The Kapali Carsi

Demystifying Turkish UFOs

I can hear you say it: “He finally lost it.” Nope, I have not gone completely nuts. I haven’t smoked anything that would make me see UFOs, either. I am talking about Turkey’s Unidentified Financing Objects.

Here is the intro. to my latest Hurriyet Daily News (HDN) column, where I take on the first of the mysteries of the Turkish economy I mentioned in my previous column. Anyway, you can read the whole thing at the HDN website. I have a few things to add, but before that, I need to clarify a couple things: First, I did not buy anything that would make me see UFOs at the IMF-World Bank Annual Meetings, to which I attended last month, either. Weed was still illegal in Washington, D.C. at the time- I hope it will be legalized before the Spring Meetings. As for losing my mind, I claim neither that Muslims discovered the Americas nor that evil powers are trying to assassinate Supreme Leader President Prime Minister Recep Tayyip Erdogan  by telekinesis. In their defense, you could say that you cannot lose something you never had in the first place:) In any case, if you want to sell crazy in Turkey, just remember we are all stocked up here. Finally, before I move on to more serious matters, here’s a reader response to my Friday’s column, where I had relayed that I look like Nick Fury these days: Not to fear, Emre. In the country of the blind the one-eyed man is king. Sad but true… BTW, I still look like Nick Fury; it took me forever to write this email:( I tell’ya: Never get an eye infection…

Anyway, on to more serious matters: To start with, I mentioned in the column that the last few years have been characterized by a growing NEOs term. But there is also another interesting fact I did not have enough space for in the column: Before 2003, annual NEOs were evenly distributed between positive (inflows) and negative (outflows). Since then, they have been invariably been positive, except in 2006, when NEOs posted a small negative number. Whether that had/has anything to do with deliberate economic policy, global developments or the tooth fairy (or something else), that I cannot tell. BTW, this point has been made by economist Mahfi Egilmez as well (in Turkish).

I also did  not have a chance to explain the results of my small statistical analysis: Both capital flows and tourism revenues turned out to be significant. As for trade misreporting, when I used monthly data going back to 1992, imports did turn out to be significant, whereas exports did not. But when I did the same analysis with annual data going back to 1975, both all the variables turned out to be significant. This makes sense: After all, overinvoicing of exports (or “imaginary exporting”) was a common tool of crooks, who wanted to get export incentives without actually exporting, in the 1980s.. But why would someone overinvoice imports? The Central Bank paper I hyperlinked to in the column argues that importers would do that to overcome “import surveillance measures in order to protect its industry from unfair price cuts.”

As a side note, I found out, while researching for this column, that overinvoicing of exports is actually quite common in China, but for a very different reason than Turkey in the 1980s: To circumvent capital controls. Speaking of that, I did not have a chance to compare Turkish UFOs to NEOs of other countries. One of the Central Bank studies I hyperlinked in the column actually does that and concludes that Turkish NEOs are not larger than those of other countries. But they do acknowledge that they are rising and have been mainly positive of late.

Finally, a couple of measurement points are in order: First, note that the Central Bank already revised its BOP methodology several times in the last decade. I already mentioned the inclusion of shuttle trade and BIS statistics in the column. There were also some revisions in 2013. I actually plan to do some more work on the topic to compare unrevised and revised NEOs, if I can get the data from the Central Bank at least. That may help me understand what is/is not accounted for by the revisions.

And since I am at it, I should also tell you how tourism revenues are gathered. A dude (or gal as well, I presume) walks around ports of exit with a bunch of one-page surveys, which s(he) asks foreigners to fill out. I once ran into one of those guys near the Starbucks at the international departures at Istanbul Ataturk Airport and even had a short chat with him. It didn’t seem like was doing any sampling. Even if he did, I found the survey to be very short and prone to misreporting. BTW, the recent rise in revenues per tourist is one one the six mysteries I mentioned on Friday, and I will be probably handling it next.

Last but not the least, a reader, who happens to be an art professor, asked me about NEOs back in September, and I promised him I would take on the issue soon. Soon turned out to be two months, but better late than never:) Anyway, what I am trying to say is that if you are wondering about a Turkish econ. topic, feel free to email me. I may be able to address it right away- or maybe write a column about it if I can’t. In other words, a solution to your question in exchange for a column idea. Win Win!:)…

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