In countries that are governed well, the decisions are made in the capital cities. In the others, the decisions are made in other capital cities.

All economies are in slowdown lately. The IMF has been revising its growth estimates downwards. Although economic slowdown is everywhere, it is more alarming in some countries. In China, the GDP growth diminished to 7 percent. In times of rapid growth, China’s foreign trade surplus was around 10 percent of the GDP. With a sharp fall, it is now 2 percent. Turkey’s GDP growth also has decreased swiftly from 10 percent to 3 percent. Yet, the current account deficit has eased only from 10 percent to 8 percent. China’s growth is driven by external surplus, while Turkey’s is driven by external deficit. When the Chinese economy slowed down a little bit, its surplus was immediately balanced. But Turkey’s current account is still imbalanced although GDP growth has decreased sharply. If the current account deficit remains intact while growth falls, financing the deficit becomes an even bigger problem.

Meanwhile, we are discussing to limit the number of installments credit cards offer. Have you been following that debate? I have been, with great joy. The issue is also important for the future performance of the retail sector. On the one side is the concern that payment with checks and bills will come back and, on the other side, is the argument that banks should give loans for production not consumption. Where did this debate emerge? From the perspective discussed above.

Let’s brush up our memory. When the Medium-Term Program was announced about a month ago, it was emphasized that a series of unprecedented measures could be introduced to limit consumption. Efforts to limit the payment installments for credit cards and tie card limit to income started after that. In line with this framework, the Banking Regulation and Supervision Agency (BRSA) announced measures that promote bank loans for production rather than consumption. Last weekend, non-food retail sector giant Boyner Group’s CEO Cem Boyner voiced criticisms against these measures, arguing that they meant a return to transactions via checks and bills. He did not have any criticism against the efforts to associate card loan limit with income, though. The concerns of the retail sector were rather about the possible harm the cyclical measures might do to the well-functioning components of the system.

Then we should ask: will the Turkish economy move away from the danger threshold when the number of credit card installments is limited or a list of goods for which installments can be applied is issued? I don’t think so. Why disturb the fundamental parameters of the system on the basis of cyclical developments, then?  Because we are not able to change the functional policy parameter, if you ask me. It is fine if you introduce additional measures when the higher interest-smaller liquidity-costlier borrowing-lower consumption channel stops working. In that case, the BRSA can rightfully change some rates and introduce additional measures to increase the cost of borrowing. But I have a hard time understanding why they are neglecting the core issue and relying solely on additional measures. I also believe that Turkey has no mechanism other than the budget policy to improve domestic savings in the short term. I don’t understand when the functional mechanisms are ruined for we pretend to take measures instead of going to the root of the matter. Since we are unable to reform the school system, we interfere in the private teaching institution system, which is functional though unstable. In the same way, since we are unable to discourage borrowing with normal methods, we interfere in the credit card installments system, which is functioning, however unstable.

Have you read the latest article by Dani Rodrik? In the last four years, Turkey and Uruguay have achieved similar rates of GDP growth thanks to the abundance of global liquidity. The volatility of growth in Uruguay is half of that of Turkey, however. Turkey’s growth performance has zigzagged; Uruguay’s has not. Uruguay’s current account deficit is smaller. So, which economy is better-managed, the Turkish economy, which expands and shrinks suddenly due to external shocks, or the Uruguayan economy, which has a more balanced outlook? In well-managed countries, imbalances do not accumulate. Well-managed countries make decisions in the capital city. Poorly-managed ones, on the other hand, adapt themselves to other countries’ decisions. For the present case, the US Federal Reserve acts and Turkey reacts. It is as simple as that.

This commentary was published in Radikal daily on 19.11.2013