Thursday, March 31, 2011

Seeing the CBT's dilemmas in action

This past few days has been great for seeing the dilemmas of CBT's unconventional policies in action:

First, as you probably have heard me say it before, the CBT has to provide enough liquidity to the markets if it doesn't want market rates to be above the policy rate. What this means in practice is that when the Bank pulls liquidity via reserve requirement ratio hikes, it must increase its liquidity support through auctions by more or less the same amount.

I was meaning to show this for a long while, but BarCap has beaten me to it, so I'll just use theirs:
In other words, what the Bank taketh away, it giveth:)- BarCap uses a similar title for the article where this picture is, BTW, so they beat me to the title as well:)

But what happens if the Bank doesn't provide enough liquidity: Market rates go above the policy rate, as I mentioned above:
Total repo funding from the Central Bank had declined from TRY 30bn in March 21 to TRY 23bn in March 28th. And there goes the market overnight rate. The Bank increased it liquidity lines by TRY 2bn on Tuesday and Wednesday, and the market rates eased slightly, although they are still well the policy, i.e. the Bank's one-week repo, rate.

Roubini Post- Turkey: The (hi)King’s Speech

This post already appeared in Hurriyet Daily News this week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

I plan to do an addendum as usual, but I just couldn't get around to it- hopefully the weekend will be perfect for catching up...

Always remember, folks. You heard it first from Emre...

As loyal readers would know, I strongly believe that a picture is worth more than a thousand words. What they wouldn't know, however, is that a video is worth more than a thousand pictures (BTW, so how many words is a video worth?):

Then, read Herr Stark's commentary in the Financial Times today, which was also summarized as a newspiece in the same paper.

Rather strong words, indeed- Gosh, can't I just do without these cheesy wordplays for once?:)

Metrics Day: Granger Causality

I kinda liked the way I explained Omitted Variable Bias in the previous post, so let's call today metrics day: A reader recently asked me to explain Granger Causality in a way anyone on the street would understand it. Here is what I had to say:

"A Granger causes B if A always comes before B". I am aware that it is quite a bit of simplification, and it is not entirely accurate. But it does capture, I believe, the essence, and it also lets you to understand the main problem with Granger Causality: If an alien came to Earth and wanted to find out what caused Christmas, and all the data he had was the date of Christmas cards, she would conclude that Christmas is caused by Christmas cards:)

Anyway, if you want to teach yourself metrics, I would strongly recommend the Peter Kennedy classic as well as the new Harmless Econometrics book.

As a side point, I should note that metrics is anything but harmless, and although I have taught time series to undergraduates, I still do not consider myself even near mastering Econometrics. BTW, the reader's response to this last comment was "thanks for the motivation":):):)

The Stock Market and Elections

With less than three months to general elections, I have been getting several emails on how "predictable" stock markets are before elections. I even ended up with a survey request from a respectable asset management division of a major bank, as they were getting opinions from a bunch of economists.

When you just had to look at ISE, you might find a pattern if you look hard enough (try the 2007 general and 2009 local elections):
 But then if you go a bit deeper and consider how the ISE fared in relationship to other EM....
....The relationship suddenly disappears! Magic!:)....

Besides, the environment today is much different than in 2002, 2007 and 2009. For one thing, banks, which make up a considerable chunk of the ISE index, are faced with considerable pressure from the CBT and the government for curbing loan growth, measures bound to eat into profits of banks. The global environment is especially different than the last general elections in 2007, which was the last days of the so-called "new normal".

As a general point, such fast-track conclusions based on simple relationships, without controlling for everything else (global economic conditions, domestic economic conditions, etc) are bound to suffer from what economists call omitted variable bias

The hyperlink is somewhat technical, so to illustrate my point with a more mundane example: A rather harsh critique of my previous week's column on the Turkish corporate banking mess noted that there would be no way to know that my friend's father had committed suicide because of other reasons; maybe, he was an alcoholic, maybe he had family problems... Those were not the case, but this is what OVB is all about...

Wednesday, March 30, 2011

More shameless advertising

Since the Blogger ban has been lifted, at least for the moment, let me cut to the chase and say what I want to say right away:

My friends at Turkey Data Monitor just released the second version of their great data software:
It is much improved than the previous version, which I had reviewed, in terms of data viewing, editing and the like. Besides, it is also an economics aggregation portal, with news and commentary on the Turkish and world economy. The news and events go through the lens of Murat Ucer (el jefe), so he sort of picks out what he deems as the most important, which is very convenient for a time-constrained person like your friendly neighborhood economist.

As for commentary on the Turkish economy, they have reports from Turkish and foreign outfits such as Yapi Kredi and Nomura, as well as Hurriyet / Roubini columns of your friendly neighborhood economist. This last point is really important, as it, along with the migration of my blog to Roubini's new blog aggregation site (full details coming soon), is all part of my plan to conquer the world (hahahaha- the Dr. Evil laugh)....

Anyway, if you want to give it a try, their contact info is in the picture above... 

More on Turkish foreceasting

An anonymous reader made the following comment to my post on inconsistencies in forecasting:
Very good point! I do not believe any of the forecasters in Turkey have the guts to reveal their methodology. Some of them claim that they refrain from boring the reader with technical stuff(?!). I think, they just pretend and make us believe that they use appropriate techniques to generate those numbers. How the hell would we know? Hiding behind the so called "credibility" is not enough anymore. Of course, you could still be wrong despite all your efforts. But if you stick to the scientific metholodogy and do your part properly, then you can blame the data and nobody will accuse you of anything. Respect is an earned gift!
I thank the reader for her comment, as it clarifies an important issue: My comments were not aimed at TUSIAD per se, but to the most market economists in Turkey and abroad. OK, if you are not an academic, I don't expect you to write a full paper, but at least SKETCH your methodology. But there are a couple of exceptions: I really like Yapi Kredi and Citi Turkey because both Cevdet & Ilker (and their teams) clearly spell out how they do what they do... Cevdet likes to put it into the note, which makes most of his stuff difficult to follow for anyone without a couple of Econ. grad courses under her belt, Ilker in the appendices, but both follow this golden rule.

But there is a more fundamental problem with the TUSIAD report. It is very easy to see that there is a consistency problem, especially with the growth/ current account mix. Now, what they have done maybe makes sense. Quizas, I would have said Achsooooooooooooooo if I saw their methodology and congradulated them for their ingenuity. But I can't!

BTW, as I say in the post (and earlier), it is very easy to make sure your forecasts are consistent with financial programming. If TUSIAD had done that, I still would not know if their methodology is accurate or not, but at least, I would not have noticed anything...

Tuesday, March 29, 2011

Talk about consistency

I had another frustrating day, with a couple of suppliers who were swearing they were selling at a loss (come on, try to a bit more convincing), so it is time for the occasional "taking my anger out" email...

I am often asked about my forecasting methodology; therefore, I sketched it out some time ago. I think the crucial part of any forecast is consistency; financial programming and its derivatives ensure that. Otherwise, you get some inconsistent results as in CBT expectations surveys...

The aggregation in CBT surveys could explain some of the inconsistency, but there is no excuse if a major NGO puts out a projections table on their front page full of such inconsistencies:
I managed to replicate some of the TUSIAD numbers with weird assumptions on oil prices, but there is no other way I can reconcile the figures, especially the current account and growth projections. I tried to find a background paper explaining the methodology, but all they have is a footnote saying that the 2001 scenarios have been developed with the "TUSIAD time series model", which is a complete black box to me. It is normal for the IMF and CBT not to reveal their models, but I would have expected a bit of transparency from TUSIAD, especially because they seem a bit unconventional....

Speaking of transparency.... No I will not post a nude picture with my eagle tattoo, that one is already in my Facebook and Twitter pages, but I was offered a position as chief economist of TUSIAD a few months ago and had to decline a few days before my agreed starting date because of personal/health reasons. Because of this fact, I thought it would have been unethical for me to criticize them, and so I held on to this post for a while. I have decided that since I was the one who rejected, there should not be any issue of ethics here... But as I a said, I just wanted to share this fact anyway for full transparency:)...

Another weird artefact of the Turkish recovery

I have been talking about disappearing linkages for a while, and here's another one:

The link between employment and actual production has broken down, even if it existed in the first place. Have a look at this summary table:
This involves only the industry, and you see that industry is not faring that badly. But what is more troubling is services, where the increase in employment is way too high to be justified by the rise in production. I'll have more to say about this when the 4Q10 GDP figures are released on Thursday....

Disappearing Linkages II: Benchmark, ISE and the policy rate

Loyal reader Abe Rudder has the following follow-up question to my recent post on disappearing linkages of the Turkish economy:
Speaking of linkages, how about the link between benchmark rate and ISE? and benchmark vs. policy rate? Do you have a picture for those? I remember you posted something about this over a year ago, but I couldn't find it.
She certainly has a much better memory than me; I have no recollection of that post, although I am sure she is right:) But here are the pictures she is asking for, courtesy of my friends at Turkey Data Monitor and your friendly neighborhood economist.

First, the benchmark and ISE:
Then, the benchmark and the new policy rate, i.e. the one-week repo rate:
I am not going to try to explain the relationships, as they are far from simple and not iron-clad, but here are the pictures, in case you want to make up your own story and post it as a comment here:)....

A "likable" chap....

But more importantly, both this piece and my South Weekly editorial, aka The Southbound, got three "likes" each on Facebook. I had always known I was a likable chap, but now I have documented it:)... Compared to some what great Turkish columnists Yigit Bulut the Toruk food (what a nice rhyme) and Suluman the Economist are getting, it is peanuts, but hey, it is enough for me:)... So thanks to the "likers" for "liking me", if you are reading these lines:)....

BTW, isn't the new version of Firefox, which you see above, just great? But it also makes me think how the three main browsers have converged: Firefox, Chrome and I.E. look more or less exactly alike now. And each has integrated the best parts of their competitors, i.e. there is no race to the bottom... Just made me think of some new growth or development economics models, but maybe that's because it is too late, so I should call it the day.

Monday, March 28, 2011

Hurriyet South Weekly Editorial: Nothing quiet on the (south)western front

Today was a double-header: In addition to my regular weekly Economics column, I had another editorial, aka The Southbound, for Hurriyet Daily News & Economic Review's weekly supplement South Weekly, which appeared in today's issue.

As for title, I refer to paying homage to my favorite books and movies. I know it is kinda cheesy and even lame, but it actually quiet tame compared to what I pulled through with today's Econ. piece.

As a personal note, I was expecting to be sent to Silivri as an Ergenekon casualty with this thing. I even packed and waited for the cops in the hallway all night... Well, not really:)... I kind of knew that nobody cares about me and my beloved newspaper but this was still yet another tamer for my inflated ego. But this invisibility is good, not only for me (after all, I am still here, posting this, rather than share a cell with Mustafa Balbay or Cetin Dogan), but also for my beloved newspaper.

Anyway, without further chit-chat, on to the column:

Since my last South Weekly editorial “southbound” in January, it has been anything but quiet on the Marmaris front.

First, we were visited by a U.S. aircraft carrier. For a couple of days at least, I felt like I was in Santa Barbara during my daily jogs. Then came the Libyan refugees, that is, the Turkish workers who were evacuated from Libya. With people camping outside, it began to feel like Afghanistan.

At the same time, I was busy discovering the (un)ease of doing business in Turkey. After about a hundred trips to a dozen offices in Marmaris and Muğla, we managed to obtain permission to build a small dock in front of our beach.

As a footnote, I should mention that such docks are, by law, open to the public. Since I am doing a public service, and paying rental fees to the municipality in the process as well, I would have expected the procedure to be easier.

But maybe the fault lies with me, as a huge hotel is being built in the nearby village of Turgut, in a supposedly protected area. The villagers claim that one of the owners is the prime minister’s son, a Harvard graduate. He could just be cleverer than I am, or maybe, as George Orwell said, “All animals are equal, but some animals are more equal than others.”

By the way, the hotel is supposed to be based on Islamic principles, meaning that men and women would have separate beaches. And if you want to cool down with an ice-cold beer, you should head next door. I am all for multiculturalism and so applaud the bold newcomer.

However, speaking of alcohol, I have received several questions over at the blog, from readers who know about my moonlighting activities, about the effect of the most recent alcohol taxes on tourism.

To begin with, alcoholic beverages make up about 15 percent of the total costs of a large deluxe all-inclusive hotel. You may think this is not much, but for hotels already working with tight margins, it means a lot.

As for the effect on tourism: Make no mistake, the tourist arrivals figures that Culture and Tourism Minister Ertuğrul Günay loves to boast about will not be affected. Neither will the revenues. However, the profits of the all-inclusive hotels, which long ago negotiated their room rates with the travel agents, will be squeezed.

Not that it would have made a difference if they hadn’t already signed the contracts. As I argued in an earlier southbound, the tour operators have much more bargaining power than the hotels and therefore are able to dictate their prices at will.

Things are not rosier on the other side of the supply chain either. We teach economics students that the producer and the consumer share the cost of any tax, except in extreme cases where one carries the entire burden.

If there are only two beer producers serving Marmaris, they will be able to completely pass on the tax to the hotels. Not surprisingly, the entry of a third, low-cost producer this season has led to more competitive prices from the two big guys.

As readers of my weekly economics columns would know, I have been suffering from the same asymmetric power problem in my relationship with our bank. This predicament is a byproduct of the imperfect competition that characterizes many sectors in Turkey and is not specific to alcoholic beverages. But somehow, I increasingly feel that services are more subject to it than industry and among services, seasonal hotels suffer more than others.

Despite all this, everything will turn out well this tourism season. In case you are wondering how: I don’t know. It is a mystery

*** Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at

Weekly Hurriyet Column: The (hi)King’s Speech

Below is my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website.  As for the title, you know I love cheesy titles, but I think I might have hit a new high (or low, depending on how you see it) with this one. A friend and reader had the following to say: "The (hi)King’s Speech??!! oh man this is just too much :)", to which I answered: "I know... I am one cheesy bastard, aren't I?:)"

I almost don't touch upon at all whether the reserve hikes will work or not, or what they mean, but that's what the addendum is for... I should have it over at the blog in the next 24 hours... And so on to the column:

If you were to believe the papers and analyst reports, the Central Bank of Turkey’s, or CBT’s, required reserve ratio, or RRR, hikes at last Wednesday’s rate-setting meeting were a complete surprise.

That may as well be the case, but it would reflect markets’ herd behavior more than anything else. For some reason, markets took CBT Governor Durmuş Yılmaz’s March 15 speech to, or rather interview with, the Wall Street Journal as irrefutable evidence that the Bank would stay on hold this month.

It is true that the Governor had noted that the Bank would “wait until the end of the month to assess whether its policy aimed at deterring hot money flows was working.” But those remarks refer to the policy rate part of the Bank’s two-pronged strategy, and the Bank did not change its one-week repo rate at last week’s meeting.

As for whether the RRR hikes were successful in taming credit growth, Yılmaz highlighted that “economists [would] need to wait until at least the end of March to judge whether his policy was working, because much of the impact from the increased reserve requirements had yet to feed through.”

The WSJ took all this, correctly I might add, to mean that the policy rate would be left on hold, but that RRRs could be increased again. So it seems that something was lost in translation. Moreover, at the one-pager after the previous meeting, the CBT was saying it would “monitor the tightening impact of the implemented policy mix until the next meeting, and take additional measures along the same line, if needed.”

In the same WSJ interview, the Governor also clarified the mysterious $10 billion of hot money that had left Turkey according to the Bank. Economists had been complaining that they could not find data to support the CBT’s claim, which I had found very odd: The numbers add up once you add banks’ off-balance sheet positions, which are mainly swaps, to the regular capital flows.

Interestingly enough, all the statistics, which were summarized in a short note by the CBT right before the Yılmaz interview was published, are in the Bank’s weekly press bulletin. I would argue that the off-balance sheet items should not be a measure of the effectiveness of the CBT’s goal of taming the current account deficit, as they are not directly linked to the deficit, but the numbers were always there.

In fact, it is the least-quoted part of the Governor’s interview that disturbed me most. Answering a question on fiscal policy, Yılmaz responded that he had asked the government to use the increase in tax revenues to pay down debt, and that the government had complied. While revenues were 17 billion Turkish Liras over the original target last year, the primary surplus was only 2 billion liras higher than planned. This hardly seems like “paying down debt.”

To sum up, I have been more critical than many on the Central Bank’s unconventional monetary policy mix. And while 4 percentage points seems like a big increase in RRRs, I don’t think it will be effective in curbing credit significantly: After all, it is more or less equivalent to a 25 to 50 basis points hike in the policy rate. I am also extremely dissatisfied, like the folks on 19th Street N.W. in D.C., with the Bank’s complacency regarding fiscal policy.

But I did not find any part of the Governor’s interview that could be misleading on the direction of monetary policy. Economists and markets have fooled themselves and are now blaming the Central Bank. As Yanks would say, a good listener would only need half a word, but even drums and clarions would not be sufficient for a bad listener, as a well-known Turkish proverb goes.

It seems that for some folks following the Turkish economy, the CBT needs to call on the whole orchestra.

Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at

Wednesday, March 23, 2011

Roubini Post- Life, Debt and Death in Turkey

This post already appeared in Hurriyet Daily News this week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

Note that there is an addendum over at my blog, where I share a few of the dozens of interesting comments I got from my interviews with bankers, bureaucrats and the like...

Disappearing Linkages: The Budget

One of the biggest Turkish econ. themes of the past couple of years has been the disconnect between seemingly-related variables. 

I already talked about how VATs on imports, which used to be a good predictor of actual imports, led me (and everyone else) to an off-the-mark forecast. Another broken relationship is the one between cash and budget balance, to which Magfi Egilmez of Radikal pointed to in a recent column: The two series, which used to be more or less in sync, have become increasingly uncorrelated of late, with the latest figures being case-in-point:
The budget, which looks artificially strong, is one of the few topics I have in mind for next week's Hurriyet column. Actually, it was the strongest candidate until the CBT pulled yet another rabbit out of its hat this afternoon. But when I cover the budget, I will surely try to get to the bottom of this....

You know this is war, don't you?

As the FT summarizes, the Central Bank of Turkey, or CBT, delivered huge hikes to required reserve ratios, or RRRs, across the board, with the exception of the longest maturities.

"Ouch!", as my friends at GlobalSource / Turkey Data Monitor noted in their short note. The Bank seems apparently determined in curbing credit growth. BTW, here's a good Turkish idiom to describe the situation, for my friend improving her Turkish on ekinler dize kadar, based on my recent woes with the baking system: "Ahini almak", which means, more or less, being hexed by someone for doing something bad to them:).... In other words, you don't mess with zhe Emre:)...

Now, turning back to business after this short Turkish diversion, these moves are, according to the Bank, are to drain TRY 19 billion of liquidity, so to prevent market rates go significantly above policy rates, we'll see an equal in liquidity provided by the CBT. So in other words, what the CBT taketh, He giveth:)....

The Perils of dealing with Turkish Statistics

I just heard the weirdest thing from an anonymous source (now that you know my policy with revealing sources, I believe you won't ask who she is), while I was trying to get  the license for a dock we are building in front of our beach.

Municipalities supposedly love to dish out occupancy permits before the elections. The idea is that you register someone in your district by giving them occupancy permits in an unregistered land and then get their vote in return. And to prevent that, the High Election Board, or HEB, has stopped giving out occupancy permits until the elections.

I wanted to have a quick look o data for myself:
Permits do indeed jump up, but not before elections: There is indeed strong seasonality, with the figures peaking every fall, for some reason I have no clue about:)... So if anyone knows why, I would be happy if you could explain as a comment to this post.

BTW, the dock I am talking about figures a great deal in Monday's South Weekly column, which will probably make will make me an Ergenekon causality. No hints for now, but I am sure it'll be a shocker. So be patient:)...

Addendum to Hurriyet column, Life, debt and death

Here are the promised quotes / anecdotes from the a dozen or so people I talked to (bankers, bureucrats , consumers). More or less random order...

Oh, BTW, please don't ask me anything about my sources, such as whether they work for YKB or BRSA. If you plan to, please look at 00.35-0.45 of this great Mark Wahlberg clip from my favorite Scorcese movie first- movie buffs, I can hear you groaning, but Jack, Leo, Marky Mark, Matt and the supporting cast (Ray Winstone, Martin Sheen and Andy Garcia in particular) just stole the show... WOW, what a cast! Anyway, I don't want to be impolite, but I don't want anyone to get fired for ratting (1.07-1.21) on their company or violating the public employee act, either.

Anyway on to business:

They teach us to lie (private banker)

The bankers say that, but then continue to lie. The main problem, as in the developed world, is the bonus system (bureucrat).

My bank did not let me to talk at a conference. With so much lies, I am not surprised. (branch manager)

The Bank has no heart- when I ask something for them from the headquarters, all they want to know is whether I will continue working with them (branch manager)

This is a general problem; we are sorry that you have brought it up through us (YKB executive voicing regret at your friendly neighborhood economist for his latest Daily News column).

In addition, several bankers noted that they were ordered to cut down credit lines during the 2008-2009 crisis, and as a result had a lot of customers going bankrupt. But bankers also note that the situation would have been much worse if there wasn't so much competition in the sector.

I also got a very interesting anecdote, unrelated to this topic: A branch manager told me that banks are playing hide-and-seek with the BRSA and the government. Since the government wants to decrease credit growth, they have decided to advertise higher interest rates on their web sites. But when you actually call them up, they will still give you the low rate:)... Is anyone from the BRSA reading this, BTW?:) I mean, I hate dirigisme, but I don't want to be taken for an idiot, either:)....

Last, but not definitely the least, here is my closet-Carsi fan friend Sinan Akkaya, who is BTW the Almeida of my gang, quoting Brecht: "What's breaking into a bank compared with founding a bank?" BTW, the original German is "Was ist ein Einbruch in eine Bank gegen die Gründung einer Bank?" I have been trying to convince him to start die WeissFels-VerrücktDerwisch Bande (hint- translate the words to Turkish) with me, so maybe I'll achieve my goal soon...

Tuesday, March 22, 2011

Back with style:)

aAfter last week's unfortunate absence, I am back with style- another double single...

Meaning top-10 berth in both most-read:
...And most-commented:
 categories with my most recent column:

I owe this one to the banking sector as well as my own bank for getting my attention to the status of the Turkish corporate credit world. 

Hmmm, the ego is starting to inflate again:)....

And just as a reminder: I will have an addendum in the next 24 hours of so, where I will be relaying some of the anecdotes I have taken from banking sector professionals during my inquiries of this issue...

Monday, March 21, 2011

Weekly Hurriyet Column: Life, debt and death

Below is  my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website.  As for the title, I was loosely inspired by a documentary I had watched long a ago.

BTW, the introductory paragraphs are inspired from here. Obviously, unlike some colleagues, I would mind if I am accused of plagiarism, so I wanted mention this right away. But on the contrary, I wanted to pay homage to a great movie, which you should see tonight if you haven't already, and the late Ulrich Muhe- such a great actor, I saw his other stuff after the movie; I would have never known him if it were not for this movie....

As for the addendum, I talked to quite a few banking sector professionals for the column, and they too are complaining about this issue. They shared great anecdotes and stories with me, and it would be a pity if I did not share those with anyone else. Therefore, I plan to write an extensive follow-up piece tomorrow for Roubini and my blog, where I will make use of all the quotes.

But I am still keen to collect more quotes, so if you have something to say/share about this issue, please feel free to add it on as a comment to the column, to this post or as an email to me. Use a nick if you want to be anonymous, but I am keeping all my sources anonymous anyway, as I don't want anyone getting fired for speaking ill of their bank with me. And boy some people did really speak out!!!

Anyway, on to the column:

The Turkish Statistical Institute’s grave-faced bureaucrats count everything, know everything.

And not only macro data that regularly find their way into your friendly neighborhood economist’s columns. For example, how many eggs were produced last month? 1.09 billion. How many books were published last year? 34,857. And how many telegraphs were sent abroad in 2008? Just one - and one telegraph was received from abroad.

But there is one statistic that probably causes even these paper-pushers pain: The suicide rate. On paper, this is one area where Turkey looks pretty good: Out of 100 countries or so that report this information, Turkey is 79th in terms of suicides per 100,000 people. But once you know someone who has committed suicide, this statistic takes on a whole new meaning.

At least, that was the case for me when my close friend’s father decided to take his own life after the bank from which he had taken a business loan unilaterally decided to charge him a higher interest rate following the 2006 crisis. At the time, I had found it hard to believe that banks could do that.

I guess one has to live it to believe it. I recently entered into negotiations to refinance a loan for my family business, which ended in an unconstructive deadlock, despite the word construction in the bank’s name. The lender pulled a huge fee out of its hat without giving any explanation as to how it was calculated.

Urged by my journalistic instincts, I began to inquire among my banker friends. It turns out that such fees are purely discretionary: They can be as high as 10 percent of the remaining amount of the loan, but could go down to as low as 2 percent after negotiations not much different from those in the covered bazaar.

Now, you don’t need to be Shakespeare to figure out that something is rotten in the state of Turkish corporate banking. And that is lack of regulation by the Banking Regulation and Supervision Agency, or BRSA. My friends in retail banking are absolutely terrified of the BRSA, but it seems the watchdog does not keep the corporate side on a tight leash.

On a macro level, this means that businesses asking for loans are faced with huge uncertainties: They have signed agreements strongly favoring the bank, which can, at will, change any part of the agreement and demand exorbitant fees. It also means that access to credit may not be as improved as the recent World Bank surveys claim. 

Simply put, if you see your neighbor being squeezed by the bank, you’ll try to rely on your own funds or forego profitable investment opportunities if you don’t have the cash. This is especially important since the government is intent on capping credit growth at 25 percent, with dirigisme rivaling China’s if necessary. Then, the new loans would not necessarily be channeled to the most efficient uses.

It also means that the recent emphasis by the Central Bank and my esteemed colleagues on financial literacy is misplaced. It may be important for the retail consumer, but for corporates, financial literacy is not the answer. Look at me: I am as financially literate as anyone can get, but I still ended up with a huge refinancing fee despite sharing my “findings” with the bank.

If all this sounds like someone crossing over from capitalism to the Che-model, that is not the case at all. Regulation is not costless; it ends up making the regulated good more costly. But if the producer can exercise excessive power over the consumer, regulation is a must. As Mustafa Kemal Atatürk put it, "unless absolutely necessary, markets should not be interfered with. However, no market should be left entirely unattended."

It seems that the corporate banking sector is running completely amok in Turkey.

Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at

Friday, March 18, 2011

Red Tape in Action

I will be back with a proper post on the budget soon, but let me share with you a small proof of Turkish red tape/bureaucracy.

Below are all the calls I made to the Turkish energy watchdog, Energy Market Regulation Board, or EPDK. I was trying to understand a change to the regulations regarding the electricity taxes we use at our family-owned and operated SME.
BTW, I got no answer at several of the numbers, so I should have made at least a couple of dozen calls in total. But all the people I talked to were extremely courteous, and when finally reached the right guy at the end, he was very helpful even though he could not solve my problem.

Speaking of EPDK, I saw at their web site a saying by Mustafa Kemal Ataturk (the founder of modern Turkey and cause of great pains to Antonia Banderas some time ago), which I had never heard of before:
Markets are not to be tempered with unless absolutely necessary, but no market should be let run freely. Sorry, this is the best I could do, but feel free to offer your own translation as a comment to this post.

WOW, this has just become my favorite Ataturk saying. But I am starting to think increasingly, based on my work at our family business, that many markets are unfortunately running amok in Turkey. More on that later, but the key words, as a reminder to myself when the time comes, are: Alcoholic beverages (shit, I forgot to address a reader response on that), electricity, banking- I can see some of my friends smiling, as they know the nonconstructive discussions I have been having with the latter for the past few weeks....

Monday, March 14, 2011

A first....

No Hurriyet / Roubini column this week, as I had a terrible headache all weekend...

I still kinda don't feel well, but made it to work nevertheless. Anyway, I am more frustrated than anything else, as this is the first time I have missed a column since I began writing for the Hurriyet Daily News & Economic Review two and a half years ago: I had made it a point to do my column whatever the situation was- I wrote in when I was really sick, and I even managed to get it in when I was off to the championship game at Denizli.There is always a first, but I guess you can see frustration: After all that time, I missed one because of a stupid headache...

Friday, March 11, 2011

Top "Finance" Blogs

Time's list of Best Finance blogs was making the email rounds this week, as I received the link from several sources.

My first reaction to an "ezik" friend was my shock!:) at not being in the list, to which he slyly responded, "you are no. 26; better luck next year":)...

I might seek consolation in the fact that this is an Economics blog, not Finance, but so are most of the top 25... Joking aside, I think it is a great list. As you can see, almost all the blogs from my own list from more than a couple of years earlier made it to the Time's list. But Even though it is more or less the competition, I would have still put FT Alphaville in if I were making their list. There are also a couple of blogs that I really like, like Rebecca Wilder and Models and Agents. They do not write a lot of stuff, so would have never made it to the list, but whatever they write is of very high caliber.

BTW, speaking of my own list, there have been a couple of changes to that since 2008. Brad Setser no longer blogs, as he is in the policymaking circles... And Roubini's blogs have become much much better... In fact, as you know, I have been contributing to his Economonitor blog site for a while now. In fact, Dr. Doom is coming up with a brand-new blog site, which will feature not only his writings and posts from analysts at his company, but "a few proud":) bloggers who have accepted to migrate their blog to his site. And I can tell you that this has something to do with my recent spoiler:) But I will be making the official announcement soon...

Wednesday, March 9, 2011

Roubini Post- A Turkish Woman Scorned

This post already appeared in Hurriyet Daily News this week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

Note that there is an addendum over at my blog, where I expand on some of the points I made in the column as well as introduce a couple of new ones...

Expectations versus Reality (II)

As I mentioned before, one of my favorite movies in the great movie year of 2009 was 500 Days of Summer, and my favorite scene in the movie is the Expectations versus Reality scene, with the  Regina Spektor song reflecting the protagonist's mood quite well.

I couldn't help but think that scene when I read, in the IMF's daily press summary email, CBT MPC member Turalay Kenc saying that inflation targets were well anchored and in line with the central bank's medium term inflation target (of 5.5 percent). See for yourself is that is the case:
In particular, I really liken the CBT to Tom, as they are, like him, seeing things as they want to see them: They are saying $8-10 billion of short-term hot money has left Turkey, but then they do not provide any evidence (if you have Turkey Data Monitor, Murat Ucer summarizes this issue there as well). They say credit is slowing down, although there are no such signs.  They say there is still a large output gap, but all evidence points to the contrary.

And I am getting more and more convinced every day that the CBT will share Tom's fate, in the sense that the Bank's unconventional policy experiment will end in tears. I just don't know what song will be playing in the background when the tears start flowing.

BTW, this is one of the topics I am considering for this week's column. I'll have another "column ideas" post in the next couple of days...

Yet another addendum to an addendum

An anonymous reader made the following comment to my addendum to this week's Hurriyet / Roubini column:
Why does the decline in agricultural employment not explain the decreasing LFP for women? If the data here ( is to be believed, agricultural employment in Turkey has decreased from almost 50% to about 25% over the last two decades.

Assuming that most of these women who were previously "employed" ("employed" rather than employed, because these "jobs" tend to be extremely informal in Turkey) in agriculture did not take up non-agricultural jobs when they migrated to the cities, this might explain the drop in LFP for women over the last two decades.

I don't think AKP has anything to do with it, actually I think AKP has passed some legislation (albeit insufficient) encouraging women's employment, and whatever you might think of Erdogan, he is not known for his opposition to women's participation in the labor force, quite the opposite, he actually explicitly said multiple times that he is a strong supporter of it.
Let me me clear: I was not saying the decline in agricultural employment does not explain (upps, again the dreaded double negation) the decrease in women's LFP; just that it is not sufficient to explain all of it.  Why? Even without any sophisticated analysis, simple back-of-the envelope calculations reveal that very strong assumptions would be needed for all of the LFP fall to be explained solely by migration: You'd need something like all of these women working in the fields and almost none of them working in the cities they migrate to. I am not sure how the background paper of the World Bank study reaches the same conclusion, as I haven't seen the paper for over a year and could not find it, but it should be more or less the same logic.

But I agree with her that the AKP / Erdogan do not have much to blame for the decline in women's LFP. Even if increase in conservatism is playin a role, the the AKP and Erdogan have only been in power for the last decade, whereas women's LFP has been on the decline since the early 1990s. As much as I am a fierce critic of Erdogan's economic policies, such as playing the small-town merchant with the IMF Stand-by and the fiscal rule, I accept that he is never given the benefit of doubt, for fear that he has a hidden agenda- which I wouldn't know, as I am not his psychotherapist...

BTW, there is definitely something wrong with Blogspot: I was alerted of the reader's comment through email, but the comment itself is not where it is supposed to be. I was going to post it to the blog anyway, to make sure she sees my response, but still.... Luckily, I won't have to deal with Blogspot much longer: No, to the dismay of my perennial spammer, the CHP fanatic and a few others, I am not quitting. But having got my cues from the Turkish agricultural workers, I will be migrating as well. But more on that later: That deserves a separate post, but as a preview, I am officially joining forces with Dr. Doom...

Tuesday, March 8, 2011

Barely made it again...

... to the Hurriyet Daily News & Economic Review honor roll, that is, with my latest column:
But honestly, it was the comments that rather pleased me. I got half a dozen, and all were high-quality, to the point that I used a few (or my responses to them) in the addendum to the column...

Addendum to Hurriyet column, A woman scorned

Before I start, I should say I am very pleased with Turkish media for once. All the major dailies had super-duper coverage of International Women's Day. For example, my own Hurriyet Daily News & Economic Review had a nice complementary article to my column, concentrating on global comparisons. And I even discovered a blog called Turkish Women's International Network.

One point I could not discuss in my column, due to the usual space constraint, is the remarkable decline in Turkish women's labor force participation. As late as early 1990s,  female LFP was at 50 percent. The most common explanation for the decline is the migration from rural to urban areas, which turned women working in the fields into women staying at home all day. But I doubt that explanation is sufficient. Reader "Me", commenting on my column at the Daily News web site, relates the decline to "the rise of religious thinking in the government". While I would not put it in those very words, I agree that the rise in conservatism has something to do with the fall in female LFP as well. Actually, that's one of the findings of one of the background papers of the World Bank study I refer to in the column.

Speaking of comments, I strongly recommend you to look at the comments to the column; they are all very interesting. The final comment, again by Me, is espcially important. By noting that the only solution is education, she has revealed a gap, not in my thinking, but in my explanation: Although I never said it explicitly, she is right that my economics-based solutions would work more effectively with poor, uneducated women. That's because it is those women who suffer most and have most to gain from these programs: Their unemployment is higher and LFP much lower, as documented in the World Bank study. This is not to say that white collar, educated women are not (upps, double negation) subject to discrimination, but they are relatively much better off than their uneducated counterparts. But that is another reason to argue for education as the only solution...

Finally, as for my suggestion of quotas for women political candidates, it seems that some parties will have self-imposed quotas in the June general elections.

What to make of today's Industrial Production?

If I told you today's January Industrial Production came in at 18.9 percent yoy, but -13.2 percent mom, what would you say? You'd probably say "seasonality" or "base effects" and have a look my attempt to squeeze all essential Industrial Production data into one graph:, which might also be called "yet another effort to profusely confuzzle my readers":) :
I know it looks (and probably is) confusing, but it is simple, really: On the left and right axes, I have respectively yearly and monthly growth rates. With yearly rates, I have the raw data as well as working-day adjusted figures (obviously, seasonality would be redundant here); with monthlies, I have the overall figure as well as the seasonality & working-day adjusted one (swda).

BTW, this brings to my mind my post after the December Industrial Production, somewhat sarcastically, had noted that what for an uncloseable output gap we had, eliciting "UKALA" (know-it-all) from an anonymous commenter. After today's print, I am not shy to make the same comment again:
 It is an strong print overall, but you can read the details in the note by Citi economists.

Speaking of output gaps, here's what reader Rower32 had to say recently, as a comment to my short take on February inflation.
This is what a REAL output gap looks like.. 
He is definitely right:)

Tying up loose ends III: Trade Deficit and the Exchange Rate

A very belated answer to a reader...

I would like to apologize her for the late comment, which got delayed because of the blogger bans of last week and my attempts to overcome them. Anyway, the reader had the following comment about my post on the trade deficit.
I am convinced that the only way Turkey could simultaneously close its huge trade deficit and sustain a high growth rate (and bring down unemployment) is by manipulating its currency to gain a competitive advantage, like China, Korea and Taiwan do and Germany, Japan and some other countries did back when they were developing countries. Why oh why can't we do this? 
That's not very easy to do when both your current and capital account are open. For example, you want to simulate the current account with a weak lira, but end up chasing portfolio investors away... There are smart ways of differentiating between capital flows, as Turkey and South Korea are trying to, with various degrees of success, but at at the end of the day, I feel that playing with the exchange rate is only a temporary solution. On the other hand, reforms that would make exporters more competitive and productive, such cutting down social security premiums and electricity costs, are for the long haul.

It is also questionable to what degree Turkey's exchange rate is prohibitive. For one thing, it is the real, not the nominal exchange rate (i.e. the cost of your goods relative to other countries) that matters for competitiveness. And looking at the real exchange rate reveals two important facts:

First, Turkey's real exchange rate does not look that overvalued compared to its peers, i.e. other emerging markets. As always, a picture is worth more than a thousand words:
Second, once you disintegrate the change in the exchange rate into nominal exchange rate growth and inflation differential between Turkey and the rest of the world, you see that, while the role of the nominal exchange rate cannot be ignored, an inflation in the 4-5 percent range over the long haul would be a big help as well:
So the best way to "manage" the exchange rate: Bring inflation under control!

Monday, March 7, 2011

Tying up some loose ends II: Roubini Post: A Phantom MENAce to Turkey

This post already appeared in Hurriyet Daily News last week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

Note that there is an addendum over at my blog, where I expand on some of the points I made in the column as well as take  on a couple of extra channels of impact of the the MENA turmoil on the Turkish economy.

Tying up some loose ends I: Last Week's Performance

The Blogger / Blogspot bans of last week threw me off schedule a bit, so I am just tying up loose ends, posting postponed posts...

Last week's Hurriyet column was yet another ego booster:
A respectable 6th place: My best performance to date of late...

Weekly Hurriyet Column: A woman scorned

Below is  my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website. As you probably guessed from the title, I was celebrating International Women's Day in advance, in my own little way.

As for the title, there are several movies with that title or a similar one, but all are B-level, and I haven't watched any of them, so I was not really aiming for any specific one at all...

I will have an addendum as usual, where I will expand on some points I raise the column as well as discuss a couple of new ones, such as why women's LFP fell from 50 percent to nearly 25 percent in two decades. That'll probably be tomorrow... 

Anyway, on to the column:

The Turkish Statistical Institute’s 2010 Labor Force Statistics, which were released last Tuesday, paint the well-known, but still dire, picture of female employment.
While women’s overall unemployment, at 13 percent, is 1.6 percent higher than men’s, the difference becomes huge once you look at non-farm unemployment, where female unemployment is a whopping 20.2 percent.
That’s because out of the 6.5 million women employed, 2.7 million work in agriculture, three fourths of whom are unpaid family workers. In fact, at 2.3 million, unpaid family workers significantly inflate the female employment statistics.

You could argue that informality is higher with women, so many working women do not show up in the statistics. But then you would also have to take into consideration Turkey’s public sector employment of 3 million. A sizable chunk of the 6.5 million women is employed by the state, inflating their employment figures much more than their male counterparts.

But the real tragedy of Turkish female employment is not the women without work, but those not in the labor force. Compared to 70.8 percent for males, female labor force participation, or LFP, is a mere 27.6 percent. In other words, Turkey is letting a large portion of its population sit by idly. In a recent study, the World Bank argues that increasing female LFP would have a significant impact on poverty.
But these women are not really sitting idly, are they? After all, they choose to stay at home, rearing their children and keeping the Turkish family fabric in place. Unfortunately, that is not the case. A survey designed as part of the same study finds that childcare is not economical for uneducated women, who would have to work long hours in the informal economy with low wages.

This is not to say that social and cultural factors do not matter in deciding whether or not to work. On the contrary, reasons like husband disapproval, safety concerns and losing face to friends and neighbors all come up in the survey as well. While it can take time to overcome these social barriers, it is possible to achieve some results quickly.

First, more flexible labor markets and programs that enhance labor demand for women would create job opportunities for them. The reduced social security premium for employing women in the recent Omnibus Law is a step in the right direction. I congratulate the unions for torpedoing the flexible employment bills and showing that they only care about protecting existing workers- and their leaders’ Hoffaesque lifestyles.

Second, childcare should be made more affordable through public or subsidized programs. Promoting such early childhood development programs could have an important spillover effect as well: In another study, the Bank argues that these early interventions could weaken the intergenerational transmission of poverty and inequality.

Finally, there is quite a bit of international evidence that vocational educational and training programs help women to get formal jobs as well as promote gender equality in earnings and labor market opportunities.

But doing all of these would not prevent the honorless honor killings. Nor would it suddenly improve Turkey’s honorable performance in the World Economic Forum’s 2010 Global Gender Gap report, where it ranked a dismal 126th out of 134 countries.

Even if Turkey improves on educational attainment and economic participation and opportunity for women, two of the four main areas measured in the report, it would still fall well short of equality on female political empowerment, its weakest point. Leaving my free-market philosophy for once, I would argue for quotas and minimum proportion rules.

By the way, before I forget, Happy Women’s Day!

Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at

There and back again: A Depek's Tale

My nickname in high school was "depek", for having pronounced Depeche Mode as Depek Mode on a rainy morning when I was too sleepy, given to me by one "Testi"- I have no idea why his nick was "water jar"...

Anyway, it's there and back again, although you may not have noticed, as I have blogging drought spells from time to time, but I lost my access to Blogpost again on Friday. It seems that the internet providers were quick to override the DNS trick...

But it pays to have a brother who has an IT specialist. After a short change to my Windows settings, I was back online late Sunday night. 

If you are reading this and are in Turkey, you have already solved this problem, and if you can't read it, you won't be able to see this:), but I'll say it anyway: If you email me, I would be more than happy to give you instructions, which would let you into my blog for good after a  one-time, 5-minute work with your computer...