Without QEIII more troubles ahead for Europe
Güven Sak, PhD
20 August 2011
For some time now, we are living in times when portfolio decisions are made by looking at nothing other than the wristwatch. This is one of those "all that solid melts into air" periods. Something is happening at every moment, making you jumpy. Consider yourself living in Turkey now. Syria on the south side of the southeastern border, increased PKK activity on the north side of the same border and there is the European banking crisis increasing tensions in global markets. Turkey, on the other hand, has structural vulnerabilities, becoming more visible every moment. Chilly? Definitely. Today let me focus on the deepening European crisis.
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The banking sector is the guarantor of stability.
Güven Sak, PhD
19 August 2011
A solid banking sector is a must for the sake of the real economy. It was the self-devotion of the banks that limited the damages during the 2008 crisis. The Central Bank of Turkey (CBT) recently has been stressing how important maintaining financial stability is. But since it does not state explicitly what it means by this, a failure in communication has emerged. Today let me explain my understanding of financial stability and how I assess the past and present decisions of the CBT, which seem to be contradictory. I think the latest decisions by the CBT imply an attempt to "revert to the known world." If you wonder why, please read on.
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What is the purpose of technoparks?
Güven Sak, PhD
16 August 2011
The Turkish university system lacks the institutional infrastructure to transform research into technology. Turkey now has a Ministry of Science, Industry and Technology. The Scientific and Technological Council of Turkey (TÜBİTAK) is affiliated with this Ministry. I think this is good, in principle. If we could take the lessons learned in the last decade seriously, we might reach a critical turning point in terms of industrial policy. This was what I thought while reading the remarks of the Minister of Science, Industry and Technology, Nihat Ergün, as highlighted in columnist Vahap Munyar's article in Hürriyet yesterday. Today let me tell you why I think that Turkey might be at a critical turning point.
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Weakest link in Turkish economy?
Güven Sak, PhD
13 August 2011
So that is the question nowadays, especially after Central Bank Gov. Erdem Başçı's remarks about foreign exchange short positions. It was the super growth performance of the Turkish economy some time ago. But it seems to have changed a bit. There are concerns and questions in the air. Analyses of the Turkish economy are increasingly looking like that game show in which they seek to reveal the weakest link on the team. Today let me contribute to the debate and underline two structural weaknesses of the Turkish economy.
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Orphanages now are almost completely abandoned.
Güven Sak, PhD
12 August 2011
Orphanages are to be handed over to the Special Provincial Administrations. This brings to mind the localization of the Directorates of Rural Services. We will understand in a couple of years whether this was a good thing or not. We will conduct an impact assessment and see the outcomes like we have done before. Who gets harmed will be the children trying to grow up in the orphanages. It appears that in concentrating on the debt crisis and contingency effects, we are missing out on the authority with which the government was entrusted before the elections to restructure public administration via decree. The bureaucrats in Ankara are currently trying to figure out in which ministry they work. What decrees imply becomes clearer every day. As it does, we need to figure out how to solve the pr
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Monetary policy is not a panacea
Güven Sak, PhD
09 August 2011
If you face difficulty in deciphering the meaning behind the actions of the Central Bank, then the Central Bank is not doing its job properly. Years ago when we were working to establish the Economic Policy Research Foundation of Turkey (TEPAV), an American friend of mine said, "It is very difficult to found and operate a think-tank in Turkey. May God make it easy for you!" As he argued, the people of Turkey "first take a side and then started thinking." "In the US, however," he said, "the think-tank tradition is based on thinking and reaching results first and taking a side on the subject matter afterwards." TEPAV became operational in December 2004 and I have never forgotten what my friend told me.
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Is it good to have a maverick central bank?
Güven Sak, PhD
06 August 2011
No, it is not. If you are a normal market participant and you feel left out in deciphering the meaning behind the recent actions of your central bank, obviously, the central bank is not doing its job properly. Either the bank has difficulty in formulating and conveying its message or there is no message to convey. Either way, there is an apparent disconnection. That is what we have in Turkey, for now. We have a maverick Central Bank speaking in a language unknown to market participants. That is bad by definition. A central bank that has not taught its medium of communication to its customers, i.e. financial market participants, at the outset is a bad central bank. Let me start from here: We have a bad central bank in Turkey.
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Turkey has budgetary problems
Güven Sak, PhD
05 August 2011
Countries that have control of their budgets can stem the current while those that fail to control their budgets go adrift. You cannot treat a disease you cannot diagnose. Turkey has a public finance problem. It has budgetary problems. That yesterday's indicators do not say so does not mean that there is no problem. It is necessary to assess the circumstances cautiously from a new perspective. Turkey gained a great deal after the 2001 crisis. Now, the risk of losing those gains grows with each day. At least, this is what I think. Let me tell you why.
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How will the exchange rate adjustment increase exports?
Güven Sak, PhD
02 August 2011
In the end, the depreciation of the TL will be beneficial to low-tech and labor-intensive sectors. The automatic thermostat system that will cool down the economy is still active. The Turkish lira (TL) has depreciated by approximately 20 percent against foreign currencies (FX) and the movement is continuing. Theoretically, all goods produced in Turkey have become 20 percent cheaper in comparison to beginning of the year. We have listened for years about how useful this would be. Now is the testing time. Will the exchange rate adjustment increase exports as argued? Which sectors will benefit from this movement? Will the outcomes be fortunate for all of us? To be honest, I do not think so. I believe that a competitiveness strategy based on the depreciation of the TL will not pave Turkey's w
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Lifting barriers is good news anyway
Güven Sak, PhD
30 July 2011
In Cyprus, there is a historical green line between the north and the south separating the two ethnic entities. People can pass through, but goods from the north can not. Turkish Cypriots from the north are allowed to work in the south, but they have difficulty in selling their products. That was one big reason why the regional disparity became structural on the island. Years ago, I remember reading an early draft of a World Bank report wondering why the northern part of the island was only trading with Turkey. It was and still is because of the embargo regime on the island. There are two embargo regimes in the region: One is in Israel against the Palestinians; the second is in Cyprus against the Turkish Cypriots. Both are bad.
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