The Kapali Carsi

Turkish Sultanateminister of Public Enlightenment and Propaganda in action again

Just like during the Gezi protests, it has fallen to Finance Minister Mehmet “Nominal” Şimşek, who is moonlighting as Minister of Enlightenment and Propaganda, to clean up the economic debris.

This is the introduction to my latest Hurriyet Daily News (HDN) column, where I take on Turkish Finance Minister Mehmet Simsek’s interview with Turkish penguin news channel Cnn Turk, which found to be extremely misleading. You can read the the whole thing at the HDN website.

I have a couple of addenda to the column, but even before that, I would like to offer an explanation for the title: Whenever I use such provocative titles with obvious connotations, I get criticized for being unfair to the AKP and worse disrespectful to Holocaust victims/survivors. I obviously do not think that the AKP is exactly the same as the Nazi party, and Prime Minister Recep Tayyip Erdogan the the modern-day incarnation of Adolf Hitler. However, I do notice the similarities and want to share those with my readers, like I did in one of earlier columns back in 2009 on the value of political connections. Similarly, when I argued that Turkey 2014 is not Iran 1979, but Orwell’s 1984, I was not claiming people in Turkey were being killed for sexcrimes, merely pointing out that Erdogan was trying to make adultery and unmarried sex a crime- as well as pinpoint to Turkey’s Orwellian ministries…

Another point of criticism has been my seeming fixation with Finance Minister Mehmet Simsek. Although they tell me they agree with my remarks, readers have argued that Simsek is nonetheless one of the most sensible people in the government. That may well be the case (see below), but I am an econ. columnist, and so I have to write econ. My readers read me for econ., and HDN pays me to write econ., and so if I ventured into politics, it would be unfair to them.

Coming back to Mehmet Simsek, I took him as one of the most sensible people in the government until the Gezi protests in June, but since then, he has increasingly been working as the PR arm of the government, not only with interviews, investor conferences, etc, but also from his Twitter account. His row with renowned Turkish economist Dani Rodrik, which I featured in my column, was on Twitter, and I did a second feature on him when he started confusing foreign journalists with misleading tweets on the economy.

There may be two reasons from Simsek’s jump from economic sanity to insanity in a matter of weeks, if not days: Since Erdogan cherry-picked him to become deputy and finance minister despite his lack of politics or bureaucracy experience (just like Idi Amin making a young doctor his top adviser in The Last King of Scotland– see, another of my allusions), so he may be obliged to defend his master, at the expense of ridiculing himself to anyone with a couple of econ. courses under her belt. The second reason I heard from a “connected” journalist: That some of Erdogan’s close advisers were urging Simsek for this propaganda work. Of course, the two are not mutually exclusive.

Since I got all that off my chest, I can go on with the serious stuff, i.e. the actual addenda to the column. First, if you speak, or rather can read (the two are not the same, as my French attests) Turkish, have a look at Radikal columnist Ugur Gurses’ take on Simsek’s claims. His points are similar to mine, but some his angles different, so worth a read. If you prefer to continue with the Hurriyet brand, he wrote a similar piece for Hurriyet as well.

Second, I only mentioned it in one sentence in the column, but economic theory would not predict an immediate improvement in the trade balance because of the deprecating lira. In fact, the relationship is called the J-curve for a reason: Imports gets more expensive, exports cheaper at first, without volume effects, so the trade balance deteriorates. But as the volume effects kick in, the trade balance starts to improve.

So which is more accurate for Turkey? The J or S (for Simsek) curve. Let’s start with simple graphs. I want to look at just the quantity effect, and so I will be using export and import volumes. Since Turkey usually gets euros for exports and pays dollars for imports, I am using EURTRY for exports and USDTRY for imports. As you can see, while the exports graph doesn’t bring out much…

…. the imports graph fares a bit better.

Obviously, we have to do statistical analysis determine the relationships, and since I am not in the mood for running regression on a Friday evening, I had my research assistant Google to do a quick literature search for me. Unfortunately, the papers have conflicting results, in the range from significant to no effect. Then, economist Aykut Kibritcioglu pointed me to a paper by Ferda Halicioglu of Yeditepe University. Halicioglu argues that the results are mixed because of use of aggregate data. He estimates the relationship for Turkey’s trade with 13 countries and finds that “whilst there is no J-curve effect in the short-run, but in the long-run, the real depreciation of the Turkish lira has positive impact on Turkey’s trade balance in couple of countries.” So much for Simsek’s immediate adjustment…

I have picked on Simsek a bit too much, and so I’ll conclude by giving him a break: I have heard bankers say that the rise in FX deposits might not be fully because of dollarization for a couple of reasons. First, some of the deposits could be reflecting money that has come because of the wealth amnesty; according to statements from Simsek and econ. tsar Babacan, the figure could be as high as $10bn. Second, some of the money could be reflecting cross currency swaps, which have apparently become quite popular of late, as they offer more return than deposits. These would be converted to lira at some stage. But even if you pencil in $10-15 for these two, the rise in FX deposits still looks dangerously large…

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