Weekly Hurriyet Column: An economics column about nothing

Below is the unedited version of my column for this week. You can read the final version at the Daily News website, but since I have been editing my columns myself on the Daily News website since March, you won't see much of a difference between the two. As for cheesy references, this time I wanted to go to straight to TV. By the way, I recently found out that Seinfeld is playing on Turkish channel TNT, weekdays at 09.00 and wee hours of night- yesterday (or rather this morning), I caught it at 03.00.

The column is just an elaboration of Friday's post. There are many more things to say, but as I explain below, I just can't:(

I was watching the 1990s sitcom Seinfeld when it just hit me: If Jerry can make several hundred million dollars from a show about nothing, I can make a few bucks by writing a column about nothing.

In fact, I don’t have much choice: I recently came to agreement with polling firm Konda to work as a consultant on their monthly Barometer Survey, or KBS. Since my findings and writings will be used in their subscription-only report, I am not supposed to give out anything, and hence this column has to be about nothing.

Other than the standard stuff on respondent characteristics and demographics, the survey asks the respondents on how they, their city and the country have been affected by the crisis as well as their views on the recent political developments such as Sledgehammer, Ergenekon and the like. There are also questions on voting preferences, not only for today but also in the 2007 elections.

These questions present a golden opportunity for an economist to set up a simple statistical framework on the determinants of voting behavior. After all, it is a well-known fact that, as Bill Clinton campaign strategist James Carville so eloquently put, it’s the economy, stupid: Economic conditions, whether they are by pure coincidence or the result of deliberate policy, are the best predictors of elections in advanced economies.

This relationship has tended to hold for Turkey as well, although there are much fewer studies for Turkey than for the U.S. and other advanced economies. A model based on a survey could improve on the existing studies: After all, people do not vote by looking at the latest data, but by how they, their family and friends have been doing as well as their perceptions on the country’s economic conditions.

Of course, sampling problems could lead you astray in a survey. Luckily, KBS also has control questions about verifiable data, and those hint that the sampling has been done well. For example, the percentage of people who lost their job during the crisis, as derived from the survey, is line with the figures in official statistics.

In general, the respondents have a surprisingly clear grasp of the economic realities of the country. There is some evidence that they suffer from money illusion, the tendency of individuals to think in nominal rather than real terms. But a quick literature survey revealed that the size of the KBR money illusion is not more than in other similar surveys. The average Turk is much more of a homo economicus than you (or at least I) would think.

These respondent characteristics would not bode well for the Justice and Development Party, or AKP, in theory, especially combined with the fact that, contrary to the PM’s claims that it passed tangent to Turkey, the crisis has hit the country hard: Wednesday’s GDP release for the last quarter of 2009 is likely to show that the economy contracted around 5.5 percent last year, one of the highest in the world.

Unfortunately I am not allowed to disclose the results of my election model, but suffice it to say that I was rather baffled at first, humbly attributing them to my deficiency in Econometrics. But I did manage to find an answer by creating indices of economic and political polarization.

I wish I could share the graphs of the distribution of voting preferences based on economic and political polarization, which caused quite a bit excitement at Konda Friday evening, but if you are interested in learning more, you will just have to contact them.

By the way, Konda is paying me a fixed consulting fee, not a share of revenues, so I have no incentive in marketing their reports. I am just your friendly neighborhood economist who wanted to find out what writing an economics column about nothing would feel like.

Emre Deliveli is a freelance consultant and columnist for Hurriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at http://emredeliveli.blogspot.com.

An Amazing Find, which I cannot disclose:)

I recently came to agreement with Konda to work on their new monthly Barometer survey and have been spending the better part of the last two days in their office near the Saibesaray (also known as 6S and Cincon by the Eziks) stadium for the inaugural issue.

What they were looking for was an economist to glance over their data and gain new insights, as well as relate the results of the survey to economic developments/expectations. What I was looking for was to get new insights into the average Turk's perceptions on economic and political developments in these interesting times.

Anyway, it was a really straining two days, as I had to learn to use SPSS (I already have degraded myself in the last few years by switching from Matlab to Stat-a (I actually had a job applicant once who spelled it like that on her CV and claiming she was proficient it, and she continued to pronounce it like that- sort of like Wall-e - in the interview; obviously, I never tried to find out if she really was) and then from Stata to Eviews after becoming a market economist. But I never thought I could go as low of SPSS:) I also had to deal with using Word 2007, which looks like a giant Lego screen and not only type with a Turkish keyboard, but also in Turkish! But at the end, I did hit goldmine this morning...

As for the survey, other than the standard stuff on respondent characteristics and demographics, the survey asks the respondents on how they, their city and the country have been affected by the crisis as well as their views on the recent political developments such as Balyoz, Ergenekon and the like. The results will appear on their subscription-only report, so I am not allowed to divulge anything, but they hint at complete political polarization and no evidence of economic polarization. A corollary of the latter is that economics is not playing a major role in voter preferences right now, and if you saw the current voting patterns, you'd be surprised, to say the very least!

I wish I could share the graphs of the the distribution of voting preferences based on economic and political polarization, which caused quite a bit excitement here at Konda a couple of hours ago, but if you are interested in learning more, I suggest you contact them [Important Disclaimer: I am being paid a fixed consulting fee, not a share of revenues, so I have no incentive in marketing their reports].

EconNews Roundup

The growth of Turkey's private pensions

The Benz hands out bribes

ad Astra per Aspera for the ISE

A case study on why you need to be careful with statistics

Sukur to sukuks, Turkey will be a financial center:)

PxQ=Y (or T, as in total taxes in this case)

Roubini Post: On the Turkish Fiscal Rule

This post already appeared in the blog; Europe Economonitor is just republishing it, but I just wanted to cross link for the readers who might have missed it the first time around...

But while I am it, let me make a couple of clarifications. First, the following table, from the government's Pre-Accession Economic Program, summarizes the fiscal rule:

The budget deficit in this formula is actually a cyclically-adjusted deficit, which is done according to the following methodology:

I have to run to beat the rush hour traffic, but I will have an evaluation of these formulae later on...

BTW, these pictures conveniently provide a glimpse into what desktop, so you can see what I am working on:)

On the Fiscal Rule

I have got quite a few questions on the fiscal rule. I guess people feel that with the IMF gone, it really becomes mostly fiscal, especially with elections approaching, and the fiscal rule is a big part of the fiscal picture. Anyway, with questions pouring in, I decided to devote a blog post to the issue rather than copy and paste the same email:)

Loyal readers would note that I have written several times on the fiscal rule, so I will just summarize my views here. But just to put things into perspective, I first wrote about the fiscal rule when it appeared in the Medium-Term Economic Program in September. I returned to the issue in January when Economics Minister Babacan brought the issue up with its regular dinner discussion with esteemed Economics columnists- being an eagle-tattooed Besiktas fan, your friendly neighborhood economist does not aspire to being an esteemed economist, anyway. Finally, my love for the fiscal rule was so great that I could not help but mention it on Valentine's day, during my discussion of the 2010 budget projections.

I doubt the fiscal rule, in the current set-up, would be the appropriate rule for Turkey, for a number of reasons: First, for a country like Turkey, the composition of the budget is at least as important as the actual budget. In other words, numerical policy rules do not make sense for a country with a sketchy fiscal track record if they are not accompanied by procedural rules such as a cap on non-interest expenditures. Second, the rule seems to be on the central government budget. I am not sure leaving local governments (municipalities) out makes sense for Turkey, unless you are planning to run pre-election pork-and-barrel spending.

Going into the details, I was almost tricked into thinking that the actual formula was conservative enough for Turkey, but an email exchange with a loyal and knowledgeable reader and some growth forecasting convinced me otherwise. The target growth rate of 5%, unless the coefficient associated with it is very small, is bound to end up in a too-loose fiscal policy, which is not exactly the point of the fiscal rule.

Even if the government manages to come up with the right rule for Turkey, implementation will be a huge challenge. Unless the rule is hammered into the constitution, there will always be the risk that it will share the destiny of the ill-fated borrowing limits in the fiscal control law, being cropped or even nullified with subsequent laws.

In fact, fiscal rule per se does not even ensure fiscal credibility. A useful analogy is with inflation targeting: Having inflation targeting per se or even attaining the inflation targets does not make a central bank credible; it is the institutions that come along that do. Similarly, without an independent and authoritative budget monitor or fiscal council, it wouldn’t be a big surprise if the Turkish fiscal rule, even after being ironclad in the constitution, would not gain much ground.

Another key issue is monitoring: Fiscal policy experts have repeatedly been pointing at lack of full transparency and shenanigans in public accounts, which do not bode well for the implementation of a fiscal rule. I know one institution that recently stopped doing its highly-regarded fiscal monitor, precisely because they had no idea what was going on.

I would like to keep my hopes up, but I am still convinced that with the IMF gone, the fiscal rule will be the government's new opium to the masses. That's why I am awfully worried about the withdrawal to come.

Roubini Post: The Rite of Spring

This post already appeared in the Hurriyet Daily News on Monday; Europe Economonitor is just republishing it, but I just wanted to cross link for the readers who might have missed it the first time around...

But while I am at it, I would like to add in a few points, which I could not mention in the article because of Hurriyet' strict 3,700 character limit (the article is also published in the hardcopy paper): In the article, I mention the latest unemployment and fiscal figures as the dissonances, asymmetries, polytonalities and polyrhythms of the Turkish data, but they are not the only ones. The latest industrial production figures, which showed that the improvement there almost came to a halt in January, after seasonality and working days adjustment, is also baffling.

But the biggest confusion there is credit. I plan to delve into the issue deeper in my next Hurriyet column, but there are two main issues: First, most analysts see credit as a leading indicator, which is not, neither in theory nor in practice. In theory, the effect of credit is as a financial accelerator and when you actually do simple causality tests and VARs, you don't see any effect going from credit to the real economy. Second, Turkey economists tend to make too much of the quantity of credit and not enough to its price (i.e. interest rates), which is very unfortunate, as price tells us two important things: 1. It lets us to discern supply and demand effects from quantity. 2. Interest rates, when benchmarked, could give us important signals about financial markets. But I don't want to give too many spoilers...

EconNews Roundup

Turkey's private sector debt declines: The problem is that you have to look at the foreign currency position of the public as well to get a better sense of the private sector's net FX position. I will devote a separate post to this issue later on.

Turkey and Iraq improve trade ties: I am baffled by the sharp rise of exports to Iraq in the last couple of years, so will tackle this issue later on.

Tourism sector concerned by meat prices: A significant part of the recent rise in inflation is due to rising unprocessed food prices, most of which is coming from meat. I'll do a contributions chart for that later on.

Capital Market Board president is critical of journalists talking positions. Your friendly neighborhood Economics columnist is not worried, as he never talks positions:), but I wonder how come his Excellency would have access to all the journalists' portfolios. Even mine?

Istanbul office market is picking up.

I am already late for my jog, so more later, including the detailed analyses I promised in this post...

Weekly Hurriyet Column: The Rite of Spring

Below is the unedited version of my column for this week. You can read the final version at the Daily News website, but since I have been editing my columns myself on the Daily News website since March, you won't see much of a difference between the two. As for cheesy references, I am have noticed that I have been given too much weight to the seventh art, so here's a reference to music for a change. I am no big fan of the modern stuff, but I'd make an exception for a few such as Prokofiev's Classical Symphony (this doesn't count as it is neo-classical) or Rhapsody in Blue or The Rite of Spring.

I have a couple of addenda to the column, but I have to rush, so they will have to wait until I post the Roubini version of the column later on.

In “The Unanswered Question – Six Talks at Harvard,” Leonard Bernstein notes that Igor Stravinsky’s masterpiece has got the best dissonances anyone ever thought up, and the best asymmetries and polytonalities and polyrhythms and whatever else you care to name.

The same could easily be said of Turkish economic data of late. Take unemployment: The press was quick to headline the latest data as the first decrease in unemployment since April 2008, but when you get to the nitty-gritty details, the December employment figures do not look that pretty.

It is definitely positive that the yearly increase in unemployment has come to a halt for the first time since spring of 2008. Similarly, the first year-on-year increase in industrial employment since October 2008 is definitely a welcome development. But the halt in services employment is somewhat clouding this otherwise rosy picture, although you could argue that part of it is a crisis effect, where the involuntarily self-employed are leaving the services sector.

The recent sharp rise in agricultural employment, on the other hand, is outright cause for concern. I am aware that, by worrying about an employment increase, I am playing into the hands of those who accuse me of deliberately distorting economic facts to scare foreign investors away because of the tax problems of the group that owns this paper.

But I find it utterly suspicious that the start of the year-on-year increase in agricultural employment coincides with the spring of 2008 as well. The most plausible explanation is also a crisis effect: With employment opportunities disappearing, many people could have been forced to return to agriculture, with several people in effect doing the work of one. Unemployment is a lagging indicator, but I am still baffled by the recent flock into agriculture.

A similar ambiguous picture emerges from the latest fiscal figures, another excuse for over-jubilation for the media and economists last week. Again, the headline figures look good: While the February primary surplus of 2.3 billion Turkish Liras is slightly less than the same month last year, privatization revenues had boosted last year’s figure.

In fact, looking at the IMF-defined primary surplus, which excludes such one-off items, points at a figure of 1.9 billion liras, a good 1.5 billion liras higher than last year’s turnout. It is true that the government has surprisingly been able to hold down non-interest expenditures, at least in real terms, of late, but most of the strong revenue performance is due to the economic recovery.

But even with revenues, there are conflicting signs. The robust corporate tax revenues mainly reflect banking sector profitability. Special consumption and import tax revenues, on the other hand, have lost some of their earlier momentum, which could hint at some caution on the strength of the economic recovery going forward.

In any case, it is a no-brainer that the end-year official target of 0.3 percent primary deficit for the consolidated government sector will be easily achieved. That reflects the modesty of the target more than anything else. But even that unpretentious goal could be deceiving of the true laxness of fiscal policy. Once you adjust for the role of the economic recovery, the remaining structural, or active, deficit hints at pre-election pork-and-barrel spending.

Just like last year, the coming of spring has led to hopes of green shoots a la turca; after all, yesterday was the first day of spring. While there is no doubt that the Turkish economy rebounded rather fast in the last quarter of 2009, the recovery may not be as strong as expected this year.

It seems more likely that we will see some frost along with all the sprouting.

Work In Progress

I have been a slacker again and put off updating my Hurriyet, Forbes and RGE columns to the site... It is is just that I am teaching an intensive 7-week course and with that and the columns and moving to a new apartment, I barely had time for anything else.

Anyway, I have devoted today to reading catch-up, writing my latest Forbes column and... housecleaning with the blog, which just means that I will do my archiving for the past two weeks:

I am aware that most of my loyal readers are subscribed to the blog email list, so to make sure that, they are not to swamped with the articles, in case they did not have a chance to read them before at the relevant sites, I will do the updating piecewise, throughout the day...

Roubini Post: A Little EMFathy with Greece

This is Monday's Hurriyet Daily News article; Europe Economonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

But while I am at it, I have a few things to say on this issue. It became obvious that while the EMF proposal is more about leaving the Euro Zone than helping Greece & other cash-stricken countries and founding IMF substitutes, the latter has got some attention as well.

For example, in early March, blog reader Sahika Balbay of Is Bank noted the following (I've liberally translated her Turkish email):

What I am wondering is when founding IMF-substitutes will be discussed. Founding a new financial system should not be left to an western-skewed organization like the IMF.

Sahika further thinks that countries/regions with problems in their SWFs, trying for a "reputably correct" way out in search of financing would try to establish IMF alternatives.

I am leaning towards the argument that regionalizing the IMF would be sub-optimal. But I also think that an EMF would be a useful complement to the IMF for the EU if it is set up right (BTW, I have only recently been aware of Daniel Gros's writing style, although I had heard of his name before; he is quickly becoming a favorite of mine on EU stuff).

Weekly Hurriyet Column: A little EMFathy with Greece

Below is the unedited version of my column for this week. You can read the final version at the Daily News website, but since I have been editing my columns myself on the Daily News website since this month, you won't see much of a difference between the two.

I have to thank the Daily News editor-in-chief David Judson and loyal reader Sahika Balbay of Isbank of guiding me on writing on this topic. I began considering the topic for my weekly after a couple of email exchanges with Sahika and when David suggested I write on it, the issue was sealed. David's journalistic instincts have served me well in the past, as his suggestions have invariably been popular articles, and this time was no exception: It turned out to be one of the most popular and most commented articles (not just commentaries) that day.

Anyway, on to the article:


These days, I am trying to find a good lawyer so that I can sue German finance minister Wolfgang Schäuble for copyright infringement.

During my stint at D.C., I was scheming on setting up a competing monetary fund at the empty lot across the street from the IMF and call it the EMF, or Emre’s Monetary Fund. This ingenious idea never took off because somehow, I wasn’t able to solve the financing. Mr. Schäuble came up with the same acronym last week, suggesting a European Monetary Fund, which would act as a lender of last resort to cash-strapped countries such as Greece.

There are two ways to interpret this sudden outburst. First, you can see it as the latest attempt at showing a little empathy with Greece, now that the country has given in to pressure for more austerity. So, Greece’s misfortunes are not a result of its profligate government, but the evil rating agencies that had downgraded its government bonds so that they became at risk of not being eligible as collateral at the European Central Bank, or the immoral speculators that had bet against those bonds.

If you buy these arguments, you’d think that a ban on naked trading of sovereign credit default swaps, or CDS, as suggested recently by France and Germany, would prevent future Greek tragedies. After all, such a ban on investors who do not hold the bonds that they are insured against defaults would weed out the speculators from the risk hedgers.

While there is some merit to this reasoning, the CDS market is not as large or influential as it has been touted in the media. Besides, the direction of causality went from bond yields to their underlying CDS in the Greek melee. Then, supporters of the naked ban have yet to explain what they are planning to do about the jump in actual bond yields.

German Central Bank President Axel Weber’s suggestion that the European Central Bank could decide to lend against lower-rated bonds at more punitive terms is a step ahead of the naked ban, but it would simply be a temporary patch.

I doubt that Mr. Schäuble and the EU’s top brass are so short-sighted. They perfectly understand that Greece’s deteriorating public finances were a direct consequence of establishing a monetary union without an accompanying fiscal and political union. That’s why you see remarks on fiscal monitoring in between the lines of the EMF proponents.

And that’s precisely why the EMF idea is so difficult to realize. Not only the EMF could not be set up without a change to the EU treaty, member countries would not want to let go of their public finances, especially after they have already let go of their monetary policy and exchange rate flexibility. Setting up a cash coffer without an accompanying IMF-like mechanism would then be an open invitation to all countries to go on a spending extravaganza.

But the Greek empathizers are right to note that the issue is not really about the irresponsible Greek government. Argentinean economist Guillermo Calvo once said that we don’t know much about economics other than accounting identities, and the accounting identity I have in mind is that a country current’s account balance is equal to its private saving investment and fiscal balances.

As FT’s Martin Wolf recently noted, this is really a crisis about the large imbalances inside the EU when you look at it through that lens: The Greeks and others were able to spend so much only because the Germans chose to spend so little. And while no one could deny that Greece ran irresponsible fiscal policy for many years, the story was one of the profligate Greek consumer and her frugal German counterpart, at least until recently.

Then, maybe, the Germans need not look far away for a fix to EU’s woes, after all…

Roubini Post: The End of a Long-Running Soap Opera

This post already appeared in the blog; Europe Economonitor is just republishing it, but I just wanted to cross link for the readers who might have missed it the first time around...

But while I am at it, I have a few things to say on the IMF deal: There are many rumors on why the IMF deal fell through, ranging from transfers to local administrations to the fiscal rule. But Econ. tzar Babacan recently dismissed all these and said that the disagreement was on future projections.

I really hate it when I am taken for a simple Na'vi, but that's exactly what is going on here: Those innocent long-term projections, especially one about the country's growth rate, were figuring a great deal on the fiscal rule. Even I originally thought that the long-term growth projection was conservative enough, but then was convinced otherwise after discussing the issue with a knowledgeable blog reader.

So what do I have to say to His Excellency? If you are looking for selling BS, go somewhere else. We are all stocked up here, as Melvin Udall would say:)

Addendum to the Politics columns

A Turkish friend of mine leaving in the US for the last 15 years told me that my articles were stating the obvious (he didn't mean to say that they were redundant), so he was surprised that people were accusing me of being Dogan's pen-for-hire.

My friend is right to add that he is missing something because he has been out of the country for so long: As I told him, stating the obvious does not matter in Turkey; even if I said the sky is blue, I would have been accused of being a hired pen. You really have been away from the Vaterland a lot: In Turkey, everyone operates under the logic that "if you are not one of us, you are one of them:)....

But my friend is right on target by saying that the next step is being accused of being a spy. But ultimately, I am hoping that that I would end up getting arrested as an Ergenekon conspirator. Then, the Daily News could count the days I am detained, just as Cumhuriyet does with Mustafa Balbay:)

Surprisingly, the bad apples did not show up for the Forbes and Roubini politics pieces. The perennial optimist in me hopes they finally learned to discuss ideas rather than throw baseless accusations, but we'll just have to wait and see...

Special Roubini Column: The misleading political calm in Turkey

As I had mentioned before, I recently agreed with Roubini Global Economics to have some of my Forbes and Hurriyet Daily News articles appear on their web site. But as I had done quite a bit of research on my Forbes article on the political situation in Turkey, and as Forbes had specifically asked me not to go into the nitty gritty details, I wanted to do a separate, more detailed piece for their Europe Economonitor. Anyway, the article I submitted is below; you can also find it on their web site.

Coming to the article, I think the reaction of the markets to that melee was noteworthy, especially when compared to Indonesia, who went through a similar political crisis, but without having any effect on markets. RGE has a very nice summary on Indonesian asset markets (subscription-base), and FT looks at the big picture. I, being a narrow-focused Turkey economist, just see this as a warning sign for Turkey: If politics still matter, then maybe your fundamentals are not that strong after all...

BTW, if you want to read more on the Turkish situation, FT has a recent commentary: I liked this one much more than others, and the the idea of the EU process holding powers in Turkey in alignment is logical, but the article still makes the usual mistakes of the foreign media covering Turkey: Labeling the country as black and white (there are many shades of grey; I, for one, do not talk about God and family a lot, but I do tend to care about football a lot, especially after we beat the eziks) and denoting AKP's Anatolian voter base as conservative, pious folk, more or less like the Protestants/Lutherans/Calvinists. But I'd still recommend the article as a complement to mine.


Turkey suddenly came into the spotlight two weeks ago with the arrests of more than five dozen military officers, some of them still on active duty, for an alleged coup plot that would put even the most imaginative Hollywood screenwriters to shame.

The plan, codenamed sledgehammer, was alleged to include the bombing of a major mosque, planting of weapons at the headquarters of religious sects and the gunning down of a Turkish fighter jet (which would be blamed on Greece), all to create the necessary circumstances for a military takeover.

It came to light when Turkish newspaper Taraf published what it claimed were military documents from 2003 detailing the plans for the coup. The military claims that the documents were part of a routine war-game workshop, and its own internal investigations have yet to find any concrete evidence for a coup plot.

But the turn of events caught investors off guard and Turkish equities, nearly two thirds held by foreigners, fell sharply two weeks ago. The reaction of bonds was more muted thanks to their large holding by domestic banks, and foreign currency selling by domestic residents acted as a brake on significant lira depreciation.

To their credit, the key actors were quick to respond: President Abdullah Gul, Prime Minister Recep Tayyip Erdogan and General Ilker Basbug, chief of staff, met at the presidential palace on Feb. 25, helping to ease political tensions considerably. As a result, politics did not impact Turkish assets any further.

But while investors have calmed down for now, there could be more political discord to come. This most recent turn of events is the latest in a series in the long-running conflict between the ruling Justice and Development party (AKP) and the so-called secularist establishment, who see the former's Islamic roots as a threat to the secular nature of Turkey. This is a conflict that is unlikely to die down any time soon.

Some of the frictions are related to the "Ergenekon" organization, a clandestine, right-wing group, which is allegedly trying to topple the AKP by any means necessary, including terrorism. The arrests of not only retired army officers, but also several journalists and academics over the past year, on suspicion that they were part of the group, but often without formal charge, have left many Turks doubtful about the real motives behind their detentions, if not the existence of the Ergenekon conspiracy itself.

For example, the district attorney of the Eastern province Erzincan suddenly found himself behind bars last month after looking into the activities of a religious sect on the grounds that he was also part of the Ergenekon gang, by none other than the special prosecutor of neighboring Erzurum. The ensuing fight between Turkey's top administrative judicial body, the High Board of Judges and Prosecutors, and the local court hint at the deep polarization in the judiciary.

At around the same time, Prime Minister Erdogan disclosed that the AKP would submit a constitutional-reform bill that would focus on restructuring the judicial system. It is no secret that the current constitution, remnant of the 1980 coup, needs a major overhaul. The same can be said of the judiciary, as detailed in the latest E.U. Progress Report on Turkey. But the timing has made many suspect a plot by the AKP to emasculate the judiciary.

The opposition political parties are vehemently opposed to the reform, so the AKP doesn’t have the votes necessary to pass the amendments in parliament and will have hold a referendum 60 days after President Gul signs them into law. The risk is that the referendum will be based not on the constitutional changes, but public approval of the AKP, as latest polls hint that Turks are getting increasingly polarized.

The AKP's victory in the referendum would put a stamp on Erdogan's authority, but a loss would turn the government into a lame duck, forcing it to call early elections. But that is not necessarily a bad thing for the AKP.

Erdogan's party has been losing support in the polls thanks to its dithering on domestic, foreign and economic policy, so an early election might be the safest way to ensure he stays in government. Meanwhile, economic data are expected to turn out deceivingly positive over the next several months after last year's sharp contraction, so the AKP could tout an economic recovery. Therefore, Erdogan may opt for early elections even after a referendum victory despite his recent statement that he has no intention to do so.

On the other hand, it is also possible that a loss in the referendum could accelerate the party’s recent downward momentum in the polls and even result in the extremely investor-unfriendly result of a hung parliament.

But the AKP has other troubles to contend with. Turkey's chief prosecutor, who unsuccessfully tried closing down the party two years ago, is conducting a "routine" investigation into the AKP, and if he is looking for an excuse to prosecute, the same religious sect that cost the Erzincan district attorney his freedom might have handed one to him on a silver platter: two of the congregation's leaders recently admitted to the media that they had asked the AKP to get rid of the district attorney.

This, along with a couple of earlier ongoing investigations, could be sufficient for the chief prosecutor to turn the investigation into one for "breach of securality." The AKP's top brass have already declared that they will call elections if charges are filed. Playing the oppressed and wronged has served the party well in the past, and a recent poll finds that it would again this time.

To sum up, investors may yet be prone to more nasty surprises over the course of next several months. It’ll pay to be wary of any signs of political tension until the clouds over the possibility of early elections, a closure case against AKP and the results of the referendum dissipate.

In the case of more political turmoil, equities will probably get hit most again, with bonds and the currency likely to show more resilience. But the real disaster would be waning of real sector and consumer confidence. Then, the country’s fragile economic recovery could be seriously hampered as well.

The end of a long-running soap opera

You probably heard the news, but if you haven't, the Turkey-IMF saga has come to an end:

http://www.imf.org/external/np/sec/pr/2010/pr1076.htm

For my part, I am really happy for my good call, done at a time the consensus view was that the agreement would be sealed in a matter of weeks, if not days:

http://www.hurriyetdailynews.com/n.php?n=fool-some-sometimes-you-can-2010-01-03

I guess the Fund was no more foolish than the Na'vi, after all:)

Anyway, this turn of events brings to questions to mind:

1. I don't want to be labeled as a conspiracy theorist, but I am just wondering about yesterday's weak Treasury auction. I really would not doubt the Fund's or the Treasury's integrity (no sarcasm here); actually, that's why I am confused.

2. As in earlier IMF-related announcements, some have already started speculating on the implications of this on the possibility of early elections. Although I did argue for early elections in my latest Forbes piece, I am not sure about what no Stand-by would mean for elections:

http://www.forbes.com/2010/03/09/turkey-politics-equities-opinions-contributors-emre-deliveli.html

I have yet to put this column in by blog, but maybe the PM also believes, as I argue in the piece, that the referendum is likely to be perceived not on the constitutional changes, but on the AKP. As the French say, on verra:)

BTW, a couple of bad apples are attacking at my Forbes columns, labelling me a pen-for-hire for Dogan, paid to scare investors away. So I'd appreciate any smart comments there, even if you 100% disagree with all I am saying. At least, the comments section will improve a bit:)...
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Weekly Forbes column: Turkey’s still-ignored political risks

Below is the unedited version of my column for this week. You can read the final version at the Forbes website. As usual, the unedited and final versions are a lot different. The editors always do a very tedious job over there, so I'd always recommend you to read the final version; the drafts are for my archiving purposes only. Feel free to comment or rate the article over there; remember that bad ratings are even more appreciated than good ones, provided they come with an explanation on why you don't like the article.

One surprise is that this article did not get attacked like the previous ones. I guess the loyal readers who were constantly accusing me of being a hired pen for Dogan finally gave up. All for the better:). Not that I am not fond of criticism, but debating my personality and motives rather than ideas was starting to be a bit tiresome...



HED: Turkish Trials And Tribulations

DEK: More political troubles on top of reports of an attempted military coup could lead to a wild ride for investors.

By Emre Deliveli


ISTANBUL - Turkey suddenly came into the spotlight two weeks ago with the arrests of more than five dozen military officers, some of them still on active duty, for an alleged coup plot.

The turn of events caught investors off guard and Turkish equities, nearly two thirds held by foreigners, fell sharply during the last week of February. Turkish bonds were muted thanks to their large holding by domestic banks, and foreign currency selling by domestic residents acted as a brake on significant lira depreciation.

To their credit, the key actors were quick to respond: President Abdullah Gul, Prime Minister Recep Tayyip Erdogan and General Ilker Basbug, chief of staff, met at the presidential palace on Feb. 25, helping to ease political tensions considerably. As a result, politics did not impact Turkish assets any further.

But while investors have calmed down for now, there could be more political discord to come. This most recent turn of events is not a lone incident, but the latest in a series in the long-running conflict between the ruling Justice and Development party (AKP) and the so-called secularist establishment, who see the former's Islamic roots as a threat to the secular nature of Turkey. This is a conflict that is unlikely to die down any time soon.

For example, the frictions have also spread to the judiciary, as a prosecutor going after religious sects close to the AKP found himself behind bars thanks to a colleague. The ensuing fight between the country’s top judicial body, part of the secularist establishment, and the local court behind the prosecutor’s arrests is continuing.

At around the same time, Prime Minister Erdogan disclosed that the AKP would submit a constitutional-reform bill that would focus on restructuring the judicial system. While the judiciary needs a major overhaul, as detailed in the latest E.U. Progress Report on Turkey, the timing has made many suspect a plot by the AKP to emasculate the judiciary.

As the AKP doesn’t have the necessary votes to pass the amendments in parliament, it will have to hold a referendum sixty days after President Gul signs them into law. But the referendum could be perceived by the public as not on the amendments, but on public approval of the AKP, as latest polls hint that Turks are getting increasingly polarized.

The AKP's victory in the referendum would then put a stamp on Erdogan's authority, but a loss would turn the government into a lame duck, forcing it to call early elections. The AKP has also vowed to call early elections if the Chief Prosecutor, currently conducting a routine investigation into the party, decides to pursue closure on grounds of “breach of secularity”.

But that is not necessarily a bad thing for Erdogan. His party has been losing support in the polls thanks to its dithering on domestic, foreign and economic policy, so an early election might be the safest way to ensure he stays in government. Meanwhile, economic data are expected to turn out deceivingly positive over the next several months after last year's sharp contraction, so the AKP could tout an economic recovery. And if there is a closure case, let’s not forget that the AKP has gained from playing the wronged and the oppressed in the past.

Interestingly, while the road to early elections is bound to be bumpy, an AKP victory would be investor-friendly, at least relatively, as the opposition’s economic agenda is anything but liberal and free-market. But the possibility of a hung parliament and ensuing instability, while not a base-case scenario, should not be taken for granted.

Investors may yet be prone to more nasty surprises over the course of next several months. It’ll pay to be wary of any signs of political tension until the clouds over the possibility of early elections, a closure case against AKP and the results of the referendum dissipate.

In the case of more political turmoil, a repeat of the end-February melee would be the most likely outcome: Equities would get hit the most, with bonds and the currency showing more resilience. Turks are used to political tension, so the real sector and the consumer will be resilient, but significant negative political shocks have affected their confidence in the past; if that were to happen again, Turkey’s economic recovery could be hampered as well.

Weekly Hurriyet Column: Turkey’s long-forgotten women

Below is the unedited version of my column for this week. You can read the final version at the Daily News website. No cheesy references this time around as well; I just decided to repeat the long-forgotten theme. BTW, although I am posting it three days after Women's Day, the article itself appeared on that day; not by design, but by coincidence: My weekly columned just happened to be on March 8...

As for the article, a commentator to the Hurriyet website noted that if women are choosing to look after their children, they should not be labeled unemployed. Well, they are not; they are then "not in the labor force". But this brings an important point; let me repeat my answer to that comment here: If the government were providing childcare (or payment for childcare), then some of these women would be able to go work. Not all of them would, and that is fine, but at least, they'd have the freedom to choose. By not providing alternatives (or making alternatives too costly), the government is in effect forcing them to stay out of the labor force. When you compare labor force participation rates for women across the globe, Turkey comes out at the bottom. Is that because Turkish mothers love their children more than their Scandinavian counterparts? Or is because the Scandinavian mothers get cash to pay for daycare? I have just given one example, but I guess you can see my reasoning...

Anyway, on to the article:


In this country, we tend to pick flashy numbers over subtle details in the shadows.

For example, when the Turkish Statistical Institute released the 2009 unemployment figures, all the papers were quick to note that the country, at 14 percent, had the second highest unemployment rate in the OECD. But that headline figure hides the huge gender gap in the labor market.

Overall unemployment rates, 12.9 percent for men and 13.5 percent for women (all numbers in the article are from the latest employment statistics, from November), hide the ugly truth about women’s employment.

For one thing, out of the 6 million women employed, one third work as unpaid family workers, almost all in farms. In fact, three fourths of the 2.5 million women in agriculture are unpaid family workers. The summary statistics hide this implicit unemployment.

Moreover, the duration of unemployment is higher for women than for men. Out of the 942,000 women unemployed, one third have been so for more than a year, with the same ratio being one fourth for men.

Of course, it is possible to paint this picture a bit rosier. For example, you could argue that, in addition to the official figure of 6 million, there are 3.5 million unregistered women workers. But of those, 2 million are unpaid family workers, again mostly in agriculture. I am also not sure if the large unregistered workforce, a major problem of Turkish labor that seems to be an even bigger issue with women, is reason to rejoice.

And if you are going to start massaging the numbers, you should also take into consideration Turkey’s public sector employment of 3 million. Although I could not find separate numbers by gender, it is safe to assume that a sizable sum of the 6 million is employed by the state, inflating their employment statistics much more than their male counterparts.

But the real story of women’s labor force in Turkey is not with women with or looking for work, but those not in the labor force. Labor force participation rates, the ratio of labor force to population over 15 years old, are 70 percent for men, but only 26 percent for women despite the significant increase over the past couple of years, which is probably due to an unemployed husband effect more than anything else.

Similarly, employment rates, the ratio of employed to population over 15 years old, 62 percent for men, but only 23 percent for women, tell the same story. In effect, Turkey is utilizing just one fourth of half of its labor force.

Going a bit deeper points to interesting geographical and educational patterns: While less than one fifth of women with primary education or below participate in the labor force, the same ratio is 71 percent for those with a college degree or above.

In terms of unemployment, women with a high school degree, more than one of fourth of whom are unemployed, feel the most pain. Unemployment rates are in single digits for women with primary education and below, mostly because these women do not join the labor force in the first place.

These descriptive statistics seem to hint at a lot complexities in women’s labor force participation and unemployment. That’s why positive separatism for women in the labor force, as suggested most recently by TUSIAD, will not amount to being more than a temporary patch so long as the real reasons are not addressed.

Unfortunately, Turkey’s gender gap is not specific to the labor force. In Word Economic Forum’s 2009 Global Gender Gap report, which takes into consideration women’s educational attainment and political empowerment as well, Turkey managed to come in sixth from last out of 134 countries.

I am not sure if there is much reason to be in high spirits, but Happy Women’s Day, anyway...

My official baptism as a columnist

In Turkey, columnists tend to get invited to speak at universities and the like quite a bit and get handed a plaque at the end as token of their participation.

I did my first such talk at Dogus University on Thursday on lessons from the crisis and earned my first token:

So now I am officially an Econ. columnist. Next step is getting invited by His Excellency the Econ. Tzar:)

Joking aside, the talk made me think a very important topic, I came up with the following summary slide after my brainstorming:

I am planning to devote a couple of columns to this issue, so I just wanted to give a sneak peek...

EconNews Roundup

Inflation is in double-digit territory even earlier than my above-consensus forecasts, but the Finance Minister, the best 30-minute economist in Turkey (I will explain what I mean by that in a later post), notes that it is temporary. Joking aside, he is right; inflation will not end the year in double-digit, barring unforeseen surprises, but I am not sure if the CBT's end-year inflation target could be contained, especially since expectations continue to be guided by the headline rather than the core rate. Also, the upward tick in PPI is pleasing and worrying at the same time: While it hints at economic recovery, it also means that supply-side pressures could be building up soon...

And the silver medal in unemployment goes to..... Turkey

Ziraat's unmanned banking branch. Kudos for the effort, but efforts like this do not bode well for Turkey, with Akbank's recent "credit machine", which I was planning to write about, as soon as I have a chance to visit Akmerkez to photograph the only surviving specimen, attests to...

While the title is Akfen's IPO, i find their boond issue far more interesting, especially since corporate bonds are almost as rare as a Fenerbahce cup win in Turkey- this is another topic I was planning to write about.

Last but not the least, I am in the process of moving, so if you happen to be in Istanbul and want to get me a housewarming gift, here's an idea:) I have been warned on making this blog a bit personal before, but where is the fun if it will be unpersonal and dry:)?

Another case of sloppy reporting

The Turkish daily Referans ran a story on Monday, claiming that Chile was faced with an economic tsunami. The reality is much more different: As a couple of reports from J.P. Morgan and RGE confirm, the country's sound position means that the earthquake is not big deal in terms of Economics for the country. But as the pieces argue, it is likely to have an Economics impact, in terms of changing policy responses.

BTW, I think other newspapers ran stories in a similar tone, so I am not singling out Referans. It is just that Referans is my preferred Turkish daily, and I wish they had taken some cues from FT, whose reporting, as usual, is more accurate.

Just setting the record straight

I got another accusation as pursuing the interests of the Dogan group, which owns Hurriyet Daily News & Economic Review, so I am going to address the issue once and for all:

There are two issues here: First, I am accused of being unethical. Second, Dogan newspapers, and specifically Hurriyet Daily News & Economic Review, are being accused of publishing libel. Let me address each in turn.

Starting with myself, I could spend pages and pages trying to convince that the critiques' economic argument is wrong, but they are not really presenting an economic argument: Just accusing me of pursuing Dogan's agenda and giving a low rating to my articles. So, I'll resort to Logic 101 (rather than Econ.101) instead: Maybe, the critiques are not aware, but I am definitely not the lone ranger out there: I am obviously in the minority, but there are quite a bit sensible economists (who I will not name, in fear that they will get their share of hate-mails because of me) who share many of my views on the Turkish economy. So I am wondering if they have a hidden agenda as well...

The critiques also choose to ignore the instances where I have applauded the government's economic policy, as in my short evaluation of the early macro reforms or the tax cuts. And I will continue to do so, whenever they implement sound policy. For example, my promise to be the first one to celebrate if there is an IMF deal stands:)...

As for the claim that I am writing in the international medial to scare the investors away: I did not seek out Forbes; as the editors there can confirm, they found me through my Hurriyet articles and blog and asked me if I would like to write for them. The same goes for RGE.

As for Hurriyet Daily News & Economic Review, the paper prides itself in its objectivity. For example, if the paper were so anti-government, would it let Mustafa Akyol publish his latest piece? I have never met the guy, and I have no idea if he is close to the government or not, but he obviously supports many of the government's policies. I do not share many of his views, but I am extremely proud that he is writing for the paper in the interest of freedom of speech and presenting a balanced view.

Note that I am not making the very strong claim that all the Dogan papers are 100% objective all the time. I am not in a position to make such a claim. All I am saying is that Hurriyet Daily News & Economic Review is probably the most objective daily in a country where the media is extremely polarized. And there is a reason for that: The very bearable lightness of being tiny & obscure.

But maybe, I should consider myself lucky. Given the usual methods of government supporters, at least I am not being accused of not having done my military service. It is tragicomic that those who accuse of libel resort it at every opportunity....

More on the latest Hurriyet & Forbes columns

I forgot to mention this while putting up yesterday's Hurrriyet column in my blog, but it seems that from now on, the blog and official versions of the Hurriyet columns will be exactly the same. Since I will be putting up my columns myself, there won't be big differences between the two. But the columns will still go through copy-editing in the paper, meaning that they will hopefully be able to catch the occasional grammatical error.

BTW, that last column was designed as a complement to the Hurriyet Daily News editorial and news article on the same subject. I should have given hyperlinks to those in the article, but it just slipped my mind.

Speaking of that column, a reader asked the following question:

I am wondering - are any of these business-oriented reform objectives being addressed in the AKP's new reform package

The short answer is: Not really. AKP's new reform package includes some democratic steps such as making the closing down of political parties more difficult and judicial reform, which is seen by some by the party taking on the judiciary. The reforms that I have in mind (educational reforms, cutting down labor costs and the like) would not need constitutional changes at all.

This brings me to another point. After starting with Forbes, I noticed that I am implicitly assuming in my Hurriyet columns that the readers already know quite a bit about the Turkish economy and are even familiar with issue I am discussing. So if you are not, feel free to ask a question anytime by commenting on the posts/newspaper articles- all the venues I am writing for have decent comments setup.

Speaking of columns, there is a funny addendum to my Forbes and Hurriyet columns on Balkan contagion. Right after I note that Greek banks are sound for now, Fitch cut ratings for Greek banks. Normally, I should be worried, but given the past performance in ratings agencies, I am not:)

EconNews Roundup

Turkish assets under political risk: Note that one asset manager sees the recent arrests as the application of rule of law...

PM versus columnists: Round II! And the answer to Katie's question is a resounding yes:)

The mystery of Turkey's volatile food prices

Richest Turks supposedly used the crisis as an opportunity, increasing their fortunes by 55% in dollar terms. The article completely ignores the sharp rebound in world assets in 2009, which wasn't really a big opportunity. Since I tend to think that a picture is usually worth more than a thousand words, I offer you the following:

Do I need to say more? I am just glad this is not Daily News reporting, but Anatolia News Agency:)

TIM-TEA preliminary data show that exports are on the rise, on a year-on-year basis, but this is mainly a base effect at the moment, more of a reflection of the last year's dismal figures as world trade collapsed in the aftermath of the Lehman collapse...

A blog recommendation

I have made a big effort in this blog to reflect an objective view on the Turkish economy. Yet I have still been openly accused of criticizing the government's economic policy because of the Dogan tax levy.

I have believed that the best defense is offense, so here's my blog recommendation for the day:

http://cdogangercekler.wordpress.com/

BTW, Dani happens to be my first employer in grad school, first as an RA, then as TA, so if you are going to accuse me for taking sides: I am openly saying that I have already taken sides in this POLITICAL issue.

But I am determined to keep my objectivity in matters of Economics...
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Weekly Hurriyet Column: Turkey’s long-forgotten reform agenda

Below is the unedited version of my column for this week. You can read the final version at the Daily News website. No cheesy references this time around as well; I am really having a drought here:)

As for the column, one thing you'll notice is the plethora of hyperlinks embedded: I always wanted to make the web version more techno-friendly, but the editors at the paper just did not have the time to embed my hyperlinks, graphs and the like. The problem has been solved by granting me access to the paper's news editor so that I will be posting columns myself from now on. This is the first week, but as I learn to use the system, I will me embedding, graphs, pictures and the like when the opportunity presents itself.

Anyway, on to the column, but I just noticed the stupid grammatical error in the first sentence:(

In this column, I have been often very critical of the government’s economic policy.

But a report last week reminded me that I have to render unto the government the things which are the government’s: With knockoff fiscal measures, rumors of an IMF deal, financial center daydreaming and the like, they have managed to sway attention from the much-needed micro-reform agenda.

Were it not for the American Business Forum in Turkey’s annual survey on Business and Investment Climate in Turkey, I would probably be discussing now the recent Capital Markets Board claim that there is no relationship between rumors of an IMF deal and Turkish asset prices.

The survey has asked 110 US company executives their perceptions on the Turkish business and investment environment in a wide variety of areas such as macroeconomics, red tape, infrastructure, taxation, legal system and labor force & education. Since it has been conducted since 2007, there is also some scope for time series comparison.

To start off with the good, the executives seem to be content on the macroeconomics environment. I would go a step further by declaring boldly that the 2001 crisis, which led the way to the macroeconomics reforms in the five years that followed, is one of the best things that happened to the Turkish economy.

A snapshot of the economy on the eve of the crisis would paint a very ugly picture. Public finances were in much worse shape than today’s Greece. The country was dealing with chronic inflation as long as anyone could remember and was faced with a deep recession.

Commendable execution of a well-planned program towards economic stability, with an expansionary fiscal contraction and banking reforms at its pillars, coupled with very favorable global conditions, did wonders for the economy in the AKP’s first term in office.

I have yet to devote a column to it, but that macroeconomic performance was the driving force behind the party’s stellar performance at the 2007 elections- just as it is mainly responsible for AKP’s recent waning support at the polls.

In fact, the survey reveals that the government is still reaping the benefits of those five years despite the fiscal slippages in the last couple of years, which have led some executives raise concern over the lack of a fiscal anchor. But it is not the macro, but micro reforms, or rather their lack of, that is really worrying.

The survey clearly highlights that not much has been done in the last three years in terms of microeconomic reform. There has not been any improvement in areas that were defined as in need for improvement in the 2007 inaugural survey such as university-business relations, policy transparency, customs, legal system and corruption.

One could argue that the survey could be reflecting the concerns of large foreign corporations, whose interests might not necessarily be aligned with domestic firms, especially small and medium-sized enterprises.

But other studies that have used a much more representative sample, such the World Bank’s 2006 Investment Climate Assessment survey and 2005-2007 Labor Sector studies, point at exactly the same areas.

These studies are also better-suited to international comparisons and identification of binding constraints to investment. They confirm that executives of US firms are right on track: Not only Turkey lags behind its peers in their problem areas, their concerns also come out of these other studies as major barriers to investment.

Interestingly, I could hardly find any other mention of the survey in the other Turkish dailies, which were preoccupied with the “sledgehammer crisis”. Maybe, the government is not only Caesarian in terms of authoritarianism, after all...