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.

There are two major structural factors that have been important in the growth dynamics of Turkey so far. Turkey has some issues with these structural factors nowadays. One is internal migration leading to massive inter-sector transformation in Turkey. In 1960, only 30 percent of the population was living in urban areas, whereas in 2010 this increased to 75 percent. Can you imagine the social and cultural transformation effort this rapid internal migration has required?

When the people move to the cities, they also move from agriculture to industry and services. A declining share of agriculture, and flourishing industry and services caused an autonomous increase in overall productivity, hence economic growth. Internal migration won't continue with the same speed anymore.

Foreign savings have been the other major factor behind economic growth in Turkey. Turkey has had current account deficits since before I was born. That means the economy has been growing beyond its means by relying heavily on foreign savings. Turkey achieved high growth rates, but sustainability has always been a problematic issue. A low level of domestic savings tied to pervasive informality caused the high degree of current account deficit that would turn out to be harmful for sustainable economic growth.

During the Cold War years, it was government-to-government fund flows that let the show continue, as the land value of Turkey is high. Flow of government funds discouraged officials to take measures to remedy Turkey's growth sustainability problem. It is not a surprise that Turkey is one of the first countries in the 1980s that have embarked financial liberalization measures. It guarantees fund inflows through private channels. I recall that the government-to-government fund flows were replaced by private fund distribution channels in the 1980s.

So we have two weak links. One is important in the short term, while the other is a longer term issue. First is the dependence of growth on foreign savings inflows. The global financial crisis poses considerable uncertainties in this regard. The ratio of the current account deficit to hard currency earning capacity has surpassed 40 percent for the first time in Turkey's history. This indicates that the hard currency repayment capacity has declined to historic lows. The short-term risk is in the sudden stop of fund inflows; that is why the Central Bank has decided to revert to the party line recently. The second is the importance of intra-sector productivity gains for further growth in the country. Believe me, the long term is more problematic than the short term, since productivity challenges can only be tackled with a coherent industrial strategy.

This time it is different!

This commentary was published in Hürriyet Daily News on 13.08.2011.