Northern Europe's drag on the World Economy.” While China has until recently been accused of being responsible for global unbalances, Germany, having trade surpluses close to those of China, had not attracted much attention since the eurozone current account was balanced and intra eurozone unbalances were considered an internal family problem. Now, the balances are rapidly changing. While China is on its way to decreasing its surplus through a revival in domestic demand, Germany has increased its surplus. According to Derviş, the eurozone will produce a surplus of $260 billion this year (the Chinese surplus is expected to decline to $150 billion), most of which is produced by Germany -- the Netherlands and Austria also have surpluses -- with the remainder being a result of diminishing deficits in the south thanks to its belt-tightening. As pointed out by Derviş, the main adverse effect of this huge surplus will be the appreciation of the euro against the US dollar, the yen and the Chinese renminbi. Southern European countries painfully succeeded in realizing wage devaluations to some extent but this was not enough to restore their competitiveness. The only way for them to return to modest economic growth was an increase in their exports. However, this requires both an undervalued euro and growing German imports. This can only be achieved if the German export-led growth turns into a more balanced one, i.e., growth based more on domestic demand. This radical change in the growth regime can be realized if German wages increase. In fact, the agreed minimum wage of 8.5 euros per hour, fairly higher than the lowest market wages, can actually contribute to some extent to the new growth regime. Nonetheless, Merkel, accepting the minimum wage imposed on her coaltion partner a gradual implementation that will take two years. Obviously the minimum wage decision would not be sufficient to have a less unbalanced economic growth within the eurozone. As was pointed out recently by Larry Summers at an IMF conference and strongly supported by Paul Krugman (“The Conscience of a Liberal,” The New York Times), developed countries face the threat of “secular stagnation” because of insufficient aggregate demand. Boosting it necessitates negative real interest rates that can only be achieved by higher inflation compared to the actual one. I do not think that Chancellor Merkel appreciates such “immoral” ideas.