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    What’s the purpose of raising FX spending with imports decreasing?

    Fatih Özatay, PhD14 September 2013 - Okunma Sayısı: 1114

    If I were in the shoes of the economy management, I would elaborate on the correlation between the hike in gold imports and the current economic policy.

    Have you seen the gold certificate commercials on TV? They are announcing it dancing with joy. What should I say? I will go with “let’s hope for the best” as you usually do in such occasions.

    This wish of mine holds not only for this new “financial” instrument. For some time now, we are able to open gold accounts at banks. So, here goes a belated “let’s hope for the best” for that “financial” innovation.

    This year’s import figures have a salient feature with unprecedentedly high gold imports. Here are some figures: in the first seven months of the year, cumulative gold imports reached $13.3 billion, which is higher than the import figures for 2009, 2010 and 2011 summed. No, it is not higher than each year separately, it is higher than the cumulative for three years. Gold imports in the first seven months of 2013 were higher than gold imports in the entire 2009-2011 period! Another one: until today, highest level of gold imports was recorded in 2012 with $7.6 billion. The figure for the first seven months of 2013 was hence 45 percent higher than the total in 2012!

    Gold exports weak

    Maybe this is what it is: in 2012, gold exports were remarkably higher than gold imports. It is not much significant, but perhaps the gap is narrowing down this year? Apart from the fact that this is not economically significant (as in exporting an item you do not have), we see that total gold imports and total gold exports in 2011 and 2012 were quite similar. What is more, imports preceded exports (in 2011 imports were higher). Therefore, you cannot export an asset you do not have. This year, on the other hand, gold exports were extremely weak: $2.7 billion by the end of the first seven months. Then, the “extreme” level of gold imports in this period has nothing to do with export performance – at least so far.

    So, what is the deal? If I were a fan of conspiracy theories, I would propound that the net errors and omissions surplus of $4.8 billion recorded in July’s balance of payments was in fact refer to the undetectable gold imports. Leaving my stance on conspiracy theories aside, a brief look at the figures alone is enough to rule this “theory” out. Net errors and omissions refer to FX outflows as well as FX inflows the sources of which are not known. In the first seven months of 2007, the total of net errors and omissions was only $0.2 billion.

    If I were in the shoes of the economy management, I would elaborate on the correlation between the hike in gold imports and the current economic policy. At first sight it seems to be highly correlated, particularly with monetary policy. If it indeed is, it would be useful to carry out a cost-benefit comparison as a second step. For instance, total investment good imports in the first four months of the year equal gold imports in the first seven months.

    What is the objective of an economic policy option that encourages FX spending on gold given the fact that foreign finance opportunities are decreasing and this climate is expected to continue for a couple of years more?

    This commentary was published in Radikal daily on 14.09.2013