Weekly Hurriyet Column: The evil IMF creating a crisis
Below is my Hurriyet Daily News column for this week, which you can also read at the Daily News website. No cheesy titles this time around, but I was aiming to mimic the titles of a favorite economist of mine, Suleyman Yasar (I just learned he is an academic at Istanbul University, oh well), aka Suluman the Economist, who has featured into my posts several times. In fact, I just wanted to see what he is up to these days, and his column from today is titled: “Turks have become richer; let’s all take our share“. According to him, this is behind the latest market turmoil and the credit agencies’ resistance to increase Turkey’s credit rating. The sad thing is that my title today was an exercise in sarcasm, whereas his is dead-serious. And he probably believes the IMF is trying to start a crisis to make Turkey borrow from it:) So maybe he saw my title and liked it, if he didn’t read on:) And the sadder thing is that as of 13.30 Turkish time, his column has been recommended by 85 people, compared to a mere six for my column. Am I jealous? Absolutely!!!!:):):)
As for addenda,the last 5-6 posts could be considered as addenda, and I have linked to them in the column. But they were more like complements. I will have an addendum at the blog later today, as usual, so on to the column:
Turkish markets ended the week on a bad note, with the Turkish Lira briefly touching 1.70 against the dollar and the euro-lira exchange rate seeing its highest level on Friday.
Interestingly, this happened while risk appetite returned to global markets as Europe’s leaders took significant steps toward dealing with the region’s sovereign debt crisis, so the media was quick to round up the usual suspects.
The IMF became the obvious candidate, as a couple of its recent papers had scared markets. First to attract attention was a paper prepared for the Group of 20, which showed the Turkish economy contracting significantly next year.
Had the fund’s Turkey economists been able to see the most recent figures pointing to a flat quarterly growth in the second quarter, their growth projections of 8.7 and 2.5 percent for this year and the next would have probably revised down and up, respectively, but the forecasts are otherwise logical.
Simply put, the fund is projecting a sharp retreat in domestic demand next year. They also agree with your friendly neighborhood economist that the current account deficit has jumped to a new plateau of around 10 percent. Some columnists and economists have criticized the forecasts since the deficit does not fall much despite the large growth pullback.
Although there is a link between the current account deficit and growth due to Turkey’s external-finance driven growth model, that relationship is not as simple as many assume, with the 2006-2008 episode being a case in point. The fund would never say it like this, but unless strong measures are taken, the current account deficit will fall significantly only as the result of a crisis.
Just as the tremors induced by the fund’s projections were waning, another IMF paper appeared on the markets’ radar screens, this one showing that Turkish banks would be among those most affected by eurozone debt or banking problems. According to traders, it was this paper rather than Fitch’s warnings on the current account that rattled Turkish markets on Thursday.
Once you look at the methodology of the study, you see there is not much to worry about: The exercise is based on correlations of credit default swaps rather than inherent banking system risks, and there is only one Turkish bank in the study. But nevertheless, it was enough to shake markets.
Finally, the IMF’s coffin was nailed when their Turkey rep was misquoted as saying that risks to Turkey’s financial stability had increased. I was at the seminar in Denizli where he supposedly made those remarks, and I can assure you he just made some general comments on global financial stability. The news agencies issued a correction later on, but the damage was done.
All these instances show that markets have become very jittery, as Central Bank Gov. Erdem Başçı’s innocent comments on the importance of reducing open foreign currency positions at the same conference made a splash in the markets as well. But I think neither Başçı nor the IMF is Keyser Soze.
I am surprised no one is mentioning government officials who have been scaring markets with pointless statements rather than taking the necessary precautions to avoid a crisis.
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