The five-year average to be witnessed by 2014 will be a historic record for the Turkish economy.

Last Thursday 2012-2014 Medium Term Program (MTP) was announced. The point that attracted my attention the most was the current account deficit estimations. In 2010 and 2011, the ratio of the current account deficit to GDP was quite high: 6.5 percent and 9.4 percent, respectively (the ratio for 2011 was the estimation in the program). The MTP estimates that the high current account deficit/GDP ratio will persist in the following years: 8 percent in 2012, 7.5 percent in 2013, and 7 percent in 2014. This adds up to 7.7 percent average for the last five years by the end of 2014. What is more, the level estimated for 2014 is the highest since 1990, when the capital movements were liberalized. In short, not only the current account deficit/GDP ratio will be high for five years consecutively, but also will Turkey have the highest ratio for 1990-2010 period by the end of 2014. In other words, as the MTP estimates, Turkey will be able to finance such high current account deficits. How? It will be useful to take a look at past figures to get an opinion. I will examine the current account deficit/GDP ratios from 1990 to present with averages of the ratios for five years preceding the denoted year.

The table above gives the mentioned ratios. The highest five-year average for the period between 1990 and 2008 was recorded in 2008. Therefore, there is no point in enlisting the ratios for each year. The table clearly shows that the five-year average to be witnessed by 2014 will be a historic record. In other words, it will be the first time that Turkey accessed the highest level of foreign funds for five consecutive years. So, now let me ask four questions. First, if the world had not witnessed a global crisis and everything had remained on track, could Turkey have accessed such high level of foreign funds? Second, can Turkey actually access funds at that level given that the chaos in the financial sector will not disappear at least in 2012, the first year that the MTP covers? Third, if Europe eventually agrees to recapitalize banks, will the amount of funds available for Turkey be that high? Fourth, why did Turkey finance the current account deficit in 2010 and 2011 predominantly by short term funds? That is, why did we have great difficulty in financing the deficit? These are followed by questions about the growth-foreign finance correlation. In years of high growth, Turkey generally had high current account deficits, that is, one way or another accessed foreign funds. Then, here is the expert question: Under these circumstances, how come Turkey can achieve even the moderate growth estimations the MTP states (4.5-5 percent)?

This commentary was published in Radikal daily on 18.10.2011