Over the last decade, as the “great moderation” was transformed into the “great recession” it would not be a mistake to portray the growth process of the Turkish economy as “a gradually-deflating balloon, subject to erratic and irregular whims of the markets”. Yet, if so, the real question becomes: what is the source of this speculative growth?
First let’s consider the “size” of the balloon. The Turkish economy, after collapsing at a rate of -4.8% in the 2009 global crisis, bounced back at rates of 9% and 8.5% in 2010 and 2011. To the pride of the neoconservative orthodoxy in Turkey, these rates were hastily hailed as the second highest rate of growth, after China, in that period. A key feature of this rapid growth was the massive increase of current account deficits and the consequent amassing of foreign debt. The balance of the current account revealed a deficit of $46.8 bn in 2010 and $77.2 bn in 2011. The latter figure was in excess of 10% to the Gross Domestic Product (GDP). In a country in which traditionally the current account was roughly in balance up until the 2000s, these swings were indeed of historic proportions.
After 2006, the Turkish economy started to operate with a high-rate (above 6%) of current account deficits in order to achieve positive growth. 2012 is the year when this observation became clearest. In contrast to the “mild descent” scenarios as expected by official circles and international financial speculators, this period represents a new threshold in the process of transforming the Turkish economy into a foreign debt-ridden economy presenting a haven for cheap imports and labour surplus.
What is also alarming is the poor way of financing of the aforementioned deficits. It can be read from the data that 91% of the current account deficit for the year 2012, namely USD 48.8 bn, was financed by net inflows of portfolio investments and unrecorded capital inflows (so-called net errors and omissions). Being predicated on portfolio investments and unrecorded capital inflows, these hot money flows present the most volatile form of capital, which is also the one most sensitive to abrupt swings of foreign exchange speculation. These kinds of capital inflows are the primary reasons for excessive volatility and uncertainty in the real sectors of the Turkish economy.
In 2008, Turkey’s national income, the GDP, was $742.1 bn with a total external debt stock of $241 bn, $52.5 bn of which was composed of short-term debt. Data presented in table below indicate the Turkish economy’s external borrowing and growth adventure over the cycle of the global great recession (2008 – 2012).
From 2008 to 2012, over the so-called great recession cycle, the Turkish economy has accumulated net extra external debt amounting to $55.8 bn in total. Over the course of the same period, GDP has advanced to $786.4 bn with a cumulative increase of $44.3 bn. That is to say that after 2008 the total net increase in external indebtedness was higher than that of national income.
As an economy, whose short-term external debt is increasing more rapidly than its national income, Turkey has been, once again but now at a much more decisive rate, gripped by speculative fluctuations led by the risk appetite of financial markets. Rating agencies, whose recent decisions have been celebrated by the Turks as a matter of national pride, are undoubtedly familiar with these facts. Yet, one should not be naïve in matters of international political economy and have a clear view that Turkey’s international position is an extension of not only purely economic, but also political preferences. The myths of “economic successes” are now blown up by political players.