Monday, May 16, 2011

Weekly Hurriyet Column: Jordanian lessons for a Turkish economist

Below is my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website.

I just returned from Jordan after a two-week consulting gig. Among other goodies, like lots of hummus and felafel, and of course Petra (I am still mesmerized, it definitely lives up to its hype), I ended up with two columns, one on my impressions on Jordan, the other on an informal comparison on the Turkish & Jordanian economies.This is the second column. If you'll look at the comments under the column, you'll see that I got quite a few arrows from my readers for failing to mention corruption in Jordan. I'll address those issues, as well as my general impressions on Jordan, in an extensive addendum, but first on to the column:

Two weeks in Jordan is enough to make you throw two decades of Economics down the drain. At least, part of it.

We teach in economics classes that a fixed exchange rate is not a good idea. You make yourself open to speculative attacks and lose monetary policy autonomy. It is argued that corner solutions, such as a fully flexible exchange rate or leaving one’s currency altogether, by adopting a common currency or another country’s, are preferable to in-between solutions like a fixed exchange rate.

However, being pegged to the dollar seems to have been working rather well for Jordan. Government officials and the IMF agree that not only has the peg played a vital role in anchoring inflation expectations, it has also helped maintain financial stability in a volatile region. As for monetary autonomy, Samar Maziad of the IMF finds that there is some room for flexibility in operating monetary policy in the short-run.

But some things never change. My time in Jordan has also reminded me that there is no secret formula for development. Each country has its own specific circumstances that it needs to take into account. Otherwise, you would be hard-pressed to explain why Jordan doesn’t fly and touch the sky despite an open economy, an educated workforce and success in attracting foreign direct investment.

Of course, Jordan has many constraints on growth as well, such as its small size and lack of water. But Singapore and Dubai have been able to overcome arguably tougher challenges. I must admit that size does matter, especially when you try to understand Turkish industry’s edge over Jordan’s, or make a comparison of the two stock exchanges.

The latter story is quite interesting. As Nader Azar, Deputy CEO of the Amman Stock Exchange, noted, when the Istanbul Stock Exchange opened 25 years ago, Turks would come to the ASE to learn. Now, the ASE sends people to the ISE for training, where average daily trading volume was 136 times higher in April, despite both exchanges having more or less the same number of listed companies. No wonder you see wild price swings at the ASE.

Another lesson is that just as you can’t force banks to lend less, you also can’t oblige them to lend more, either. Jordan is one step ahead of Turkey in that regard, as it is, to my knowledge, only depending on market mechanisms rather than Ali Babacan-like outright threats. While reducing required reserves in exchange for loans to small and medium-sized enterprises has not been deemed sufficient by bankers, it is nevertheless a useful first step.

You also appreciate the wisdom of the 1990s sitcom Seinfeld. As Kramer explains, “when there is no work, people are restless. Who do you think they come after? El Presidente!” While this is an oversimplification of events in the region, it also explains quite well the recent extra budgetary measures in Jordan, which have not only widened the deficit, but also have pushed debt dangerously close to the 60 percent legal ceiling.

Finally, seeing Jordan so serious about the reform agenda makes me wonder why Turkey’s ruling Justice and Development Party, with the extra security of robust macroeconomic fundamentals under its belt, has shied away from structural reforms. With their new investment law, the Jordanians are actively targeting the variables that factor into the World Bank’s Doing Business and World Economic Forum’s Global Competitiveness rankings. Many other countries are engaged in this rat race as well, so I am worried that Turkey is falling behind.

There is one more thing that Turkey lacks in comparison to Jordan: Decent falafel. You haven’t had falafel until you have had it at Hashem in downtown Amman. And now I need to go and get some before my flight back.

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

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