In the first seven months of the year, gold imports were almost equal to machinery and equipment imports! Will Turkey grow via gold imports?

Turkey is an increasingly odd economy. Today I will enumerate some of the striking oddities concerning Turkey’s economy. Please note that this is not an exhaustive list but just a preliminary one.

1) The first item on the list is that the highest net foreign borrowing to GDP ratio since 1990 was recorded in the period of lowest growth: the 2008-2013 period. By the way, the borrowing to GDP ratio in the mentioned period was the highest by far, not just by a narrow margin. Closely related to this, we should note that the highest current account deficit of the examined timeframe also was recorded in the 2008-2013 period. But the oddity is more evident looking from the “borrowing-growth” nexus.

2) Official year-end inflation estimate is gradually increasing. At the beginning of the year, it was 5.3 percent and the day before the Central Bank introduced an upper limit of 7.4 percent. The upwards movement in exchange rate due to the current financial tensions and the resultant drop in the foreign borrowing opportunities for countries like Turkey is cited as the main reason for the hike. It might be true. Yet, if it were for that reason, Turkey’s inflation rate should have been low in periods of high foreign borrowing above the average. In the April 2012–April 2013 period, particularly in the second half, foreign borrowing was not only above the average but was markedly high. While in this period exchange rate showed a downwards movement, average inflation was as high as 8 percent.

3) On 27 August when financial markets went into turbulence, the Central Bank declared that the short-term interest rate it directly controls would be kept within the 6.75 percent - 7.75 percent interval. The Bank declared that this step would clear away the interest rate policy uncertainties. This might be correct. But since then the rate (the average funding cost of the Central Bank) had an average of 6.45 percent. The rate remained within the cited interval for only 3 days and stood below the lower bound rest of the time. The interbank interest rate was even lower. How uncertainty is eased by failing to fulfill margin allegedly announced to overcome uncertainties?

4) In the first seven months of the year, total gold imports reached $13.3 billion, exceeding the cumulative for 2009, 2010 and 2011. Attention: the total for the first seven months of 2013 was higher than the cumulative level for the previous three years. Before 2013, the highest volume of gold imports was attained in 2012, with $7.6 billion. The figure for the first seven months of 2013 is 45 percent higher than that in 2012 overall. Meanwhile, private sector investments have declined since the early 2012. Turkey needs private sector investments for “high-quality” growth. Currently, two-thirds of private investments go to machinery and equipments, a large proportion of which are imported. In the first seven months of the year, gold imports were almost equal to machinery and equipment imports! Will Turkey grow via gold imports?

This commentary was published in Radikal daily on 26.09.2013