Monday, April 26, 2010

Weekly Hurriyet Column: 99 Luftballoons in a beauty contest

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 wanted to go for music this time around.

As for the column, it is a continuation of my thinking (or rather writing) aloud over the weekend, so the credit column got dumped yet again:( The perils of writing once a week...

It is becoming increasingly difficult to ignore, even for a perennial pessimist like me, the plethora of Turkey-positive stories in the foreign media and research houses.

This difference of opinion between my own views of the Turkish economy and (almost) everyone else’s has led me recently to a soul-searching trip all the way to Inferno, where I have questioned my economic sanity.

It is easier to explain the mood in the foreign media: As a seasoned expat journalist living in Turkey once noted, foreign journalists covering Turkey hang out in the same places and invariably talk to the same people, so they have a consistent but biased view of the country.

A friend whose opinion I highly value goes further by accusing a leading newsmagazine for publishing articles by people who decide how the country is doing by visiting the most expensive clubs on the Bosphorus and collecting information during dinner chats with businessmen who are probably buddies. While I do hate generalizations, I have recently seen quite a few pieces that fit this description.

The same is true for foreign investors to some degree. As a former bank economist who used to shuttle hedgies around town in enlightenment trips, I can confirm that not only these guys talk to a few people over dinner at Reina, they also invariably talk to the same guys, ending up with a single view of the economy.

It is also easy to dismiss the arguments of a journalist who claims that the shrinking current account deficit is a sign of strength of the economy as divine comedy. But market economists are (usually) a tad more careful with their reports, which are (usually) based on sound economic analysis.

That should not be much of a surprise: Turkey does look much sounder than many of its peers, especially in the region, even after you account for popular illusions I have been trying to debunk in my columns such as stable politics, strong economic recovery and loose financial conditions. That's not because Turkey is an economics wunderkind, as the government often claims, but rather because the region had really messed up in the run-up to the financial crisis.

For example, even the country’s traditional Achilles heel of Balance of Payments does not look that bad compared to the likes of Poland, Czech Republic and Hungary. There is also quite a bit of economics illusion: It is true that the IMF’s revised forecast of 5.2 percent growth for this year would put the country at the top of the pack, but the 4.7 percent contraction of last year means that GDP would still be more or less where it left off before the crisis.

There is also the Keynesian beauty contest going on, which the one and only Maestro introduced in Chapter 12 of his General Theory of Employment Interest and Money: If you need to guess who will win a beauty contest, you should choose who you think the jury will select, not who you think the most beautiful of all is. Keynes made a lot of money in the stock market, so he probably knows what he is talking about.

The jury in this case is the investment community. According to Emerging Portfolio Fund Research, which collects data on fund flows, Turkey’s region has been outperforming the rest of the emerging market universe. With a solid carry over regional peers and a Central Bank getting ready to tighten, the recent sell-side long-lira recommendations are then not much of a surprise.

But returning to the Master, he was more into men than women, so he might not have known so much about beauty contests after all. Maybe, he was not aware of cases where the beauty queen is stripped of her title.

What I am worried about is that Turkey will be dumped once those plastic balloons explode.

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

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