If the FED was to take its decisions in 2010, the world would have started discussing how fragile the Turkish economy was immediately back then.
Did anyone of us fear in the late 2009 or the early 2010 that net capital inflows (net foreign debt or more fashionably net foreign resources) could decline? Say that we were subjected to fierce propaganda; but were international markets complaining about the vulnerabilities in Turkey? On the contrary, they were in fact praising the Turkish economy. Say that we all have a short memory and have gone through a lot in the meanwhile; but we can always check statistics.
In 2010, net capital inflows in proportion to GDP amounted 7.8 percent. It was an all-time-highest as of 2010, which means the investors did not foresee any risks concerning the Turkish economy back then. You might argue that unlike the trend a few years ago, a large proportion of the inflow was composed of short-term funds, signaling the rise in risk perception.
And you would be right. But wait a minute; the maturity structure of the inflows started to change not in 2010. And now international capital is highly cautious against Turkey. No one is praising the economic performance either. Far from it, they are critical about Turkey in all aspects whatsoever. It is not that we are unaware of these. Take the Federal Reserve (FED) report presented at the Congress last week. The FED has calculated a fragility index combining six indicators for fifteen countries: Brazil, China, Chile, Colombia, India, Indonesia, Malaysia, Mexico, the Philippines, Russia, South Africa, South Korea, Thailand, Taiwan, and Turkey. As of 2014, Turkey is cited as the most fragile country on the list.
Did fragilities actually perpetuate compared to 2009 or 2010? When we look at the 2008-12 period, Turkey has maintained its position concerning individual indicators as well as the composite index. More precisely, Turkey’s index coefficient was slightly higher in 2009 and 2010 than in 2012.
The timing of the FED’s index measurement relates rather to its recent decisions. The report is concerned with identifying the countries which will be hit the hardest by the latest decisions and hence takes the end of 2013 as the reference point. If the FED was to take its decisions in 2010, the world would have started discussing how fragile the Turkish economy was immediately back then. Therefore, the timing of the discussions is simply about that of the decisions; there is no need to be overly skeptical about that.
Please note that Turkey was slightly more fragile in 2010 than it is today; but international capital did not seem to care. Today, however, fragilities have come to attention. This is what happens eventually when you rely only on the statistics which suit the book and shut your eyes to the rest. The international capital sooner or later puts he bill in front of you.
This commentary was published in Radikal daily on 20.02.2014
