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    Soul mate of Turkey is Mexico.

    Güven Sak, PhD08 July 2010 - Okunma Sayısı: 1550

     

    Have you recently taken a look at Mexico's economy? I decided to do so after a recent meeting in Washington D.C. where the name of the Mexico came up frequently. For the period ahead, those wondering what we can do at G20 had better develop consultation mechanisms with Mexico. Brazil and Korea are a cut above us. They cannot be compared one-to-one with Turkey. Turkey's soul mate appears to be Mexico. Let us see why. Those who are interested are welcome to join me down the article.

    Turkey signed the Customs Union agreement in 1996 upon long negotiations with the European Union. Mexico signed the North American Free Trade Agreement (NAFTA) in 1994, also upon long negotiations. As a result of being a party to the Customs Union, Turkey more than tripled the foreign trade volume and achieved $100 billion of exports. Similarly with NAFTA, Mexico almost tripled the trade volume achieving $200 billion of exports. European Union's import demand was determinant for Turkey's mode of industrialization while the path of industrialization in Mexico started to be determined by NAFTA. Turkey sends more than 50 percent of its total exports to European Union market and Mexicans sends 84 percent of exports to North American countries, i.e. USA and Canada. Recently, Turkey has paid efforts to diversify exports towards southern neighbors. In the same context, Mexico is in a rush to diversify exports towards southern neighbors. As TURKSTAT data suggests, Turkey contracted by 4.7 percent in 2009. For the same period, Mexican economy contracted by 6.5 percent. Some groups in Mexico are still discontent with the NATFA even sixteen years after its signature; just like those in Turkey dissatisfied with the Customs Union agreement. By the way, let me remind that total area of Mexico is about 2 million square kilometers; the population is above 100 million, and the Mexican economy is trillion dollars worth.

    Today let me draw some conclusions from the similarities between Turkey and Mexico. First, Mexico and Turkey differs from the rest of the world as the two countries being affected by the 2008 financial crisis the most. Let me underline a few more issues. Both countries were caught by the 2008 financial hurricane after being implemented successful banking sector reforms. Both countries, following a long-lasting and successful fight with inflation, have wasted some time and finally solved the high inflation problem one after another just before the 2008 crisis. However, despite their   solid banking sector they are the two countries affected most severely by the crisis. This is the first point the economic indicators suggest.

    And the second one: Figures also imply that Turkey's economy contracted more than Mexico's. Considering industrial production figures and taking that for the first quarter of 2008 as 100 for both countries, industrial production in Mexico and Turkey dropped to 88 and 80, respectively in the first quarter of 2009. Why was this so? This is most probably related with the source of the problem. At the heart of the fall in demand problem that led to the contraction of Turkey's economy lied the European Union countries. On the other hand, the main dynamic affecting the economic contraction in Mexico was the tightening of demand in USA-Canada markets. Both countries of concern therefore were damaged severely through the foreign trade channel. While the US government responded the 2008 crisis with a substantial fiscal expansion, European Union states stepped in reluctantly with a significant delay. As a result, the activism of the neighbor limited the fall in contraction in Mexico when compared to Turkey. This is also highlighted by data on unemployment. Increase in unemployment rate also seems to be less severe in Mexico: from 4 to 5.5 percent compared to the increase from 10 to 14 percent in Turkey.

    The third point should be this: For both countries, the main challenge is that they do not have a strong industrial policy framework. Both countries have adopted the industrial policy choices introduced by globalization. Passive integration into the globalization process makes the relevant county completely vulnerable against the policy decisions in the market integrated into. This is neither a drawback nor an advantage. This is just the fact. The dynamics that led to contraction in both Turkey and Mexico after the 2008 crisis will now be determining the pace of recovery. The solidness of economic contraction in both countries depends on the demand of another market: European Union market for Turkey and USA market for Mexico.

    So, which one will be luckier in 2010 and 2011? It appears that in the second half of the year growth estimates for Turkey will be revised downwards. Remember that the most recent estimate by the OECD was 6.8 percent. On the other hand it is likely that estimates for Mexico, which stood around 4 percent, will be revised upwards. Why? Because the revival of the US economy seems to continue even weakly, whereas risk of crisis is being realized in the Eurozone damaging demand which recently was to being buoying. However, in any case, the impact of the changes in the rest of the world is felt deeply.

    Those analyzing Turkey had better take a look at Mexico. Turkey's soul mate is Mexico, not Brazil.

     

    This commentary was published in Referans daily on 08.07.2010

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