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    Let’s hope for the best

    Fatih Özatay, PhD23 May 2013 - Okunma Sayısı: 1119

    Turkey will be transferring abroad some portion of its savings, which are already remarkably low. Let’s hope for the best!

    A storyline we frequently hear nowadays: “In developed countries interest rates are radically low. Emerging market economies also have joined them lately. Therefore, it is but natural that interest rates are in decline in Turkey. Alike, interest rate falling below inflation is not a problem.”

    True, this is not a problem for some. For foreign fund managers, for instance. Inflation rate in Turkey is not a concern for them as they will bring some portion of their funds to Turkey, invest in bonds and securities, earn returns, sell the assets, get the FX, and return to their home country. They will not purchase goods and services in Turkey.

    Savings rate is remarkably low lately

    But the interest rate falling below inflation is an evident problem for Turkey, isn’t it? Correct me if I’m wrong, but does Turkey not have a savings problem? Its savings rate is remarkably low compared to other countries and to that in a couple of years ago, right? Why would savers in Turkey care about the interest rates abroad? Actually, if they do care, we are damned! Turkey also has a current account deficit problem, right? Its ratio to GDP decreased only to 6 percent despite all the effort and the compromises from growth and it averaged 7.3 percent in the last three years, right? And current account deficit is closely associated with savings rate if a certain level of growth and hence investment is aimed, right?

    Let’s make an international comparison on current account deficit and savings over GDP ratios and inflation rates. I will not select countries randomly. I will compare Turkey’s performance with the ten countries which the Central Bank uses in its reports for exchange rate comparisons: Brazil, Chile, Colombia, Czech Republic, Hungary, Indonesia, Mexico, Poland, Romania, and South Africa.

    Turkey has the highest current account deficit

    Turkey has the highest current account deficit among the group: 7.3 percent of its GDP. The second highest is Poland with 4.5 percent. Seven out of ten countries apart from Turkey have a current account deficit lower than 3.2 percent. And yes, Turkey has the lowest savings rate: 14 percent of its GDP. South Africa has the second lowest rate with 15.5 percent. As expected, the current account deficit of South Korea increased in 2012. And seven out of the ten countries in the group have savings rates above 20 percent! Moreover, Turkey has the highest inflation rate with 8 percent. Turkey is followed by Brazil with 5.7 percent. The average for the rest in the group is 5.1 percent and inflation rate in half of the countries is below 4 percent.

    The other day a bank manager spoke at a TV channel and heralded that they were going to offer different schemes to depositors so that deposit accounts do not lose their attractiveness for interest rates falling below inflation. They were planning to offer funds which involve foreign assets. This means, Turkey will be transferring abroad some portion of its savings, which are already remarkably low. Let’s hope for the best!

    This commentary was published in Radikal daily on 23.05.2013