IMF’s Turkey Article IV Staff Report: Grim Reading
I spent the last couple of hours reading through the IMF’s Turkey Staff Report for the 2011 Article IV Consultation (and the accompanying documents). It is now exactly midnight, and the embargo on the document has been lifted, so I can publish this post:)
Let’s cut down to the chase right away: I think the flash point of the report is that “inflows through portfolio debt in H1 2011 are thought to be overstated by some US$6.5 billion in the official balance of payments and external debt statistics because short-term external borrowing by domestic banks collateralized with government securities (securities repurchase agreements) are recorded as nonresidents’ purchases of government debt.” This recording problem has other implications as well, which are summarized in Box 2 of the Staff Report.
Honestly, I had never thought of this, simply because I never bothered to learn about such “boring” BOP recording details, although I have made a promise to myself (many times!) to commit to a few days at the Central Bank, so I am happy the IMF Turkey desk has done that for me:) And if a local economist who follows the country’s economy very closely can learn something new from a Staff Report, that tells a lot about the Report’s quality. So my sincere congratulations to the IMF Turkey team…
This is not to say that the rest of the report is not important. It is, and it is also very well-written. But they don’t really voice any concerns that were not mentioned in the Public Information Notice (PIN), which was published back in December. I had a very detailed post on that at the time, almost as long as the PIN itself:). In general, the arguments in the Staff Report are more detailed versions of the points made there. As for my view, loyal readers would know that many of the points made by the Fund, especially on fiscal and monetary policy, have been emphasized by your friendly neighborhood economist several times as well.
Anyway, if you want to see for yourself what the Fund is saying, but do not have time to read the whole thing cover to cover, I am providing you my annotated version: The important parts are underlined in red, with many short notes sprinkled throughout, so you could just skim through the document reading those. I am not called “your friendly neighborhood economist” for no reason!:)
EDIT: One thing I wanted to mention is that the Fund has apparently cropped its growth forecast since the document. It is 2 percent here, as it was in the PIN (no surprises there), but only 0.4 percent in the more recent G-20 report. I wonder where the difference is coming from- more pessimistic global forecasts (or Turkey-specific factors) or (more probably) a combination…
4 Responses to “IMF’s Turkey Article IV Staff Report: Grim Reading”
Emre – thanks for posting your full annotated version. I am downloading now but for sake of expediency, what are the implications of this overstatement of 6.5B? In very simple terms, does this mean external parties are not buying as much of Turkey's debt as we had thought? How much is the 6.5B as compared to the overall repurchases?
Sorry I could not respond earlier. You probably figured it out after you downloaded the text, but basically, it is saying that the BOP financial account will be overstated when the repo is initiated and undertstated when it expires. But the other implications, mentined on page 34, are far more important, IMHO…
Emre, the growth forecast slash seems a surprise -though I'd agree with you it reflects more pessimism globally and with Turkey – and it may reflect the fact that growth was even stronger than the IMF anticipated in late 2011 meaning an even higher base. but as I read it the IMF's global views are not really that pessimtic for 2012 and actually are probably too optimistic for 2013. In any case, its very hard to forecast Turkish growth for this year… we all know it will slow sharply and have likely a quarter or so of negative growth… but how much of a bust is still up in the air – glad to know you'll be tracking all!
One problem is that no one is certain what fiscal & monetary policy will act. Will the government, supported by the CBT, try to go for 4 percent growth this year? Or will they be prudent…. I would guess the former, but you never know….