Growth is a good thing as long as it is sustainable. Otherwise, it wastes the resources of the private sector.

Are you demoralized by the unfruitful economic policy debates in Turkey? Honestly, I am. Today, let me touch upon the ongoing "highly matured(!)," "heated or not" debates. Yesterday, the growth figures for the first quarter of 2011 were announced. Driven by domestic demand, the economy grew above expectations. So it is the right time to touch upon the heating up debates. Has the economy heated up due to the recovery in production? Yes, it has. Is there any indicator of this? Of course there is. The current account deficit is the main indicator. If the current account deficit has reached a historic record, then the economy has heated up to a historic degree. We had better be cautious. Caution among the economic administration is a good thing. 

Cyclical movement

This is not a new phenomenon. It has been like this for an eternity. Turkey's problem is not to attain high growth rates, but to sustain that performance for more than a couple of years. What do you see if you put the growth rates of Turkey since 1980 on a line chart? You see that the growth journey of Turkey looks like a saw blade. The only difference is that the blades of the saw are not symmetrical. Turkey's economy grows by 7 percent one year, then the rate falls to 5.5 percent and then to 0.5 percent, and the year after that it takes a negative value. A crisis hits and meanwhile the current account deficit recovers. The stability deteriorates and new measures are implemented. If there is rapid growth, the final outcome is always evident. This is a cyclical movement. The growth journey of the Turkish economy ends with a period of contraction following a few years of growth. This is closely associated with the lack of a solid growth strategy. If there is no strategy, the economy cannot be managed.

The heating up of an economy means that the total demand has started to put pressure on the production capacity. Rising demand is driven back first by the fundamental resource constraints. Since Turkey does not have the means to meet the rise in demand, the resource constraint can be overcome only by ensuring foreign savings inflows. The current account deficit is the main indicator of resource constraints and the main source of macroeconomic disequilibrium. This is the first point to state.

And the second one: Does Turkey currently have an economic program? There is the Medium-Term Program (MTP). How did that program estimate the growth rates for 2010 and 2011? It estimated that the economy would grow by 6.8 percent in 2010 and by 4.5 percent in 2011. If the MTP is the program of the government, the economy has heated up in the context of policy parameters given that the actual growth in the given years exceeded the estimations. Under these circumstances, a cautious government would have drawn a framework concerning how the expansionary fiscal and monetary policies introduced in 2009 would be reversed in 2010 and 2011. Have they done that? Have the policy parameters changed? No. The government, let alone acting cautiously, has prevented the publication of reports by certain international organizations which have argued that the 2011 budget contained expansionary policies. Then, if the MTP is ruled out, Turkey is groping. This is bad.

Here is the third point: As also highlighted in TEPAV Fiscal Monitoring Reports, the structural budget deficit did not decrease, but increased substantially in 2009 and 2010. The primary surplus excluding non-recurring revenues was almost zero. The structural budget deficit for 2011 also indicates an expansionary policy perspective. This preference was understandable in 2009. We also can understand the motivation for the period before the elections. However, now it would be wise to state clearly that this period has ended in order to regain the policy credibility. Growth is a good thing as far as it is sustainable. Otherwise, it wastes resources the resources of the private sector. The 11 percent growth rate achieved in the first quarter of 2011 was brought about by the expansionary policies triggered by the July 12 election, which is now over.  Now it is time to introduce precautionary measures.

This commentary was published in Radikal daily on 01.07.2011