[The economy is what lays behind the resounding election success of the Justice and Development Party, or AKP, say many respected analysts. As the narrative goes, the AKP presided over an era of stability: Annual inflation of 65 percent in November 2002 was pulled down to 7.2 percent as of May, for example. Or, nominal interest rates fell from as high as 70 percent to just above 10 percent. The economy grew robustly, as displayed in 2010’s stellar growth rate of 8.9 percent.

It should come as no surprise that in his election campaign, PM Recep Tayyip Erdoğan focused on the economy. But then, why did opposition parties also base their campaigns on the same economy? Because the performance outlined above came at a price that has been paid by some sections of the society, in the form of chronic unemployment, for example. Furthermore, it looks increasingly likely that a much bigger price will be paid by all.

On this darker side of the coin, lies booming debt that manifests itself in a current account deficit of $63.4 billion making Turkey a net debtor to the rest of the world. In a June 20 statement, the banking regulator said the ratio of household debt to household assets stood at 35.1 percent as of April, up from 29.6 percent at the end of 2009. The ratio of personal loans to bank deposits, which was at 48 percent before the global crisis hit, has increased to 54 percent, surpassing 200 billion Turkish Liras.

The overall picture is one that tells of an economy growing on cheap foreign credit. And that picture, sadly, shows the AKP’s “economic miracle” was not about solving the structural problems of the economy. Because Turkey has been here in the previous crises of 2001, 1994 and earlier.

Then, what the AKP did was to “ride the wave” of a favorable business cycle, as Turkey recovered from the 2001 crisis through brutal austerity imposed by the previous coalition government. But AKP was also “lucky” in that it came to power during an extremely favorable period in the global economy, a time which many call as the Great Moderation. This era was characterized with the growth of emerging economies, with China at the fore: Suppressing domestic demand and wages, these economies were able to attract huge amounts of foreign investment as they became the new manufacturing and service hubs of the world as globalization reached its peak.

And their unrivaled competitiveness has created what is called imported disinflation. “Tumbling ... prices helped keep down the overall inflation average - this imported disinflation, courtesy of China ... did wonders for living standards,” said Allister Heath, in a November 2010 column for City A.M.

In a June 2011 study, economists Jean Bartheelemy and Guillaume Cleaud calculated that “the contribution of the imbalanced development of international trade on euro area inflation” has been minus 0.7 percentage point on average. They focus on the eurozone, but what they say also applies to Turkey: “A country with an increasing propensity to consume foreign goods rather than domestic ones undergoes deflationary pressures due to lower demand for its domestic goods.” (“Global Imbalances and Imported Disinflation in the Euro Area.”)

As the “Great Moderation” comes to an end, with inflation showing its ugly face in emerging economies again, Turkey awaits a “correction” that would make foreign currency more expensive. And the Turkish private sector is looking into the abyss with a foreign debt load of $148 billion.]

To someone with familiar with the American economy, or any developed economy for that matter, the private sector debt figures, especially household debt, may seem like a joke. But you should pay attention to the flow, not the stock, i.e. the stock of debt is low, but it has been growing fast. In fact, this dichotomy between stock and flow data is a characteristic of the Turkish economy, especially in the external balances.

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