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We have to stop overpraising Turkey’s economy and face the reality. This is the only way to solve the problem.
Brace yourselves now. I will divide the post-1990 period into three sub-periods: 1990-2002, 2003-2007 and 2008-2012. Do you know when net foreign borrowing in proportion to the GDP was highest, that is, difference between new foreign borrowing and foreign debt repayment was largest? In the 2008-2012 period. This is also when the GDP per capita growth rate was relatively lower!
The net foreign borrowing to GDP ratio was 6.2 in the 2008-2012 period. Including the first half of 2013, it reaches 6.8 percent, whereas the average for the 2003-2007 period was 5.6 percent. Moreover, the rates reached to record-high levels in 2012 and 2013 with 8.6 percent and 9.8 percent (in the last four quarters ending with the second quarter of 2013), respectively. The result is the same when you take gross foreign borrowing figures instead of net figures.
Despite the highest net foreign borrowing figure since 1990, per capita GDP growth in 2008-2012 (1.7 percent) was not better than other sub-periods: it was slightly lower than that in the 1990-2012 period (2 percent) and remarkably lower than that in the 2003-2007 period (5.6 percent). This is challenging and unpleasant. And please note that the performance will be no better by the end of the year.
This straightforward comparison is another sign of the fact that for countries like Turkey which have low savings rates and educational attainment, episodes of high growth attained one way or another (as was the case in the 2003-2007 period) prove unsustainable. Anyway, I have a different agenda today.
First, that growth rate was remarkably low compared to the highest net foreign borrowing rate of the examined period is a vivid indicator that the borrowing (resources) was not utilized in the best ways possible at least during the period since 2008. In the 1990-2001 period when the growth rate was relatively higher compared to the 2008-2012 period, the net foreign borrowing to GDP ratio was only 1.3 percent, that is, one fifth of that in the 2008-2012 period. I can’t stop thinking if Turkey’s economy was more efficient back then.
Second, if Turkey cannot borrow as much as it did in the last couple of years, the growth rate will inevitably decrease. And please note that at the initial point the growth rate was already low. It was in 2012. 2013 will be better, but the growth rate will still be lower than the long-term average. There is a considerable risk that the growth performance will be even weaker.
At the end of the day, we come back to square one: We have to stop overpraising Turkey’s economy and face the reality. This is the only way to solve the problem.
A note on the title: I have mixed up the issue number of the “overpraising” series. So ‘n’ represents the number of the last piece before this one. I will tell you the accurate number when I detect it. I am sure you are dying of curiously!
This commentary was published in Radikal daily on 24.09.2013