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    Fatih Özatay, PhD03 September 2013 - Okunma Sayısı: 1133

    In each and every report and article released recently, you see these five countries on the top of the list for countries which will be affected most severely by the decisions of the FED.

    BISIT is the acronym for Brazil, Indonesia, South Africa, India and Turkey. In each and every report and article released recently, you see these on the top of the list for countries which will be affected most severely by the decisions of the Federal Reserve (FED). This is because none of these countries have lived within their means. They have invested more than they have saved. In short, they have current account deficits. Current account deficit in proportion to GDP (%) was 2.3 in Brazil, 2.8 in Indonesia, 6.3 in South Africa, 3.4 in India and 6.1 in Turkey in 2012.

    Now take Turkey. Its average growth rate for the last 60 years is around 4.8 percent. GDP growth was 9.2 percent in 2010 and 8.8 in 2011. The growth rate in 2010 was high probably because it was preceded by a 4.8 percent GDP contraction. But how come growth rate was remarkably high in 2011? Simply because FED’s liquidity injections flowed towards countries like Turkey and enabled them to spend in high amounts as if the inflows will continue forever. At the end of the day came unsustainably rapid GDP growth and high current account deficit. The unsustainability was validated in 2012 and 2013: GDP growth rate was only 2.2 percent in 2012. The official target for 2013 is 4 percent, but it is increasingly voiced lately that a more moderate growth rate will be realized. Current account deficit, on the other hand, was scarcely reduced to 6.1 percent in proportion to GDP from 9.7 percent in 2011. This rate will be higher in 2013.

    No offense to FED officials, but here is the million dollar question: True all these countries are to “delinquent.”  But does the US not have any fault? I beg to differ. The US has breed distortion across developing countries while trying to boost its economy. It has issued extensive amounts of dollars and cut the interest rate to extremely low levels. That liquidity flew towards countries like Turkey, where higher returns could be earned. Evidently, the injections will be reversed and interest rates will be raised back again. Now the “evident” is at our doorstep. What if the US had not taken the mentioned steps? Trouble would still be borne. The world could not have stand up on its feet before the US economy had overcome the recession. So, we have to return to the fold and ask ourselves what we did wrong. Here are the questions:

    1 – We have heard numerous times that Turkey’s policies were praised in G-20 meetings. Were not these policies –monetary policy in particular – launched due to the troubles caused by the US policies?

    2 –Since the answer to the first question is a blatant yes, was the fact that the policy measures will soon cause trouble for Turkey and similar economies also expressed at those platforms?

    3- Since it was evident in the light of previous experiences that trouble was soon to come, did Turkey ask the US and the FED in particular to introduce supporting policy measures when it is time to pay the bill? For instance, did Turkey ask the US to extent low-interest and long-term loans when dollar funds start to escape?

    4 –Even if these questions were raised, the US would either pretend not to have heard or most likely say “you had better take your precautions now.” So, why did not Turkey put on the brakes much before?

    5- Why Turkey has shut its eyes to the extremely low savings rate problem? Why it has allowed average interest rate stand below the inflation rate in the current climate?

    Long story short, foreign capital is flowing out of Turkey. Once this has started, there is no way stopping it.

    This commentary was published in Radikal daily on 03.09.2013