Turkey’s economic lie
Op-ed: Turkey no economic powerhouse, Erdogan’s credit bubble will soon explode
Guy Bechor
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Some refer to him as “the Middle East’s new sultan in a neo-Ottoman empire” – yet the truth about Erdogan’s kingdom is utterly different. We are not facing an economic power, but rather, a state whose credit bubble will be bursting any moment now and bringing down its economy.
The budget deficit of the collapsing Greece compared to its GDP stands at some 10%, and the world is alarmed. At the same time, Turkey’s deficit is at 9.5%, yet some members of the financial media describe the Turkish economy as a success story (for comparison’s sake, Israel’s deficit stands at some 3% and is expected to decline to 2% this year.)
Related stories:
- Erdogan – The Mideast’s new hero?
- Turkey to complicate life for Israel, but avoid war
- Erdogan: Warships in E. Med at any moment
While Turkey’s economy grew by some 10% this year, this was merely the result of financial manipulation.
So how does the system work? The banks in Erdogan’s Turkey handed out loans and mortgages to any seeker in recent years, offering very low interest rates; this was in fact a gift. As the interest rate was so low, Turkish citizens used more and more credit, mostly for consumption.
And how did Turkey’s Central Bank finance this credit party? Via loans: Erdogan’s bank borrowed money in the world and handed it out to its citizens. However, Turkey’s deficit kept growing because of it, until it reached a scary 8% of GDP; by the end of the year the figure is expected to reach 10%.
Turkey’s external debt doubled itself in the past 18 months, which were election campaign months. Only a small part of the deficit (15%) was financed by foreign investment. The rest constitutes immense external debts.
Now it’s clear that Erdogan’s regime bought the voters in the recent elections. Most of the Turkish public elected him not because of Islamic sentiments, but rather, because he handed out low-interest loans to everyone. I will provide you with cheap money so you can become addicted to shopping, and you shall elect me.
The Israel diversion
This created Turkey’s credit bubble, which may explode any day now, because the date for returning the loans approaches. Will the Saudis help Erdogan as he hopes? This is highly doubtful. Nobody is willing to pay for attacks on Israel, and the West is annoyed by Erdogan’s thuggery. Why should they help him?
Moreover, Turkey’s unemployment rate is 13% and the local currency continues to plummet vis-à-vis the dollar – it reached its lowest levels since the 2009 global crisis. With a weak currency and with a stock exchange that lost some 40% of its value in dollars in the last six months, Erdogan wants to be the Middle East’s ruler?
Once the bubble explodes, the score with Erdogan will be settled, by the journalists his government ordered to arrest, by army officers charged with imaginary accusations, by the restrained scientists, the politicians, and mostly the general public, which shall be facing an economic disaster.
And this is where Israelcomes into the picture. Why talk about the approaching economic catastrophe? Why talk about this disgrace, when it’s better to create an artificial crisisvis-à-vis Israel, a spin that the whole world will be talking about instead of talking about the sinking Turkey? After all, the Marmara raid happened more than a year ago, why did it emerge again now? Is it only because of the Palmer Report?
We shall wait a few more months, and then we shall see what really happens in the new sultan’s kingdom.
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Turkey's economy is increasingly driven by its industry and service sectors, although its traditional agriculture sector still accounts for about 30% of employment.
An aggressive privatization program has reduced state involvement in basic industry, banking, transport, and communication, and an emerging cadre of middle-class entrepreneurs is adding a dynamism to the economy.
Turkey's traditional textiles and clothing clothing sectors still account for one-third of industrial employment, despite stiff competition in international markets that resulted from the end of the global quota system.
Other sectors, notably the automotive, construction, and electronics industries, are rising in importance and have surpassed textiles within Turkey's export mix.
Oil began to flow through the Baku-Tbilisi-Ceyhan pipeline in May 2006, marking a major milestone that will bring up to 1 million barrels per day from the Caspian to market.
Several gas http://www.theodora.com/pipelines/world_oil_gas_and_products_pipelines.html also are being planned to help move Central Asian gas to Europe via Turkey, which will help address Turkey's dependence on energy imports over the long term.
After Turkey experienced a severe financial crisis in 2001, Ankara adopted financial and fiscal reforms as part of an IMF program.
The reforms strengthened the country's economic fundamentals and ushered in an era of strong growth - averaging more than 6% annually until 2009, when global economic conditions and tighter fiscal policy slowed growth to 4.7%, reduced inflation to 6.5% - a 34-year low - and cut the public sector debt-to-GPD ratio below 50%.
Turkey's well-regulated financial markets and banking system weathered the global financial crisis and GDP rebounded strongly to 7.3% in 2010, as exports returned to normal levels following the recession.
The economy, however, continues to be burdened by a high current account deficit and remains dependent on often volatile, short-term investment to finance its trade deficit.
The stock value of FDI stood at $174 billion at year-end 2010, but inflows have slowed considerably in light of continuing economic turmoil in Europe, the source of much of Turkey's FDI.
Further economic and judicial reforms and prospective EU membership are expected to boost Turkey's attractiveness to foreign investors.
However, Turkey's relatively high current account deficit, uncertainty related to policy-making, and fiscal imbalances leave the economy vulnerable to destabilizing shifts in investor confidence.
GDP (purchasing power parity):
$958.3 billion (2010 est.)
country comparison to the world: 17
$893.1 billion (2009 est.)
$937.1 billion (2008 est.)
note: data are in 2010 US dollars
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