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• W45820595 abstract "Turkey's high-flying economy, which expanded at a 10 percent annual rate of gross domestic product growth during the first half of 20 1 1 , ] will crash-land in 2012. Prime Minister Recep Tayyip Erdogan's miracle, to use the Daily Telegraph's admiring words,2 depended on a 40 percent annual rate of bank credit expansion, which in turn produced a balance of payments deficit as wide as that of southern Europe's crisis countries. Markets have already anticipated a sudden turnaround in the Turkish economy. The Turkish lira (TRY) fell by a quarter between November 20 1 0 and September 20 1 1 , making it the world's worst performing emerging market currency.3 The stock market has fallen in dollar terms by 40 percent, making Turkey the worst performer after Egypt among all the markets in the MSCI Tradable Index during 20 1 1 . (See Graph 1 for Turkey vs. emerging markets, page 26.) And most analysts now expect that the cyclical slowdown will uncover deep deficiencies in Turkey's labor force and infrastructure, leading to a prolonged structural slump rather than a passing recession. The suddenness and size of this economic setback will in most likelihood erode the ruling Justice and Development Party's (Adalet ve Kalkmma Partisi, AKP) capacity to govern on the strength of pragmatic success rather than Islamist ideology; will undercut its ability to use economic incentives to defuse Kurdish separatism and contain domestic opposition; and will weaken Ankara's claim to a leading regional role. THE CREDIT BUBBLE Turkey's predicament follows a well-known pattern of Third World economic crises driven by external imbalances. The impetus behind the country's recent economic growth has been a stunning rate of credit expansion, which reached 30 percent for households and 40 percent for business in 20 1 1 . By contrast, inflation-adjusted consumer credit growth in the United States from 1 984 to 2008 peaked at just 12 percent in 1995. The banks aligned with the AKP, that is the four Shari'a-compliant banks (or participation banks) have increased their consumer loans at a much faster rate than the conventional banks.4 In the year through September 16, 201 1, consumer loans by the Islamic banks rose by 53 percent, according to the Central Bank's data base, compared to 36 percent for commercial banks. The Islamic banks have lent TRY 5 billion to consumers, about a quarter as much as the commercial banks. In the past two years, the ratio of debt to disposable income in Turkish households rose from 35 percent to 45 percent.5 This growing demand was far in excess of what domestic output could satisfy. Graph 2 (see page 27) shows that the current account deficit widened accordingly as credit demand rose and the marginal dollar of consumer demand went to imports rather than domestic purchases. As Graph 3 illustrates (see page 29), this import surge was dominated by consumer durables, which rose by 60 percent between 2003 and the middle of 201 1. Imports of capital as well as intermediate goods for industry, by contrast, actually fell from the 2008 peak. Turkey, in short, is running a current account deficit equal to 1 1 percent of GDP to promote a consumer buying spree while cutting imports of capital goods that would contribute to fixture productivity. Not only are the size and content of this current account deficit problematic, but it is shakily financed as well. Only 15 percent of it is funded by foreign direct investment. The rest comes from portfolio flows,6 which made their way to Turkey and other emerging markets in search of higher yields when recession hit Western economies in 2009. Short-term liradenominated debt held by banks and hedge funds finances most of this enormous deficit. Until the end of 20 10, high-yielding foreign deposits in the Turkish lira accounted for virtually all of the debt. As the countiy 's currency began to depreciate, though, foreign investors reduced lira deposits, forcing Turkey to finance its current account deficit in dollars. …" @default.
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• W45820595 date "2012-01-01" @default.
• W45820595 modified "2023-09-24" @default.
• W45820595 title "Ankara's Economic Miracle Collapses" @default.
• W45820595 hasPublicationYear "2012" @default.
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