“Turkish economy still vulnerable to reversal of capital flow” reads the headline. It was a piece published last week by an S&P analyst on the dynamics of the Turkish economy. It made a good point. There is no question about that vulnerability. It has been around for a while. Six decades, maybe more? Just have a look at this last one: Turks have raised their imbalances while everyone else was in fact correcting theirs. Reversals every, Turkey is an exception. Reckless? Definitely. Dangerous? Yes.

But it has definitely worked so far. The level of imbalance nearly doubled in the Turkish economy right during the period of quantitative easing in the West. Historically, we have doubled up the level of our chronic current account deficit level from 5% to 10%. That led to a two-year boom in the Turkish economy. Myopic? Yes. But it definitely helped to win elections. The Turkish economy becomes more vulnerable when the current account deficit to GDP level is doubled up and starts to be financed by around 80% by short-term capital inflows. That makes us vulnerable, no question about it. However, it has definitely served its purpose so far; winning the next election.

Years of reckless macroeconomic management seem to have served their purpose when you look at election results. There is one thing that we should keep in mind here. Years and years of such gambling do not come without a cost. Reckless macroeconomic management leads to higher volatility in Turkish growth. Higher volatility in growth amounts to large gyrations in the Turkish growth process. You never know when a bust will occur as you wait for the next boom. That is why one cannot make long term plans in such a country. That makes us a country of people who cannot look to the future. We tend to live only in the moment. That means that a reckless macro-management team can rob a country of its future.

Consider yourself a person of ideas and means. What would you do in a country like Turkey? Would you start a new procedure in biotechnology? Would you invest your money in a possible high return, high technology outfit in a country like Turkey where you never know when the bust comes in? I do not think so. If I have the means and I want to invest in Turkey, wouldn’t I prefer investment alternatives where I can get my money back in a few years at the most? If it were more than a few years, you just would not know what would happen with it. That is why everyone is flocking into the construction business. That is a sector where you can get your money back rather quickly.  So, years of reckless macroeconomic management does come with a cost. Turkey has been transformed into a construction site. Not exactly a brilliant resource allocation decision, I should note. Look at the productivity figures, all tumbling down. Turks just cannot make long term plans. Long term planning requires a more stable economic environment with no large gyrations. Unfortunately, Turkey does not belong to that realm.

This commentary was published in Hürriyet Daily News on 03.05.2014