Monday, April 25, 2011

Weekly Hurriyet Column: These economists are crazy!

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, yet another cheesy title, which I explain in the first sentence of the article (and the first "picture")

As for the addendum, I don't have anything urgent to add for a change, so I will be waiting for the reader comments to post my addendum- so that I can integrate them into the addendum as well.

Anyway, on to the column:

That’s what Obelix would have said if he were living in our times, and I would have had to agree.
I know that, with this provocative phrase, I sound like the Cretan philosopher who said all Cretans were liars. After all, if I am, as an economist, crazy as well, there would be no reason for you to take my bold claim at face value.

But it is not such a bold claim at all. Unlike Nassim Nicholas Taleb, the Black Swan guy, I hold no everlasting grudges against the economics profession or economists. If I were, I would have to be against myself, similar to the Beşiktaş support group Çarşı, who had to disband, after years of being against everything led to being against itself.

Such an existentialist approach, which would lead to self-denial, is just not my cup of tea. However, I am totally perplexed by the declaration of almost all the market economists covering Turkey that the first quarter budget figures are positive and that the government is running a tight fiscal ship.

It is true that the raw numbers look impressive. The central government budget deficit turned out to be 4.1 billion liras in the first quarter, quite an improvement over the deficit of 11.3 billion liras in the same period last year. You can see the same pattern in the primary balance, which excludes interest payments: A surplus of 9.8 billion liras compared to a more modest figure of 3.7 billion liras.

But once you start digging into the data, things don’t look as pretty: For one thing, the primary surplus, as defined by the Ministry of Finance, includes one-time revenues. To get a better idea of the budget, such non-recurring items should be excluded. The IMF-defined primary balance, which does exactly that, paints a much more sobering picture.
Besides, these central government figures exclude items like the spending spree by the Housing Development Administration of Turkey, or TOKİ. Neither is the arrears build-up of energy enterprises included in the bill, as this too is outside the realm of the central government budget.

Even if you decide to ignore these technicalities, the rise in expenditures is hard to overlook. Primary expenditures, which exclude interest payments, have been growing faster than GDP for a while.
Despite this robust expenditure growth, the headline budget numbers look healthy because of the strong increase in tax revenues. In fact, over the last few months, non-interest expenditures and tax revenues have risen more or less at the same rate, at around 15 percent. In other words, the Justice and Development Party government is spending more or less what it is collecting in taxes.
Due to the unnatural (at least by developed country standards) share of indirect taxes in total, tax revenues are extremely cyclical in Turkey. Once you adjust for this cyclicality, it turns out that the fiscal balance has been on the fall, and that fiscal policy is rather loose.
In any case, you should look at a country’s economic circumstances in judging its fiscal position. Given that the government is worried about the country’s growing current account deficit, it should adopt a tighter fiscal stance, one that will rein in domestic demand and support the Central Bank’s efforts to cool off the economy.

So you now know why I am perplexed by all this fiscal optimism. But I find comfort in the fact that there is at least one entity, other than my friends at Turkey Data Monitor, who share my concerns about the budget: The suspicious delay of the IMF's latest Turkey Staff Report suggests to me that we are not the only ones who are worried about the fiscal stance.

Anyone who knows me can testify that I am one crazy fellow, and my last name proves it as well. But the fiscal optimists are challenging me in the insanity department.

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


Internation Musing said...

Finally, access to your blog!.)

I was always, as a YABANCHiSTANBUL and LDP fan in Turkey. But I get impressed by the CHP program and their new chairman who shows maturity!
I will follow your column from now on Emre,

Emre Deliveli said...

Dear Hans;

Thanks for your comments.

Were you able to access my blog using the instructions I posted or has the Blogpsot ban been lifted? In any case, I am glad that you can now follow it.



Internation Musing said...

Dear Emre,
No, I was not able, but I am not that techno-savy.)
Anyway, found your blog, that's enough!
Regarding the TR economy, its refreshing to read your comments!

Internation Musing said...

Dear Emre,
No, I was not able, but I am not that techno-savy.)
Anyway, found your blog, that's enough!
Regarding the TR economy, its refreshing to read your comments!