Monday, March 22, 2010

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.

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