Tag: Turkish economy

Turkish Economy Booms

By JOE PARKINSON

ISTANBUL—Turkey’s central bank governor warned Monday that inflation was his No.1 problem, as data confirmed the economy expanded 8.2% in the third quarter, smashing economists’ expectations and underscoring its reputation as Eurasia’s rising tiger.

Monday’s official growth figure, compared with the same period a year earlier, dramatically exceeded market forecasts of a 6.6% gain and followed an 8.8% expansion in the second quarter.

Turkey’s rapid growth momentum comes at a time when many of Ankara’s neighbors in the Middle East and Europe are struggling with political turmoil and bailouts.

In August, Turkey’s central bank cut its main policy rate, citing concern over economic turmoil in the European Union. The bank has since moved to raise other interest rates as it battles rampant credit growth. Its concern over inflation—which rose sharply in recent months, driven by the Turkish Lira’s 30% fall against the dollar—stands in contrast to the stance of many emerging markets, which have begun cutting interest rates to spur growth amid concerns over the deteriorating global outlook.

Speaking to reporters in London following the publication of the economic growth figures, Governor Erdem Basci said that inflation, which rose at its fastest pace in 1½ years in November to hit an annual rate of 9.5%, was now the “No. 1 problem” for the Turkish economy and that Ankara was ready to tighten policy further “if necessary.”

At the same time, he said he was confident the bank’s decision in November to effectively double the overnight borrowing rate for commercial banks to 12.5% would be enough to combat the pressure.

The governor’s comments appeared designed to soothe investor nerves over the prospect of a pronounced rise in prices after Turkey’s stellar gross domestic product figures confirmed the economy’s 10th consecutive quarterly expansion and a 9.6% expansion in the first nine months of the year.

Market reaction to the data underscored those concerns, as the lira initially trimmed gains Monday before falling to trade almost 1% lower against the dollar. Turkish stocks extended losses after opening lower on mounting investor nerves over the global outlook.

The selloff also came despite positive data on Turkey’s hefty current-account deficit, considered by many investors to be the economy’s Achilles heel. The deficit narrowed to $4.2 billion in October, after a $6.8 billion expansion in September, according to the central bank. That figure also beat market expectations of a $5 billion expansion, and suggested a marked turnaround in the balance in the growth of imports and exports. Import growth in the third quarter versus the same period a year ago slowed to 7.3% from 19.2%, while exports expanded 10.8% in the third quarter after a 0.6% rise in the previous period.

Turkey’s Deputy Prime Minister and most senior economic policy maker Ali Babacan said the data suggested 2011 growth would expand more rapidly than the government’s expectation of 7.5% and that Turkey would be one of the “world’s fastest-growing economies in 2012,” Turkish television channel CNBC-e reported.

Although economists were united in their surprise at the pace of growth, which prompted upgrades to Turkey’s GDP forecasts at several brokerages, many appeared to disagree on whether the data underscored Turkey’s momentum or spotlighted the imbalances in the economy.

“The Turkish economy is unstoppable … importantly, seasonally adjusted sequential quarterly growth in the third quarter was 1.7%, which was a surprise to us and probably to market players, since we have expected a very mild increase,” said Ozgur Altug, chief economist at Istanbul-based BGC Partners.

Royal Bank of Scotland said the data showed that Turkey continues to show “Asian-style growth dynamics,” but stressed there was little evidence of a marked improvement in the current-account deficit, which is expected to hit around 10% of GDP this year.

Turkey’s red-hot growth stands in contrast with most neighbors in the European Union, in particular Greece, whose former Prime Minister George Papandreou called on his citizens to emulate the success of his country’s old rival in bouncing back from economic adversity. Rapid growth swept Prime Minister Recep Tayyip Erdogan to re-election June 12, cementing his position at the head of the region’s emerging political and economic power.

A breakdown of the third-quarter GDP figures showed broad-based rises in output, with construction expanding 10.6%, manufacturing 8.9% and financial institutions a whopping 15.8%. Private consumption, which has propelled much of Turkey’s stellar rebound from recession as consumers have binged on cheap credit, also continued to expand strongly, posting 7% growth.

But some economists cautioned that the lagging third-quarter figures didn’t contain the impact of the central bank’s moves to tighten policy by widening the interest-rate corridor and restricting liquidity. Capital Economics said in a research note that “while today’s data were stronger than anticipated, we think the following quarters’ data are likely to get worse … The data do not yet reflect the impact of tighter monetary policy since late October. This has pushed up interbank rates and is likely to weaken domestic demand even further by restricting access to credit.”

Write to Joe Parkinson at joe.parkinson@dowjones.com

via Turkish Economy Booms – WSJ.com.

December 13, 2011
Bridging the gap between Asia and Europe

A rare example of an Islamic democracy that enjoys a robust capitalist economy.

MORTEZA NIKOUBAZL/REUTERS

By Rick Westhead

Rick Westhead South Asia Bureau

When U.S. oil billionaire Malone Mitchell first walked out of the Istanbul airport, he expected to see a Third World country chockablock with security concerns and whirling dervishes.

“It dawned on me that I knew nothing about the country, only what I had been taught,” Mitchell says.

Instead, Mitchell, 50, discovered a place where he felt safe walking the streets and where he could get his company’s oil rigs fixed by local firms.

Mitchell’s TransAtlantic Petroleum drills 150 wells a year in Turkey and “the stress on drilling rigs and pumps is extreme,” he says. “They break, they need constant repair, but anything we needed fixed, it’s been available in Turkey.

“This is really a country with a first-rate manufacturing sector, and that surprised me.”

FULL COVERAGE: Emerging Markets

In financial circles, the secret’s out about Turkey, its dynamic economy and its strategic importance. A key stop on the ancient Silk Road, Turkey bridges Asia and Europe and is among the world’s busiest transportation hubs.

Turkey’s $730 billion (U.S.) economy grew faster than any country other than China and India last year. It’s now a member of the G20 and it lays claim to NATO’s largest army.

It’s also a symbol for religious liberals, a rare example of an Islamic democracy that enjoys a robust capitalist economy.

The country has made incredible progress since 2001, when some analysts suggested it was on the verge of bankruptcy.

In 2002, the current government, led by the Justice and Development Party, took power and introduced reforms. Government utilities were privatized, bureaucracy was pruned and archaic corporate laws were scrapped.

Exports have tripled, the economy has grown at a 6.5 per cent annual clip, and foreign investment has climbed to more than $20 billion (U.S.) from $1 billion in 2002. Tourism, a key sector, is also skyrocketing.

Turks are taking pride in this reversal of fortunes, with young people snapping up T-shirts with slogans such as “The Empire Strikes Back” and “Terrible Turks.”

Still, there are reasons for concern.

Reporters Without Borders says as many as 64 journalists are jailed in Turkey, more than any other country. Advocates for Human Rights, a nongovernment organization, says domestic violence, sexual assault, honour killings and human trafficking persist, despite amendments to Turkish law. Nearly one-third of Turkish women are married before they turn 18, activists say.

Still investors remain high on Turkey.

In 2006, a British Petroleum-led consortium opened a $4-billion (U.S.), 1,760-kilometre pipeline that runs from the Caspian Sea to the Mediterranean. With the new line, an estimated 5 per cent of the world’s oil runs through Turkey.

When Scotiabank’s Paul LeBlanc went to Turkey in 2008 to open an office, he was struck by the bustle of seaside activity.

“There was such as long line of ships going through, it was like Singapore,” LeBlanc says.

Scotiabank provides assurances to exporters sending goods to Turkey that their bills will be paid.

“We’ve been there three years now and we’ve seen it’s stable politically and important geographically,” he says. “It has such a bright future.”

via World News: Turkey: Bridging the gap between Asia and Europe – thestar.com.

December 5, 2011
Querying Erdogan Zero Rates Plan Creates New Turkey Enemies List

By Benjamin Harvey

Nov. 16 (Bloomberg) — As Prime Minister Recep Tayyip Erdogan pursues his vision of an economy with real interest rates at zero, critics of Turkey’s monetary policies are increasingly being portrayed as enemies.

Trade Minister Zafer Caglayan says analysts who find fault with the initiative belong to an “interest-rate lobby” that wants to force Turkey to raise rates to help create higher returns. Erdogan says interest rates should be close to zero after inflation. He said during a speech in May to the Islamic business association Tuskon in Istanbul that Turks should earn their money “through work, not interest.”

The skeptics are seeking to “suck Turkey’s blood,” stop its growth and keep the country indebted to foreigners, Caglayan was quoted by state-run Anatolia news agency as saying in July. In a written response to questions on Nov. 3, Caglayan said the government’s view hasn’t changed. He declined further comment.

“This is very typical Turkish politics,” Mert Yildiz, an emerging markets economist at Renaissance Capital, said in an interview in Istanbul. “You find an enemy that doesn’t exist, but then that enemy can become real.”

Muharrem Karsli, chairman of TC Ziraat Bankasi AS, the country’s largest state-run bank, said Sept. 22 the lobby used its influence to keep Turkey’s credit ratings low, forcing the nation to pay higher yields to holders of its debt.

Sabah newspaper, owned by Calik Holding, whose Chief Executive Officer Berat Albayrak is the prime minister’s son-in- law, has led the charge in the media, including a Sept. 27 piece that says Bloomberg News quotes analysts who question the government’s policies and publishes articles that mislead investors.

Rate Cut

Central bank governor Erdem Basci surprised investors in August by cutting the benchmark lending rate by 50 basis points to a record low of 5.75 percent. Analysts at Edinburgh-based Royal Bank of Scotland Group Plc and Societe Generale SA in Paris said the reduction, the third since December, risked stoking inflation and causing the current account deficit to widen from a record 10 percent of economic output.

Basci may be acting under government influence, Yavuz Canevi, a former central bank governor and now chairman of BNP Paribas Turkish unit Turk Ekonomi Bankasi AS, said in an interview in Istanbul in August. Basci, 45, was deputy governor until Erdogan appointed him to head the central bank in April. He’s a school friend and former adviser to Deputy Prime Minister Ali Babacan.

Growth Question

Fitch Ratings said Sept. 30 the key question before an upgrade of Turkish debt was whether the country could achieve “sustainable growth without major economic imbalances such as high inflation.” Analysts at New York-based Goldman Sachs Group Inc. said Oct. 20 that either the currency or the interest rate “will have to give.”

Erdogan, 57, told parliament in July that the central bank would “continue to decide on its monetary policy in an independent manner.” In a response to questions about the interest lobby, Basci said Oct. 10 that the relationship between the bank’s interest rate and the value of the currency “isn’t something we have to learn from foreign analysts.”

The rate cut was justified in August because the European debt crisis and slowing regional growth should cause inflation to decelerate next year, Basci said.

Inflation was 7.7 percent in October, exceeding all eight estimates in a Bloomberg survey, up from 6.2 percent in September and a four-decade low of 4 percent in March. The central bank said Nov. 4 that inflation would end the year at about 8.3 percent, exceeding its 5.5 percent target.

Reserve Rules

Rather than raise the benchmark rate, Basci has sought to control inflation by increasing bank reserve requirements to as much as 16 percent for the shortest-term deposits to limit lending and consumer demand.

Basci also reached for alternatives to defend the lira when it tumbled to a record low against the dollar in August and the central bank spent about 10 percent of its $84.4 billion of foreign-exchange reserves in three months to buy the currency. He announced plans last month for dual lending rates to banks ranging from 5.75 percent to 12.5 percent, saying he may switch between them on a daily basis. The policy rate remains at 5.75 percent, he said.

Basci said Oct. 26 his policies give him the flexibility that “no other bank in the world” has to strengthen the currency while retaining the option of cheaper money should Europe’s debt markets worsen.

The dual-rates initiative represents a “distinct shift” by Basci that will lead to “much higher interest rates” in Turkey, Amer Bisat, a money manager at hedge fund Traxis Partners LP and a former senior economist at the International Monetary Fund, said in a Nov. 7 phone interview from New York.

‘Mixed Messages’

The policy sends “mixed messages,” according to analyst Michael Harris and economist Turker Hamzaoglu at Bank of America Merrill Lynch in London. It has “confused” investors, according to Simon Quijano-Evans in London, head of emerging markets at ING Groep NV, and introduced “significant uncertainty and volatility,” said JPMorgan Chase & Co. analysts including David Aserkoff in London.

JPMorgan and Morgan Stanley, both based in New York, cited Basci’s policy as a reason for downgrading their ratings of Turkish equities and banks over the past month.

“We believe the central bank should have already raised rates,” said Melissa Ball, an economist at Lombard Street Research in London, adding that there isn’t an interest-rate lobby. “We are independent financial analysts trying to see the likely future of the Turkish economy.”

Argentina Conflict

Turkey isn’t the only country where economists are coming under fire for criticizing government policy. In Argentina, South America’s second-biggest economy, the government began fining economists as much as 500,000 pesos ($120,000) this year for saying consumer prices are climbing at more than twice the official annual rate of 9.9 percent. The country’s interior minister said economic consultants stand to profit by reporting annual inflation they estimate to be 24 percent, the highest in the world among major economies after Venezuela.

While some analysts are critical of central bank policies in Turkey, the country’s credit-default swaps trade at 259.5 basis points, less expensive than 12 of the world’s 52 investment grade-rated countries. Turkey’s foreign-currency debt is ranked two levels below investment grade by Standard & Poor’s and Moody’s Investors Service.

Turkish bond yields have gained 340 basis points this year to 10.51 percent, including a 90 basis-point increase since the adjustable rates policy was announced, according to an index of securities published by Turk Ekonomi Bankasi. The rate is the highest among emerging markets globally, data compiled by Bloomberg show. The lira has declined 14 percent against the dollar this year, the biggest slump in emerging markets after the South African rand.

SocGen to JPMorgan

The central bank will eventually raise rates to slow Turkey’s economy and protect the currency, Benoit Anne, chief emerging markets strategist at Societe Generale, said in an e- mail. Delaying a switch to an interest-based defense risks a “rapid and painful correction,” he said.

JPMorgan economist Yarkin Cebeci and Morgan Stanley economist Tevfik Aksoy, who have supported Turkey’s rates policy even as their banks downgraded Turkish stocks, declined to provide comment on the government’s claims of an alleged interest-rate lobby.

To accuse analysts of pushing Turkey to raise rates against the country’s interests is “a pretty ludicrous suggestion,” said Tim Ash, chief economist for emerging markets at Royal Bank of Scotland in London. The allegations are “probably a case of domestic party politics,” he said. “I think Turks and Turkish policy makers have valued people giving honest opinions, and I’d hope this is still the case.”

–With assistance from Bill Faries in Buenos Aries, Selcuk Gokoluk in Istanbul, and Steve Bryant and Ali Berat Meric in Ankara. Editors: Mark Bentley, Gavin Serkin

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

November 16, 2011
IMF TALKS PROVIDE WAY TO GAUGE ANKARA’S FISCAL DISCIPLINE

Nicholas Birch 7/02/09

Turkey and the International Monetary Fund will be making a final push in the coming weeks to see whether they can conclude a loan agreement, according to Prime Minister Recep Tayyip Erdogan. Turkish analysts say the Turkish-IMF wrangling is masking a more important question: is Ankara committed to sustaining fiscally prudent policies that have made it an attractive foreign investment destination during this decade?

“Turkey may be able to roll over debt this year, but that is not the issue”, says Elif Bilgi, managing director of EFG Securities, an Istanbul brokerage. “The issue is whether Turkey is going to continue with fiscal prudence.”

After decades of boom-and-bust cycles that culminated in a banking crisis in 2001, Turkey pulled itself together under the current Justice and Development Party (AKP) government, pushing through a program of reforms and privatization that brought in up to $20 billion in foreign direct investment annually.

This year, though, huge increases in spending on municipalities and health have dug a deep budgetary hole. Turkey’s deficit rose 268 percent during the first four months of this year to TL 20.1billion ($12.8 billion) and is expected to reach 7 percent of GDP by the end of 2009.

Turkey’s leaders say the results reflect its efforts to stimulate a slowing economy, and insist there is no need for concern. With counter-cyclical fiscal easing going on all over the globe these days, they have a fair point.

After six years in which it maintained impressive budget surpluses, Turkey does have a little money to spend during these rainy days. Meanwhile, increasing pressure on state finances looks likely to be offset by a current account deficit that is expected to plummet from $42 billion last year to $10 billion in 2009, due mainly to lower petrol prices and falling imports.

But Ankara’s argument is also a touch disingenuous. For a start, Turkey began loosening fiscal policies during the run up to general elections in 2007 — well before the start of the global financial crisis. More importantly, analysts say, the budget deficit today is as much the result of Turkey’s reluctance to tackle crucial structural reforms, as it is of recent efforts to stimulate a domestic economy in crisis.

“The whole Turkish fiscal adjustment story was good, but over-rated: a lot of tweaking of indirect taxes — on alcohol, for instance — and little effort to attack structural weakness in the budgetary system”, says Murat Ucer, Istanbul-based economist for the New York economic intelligence company GlobalSource.

The shortcomings of Turkey’s budget system are legion. According to a May 2009 report by the Britain-based International Budget Partnership, Turkey trails far behind its developing peers in Eastern Europe and South America in terms of budget transparency. And recent changes to regulations on municipal spending have reduced central government oversight even further, says Guven Sak, head of the Economic Policy Research Foundation of Turkey, an Ankara-based think-tank.

But the key problem is a tax system that is heavily dependent on indirect levies, such as sales tax. That leaves the country’s finances extremely vulnerable to economic downturns.

IMF officials overseeing the $10 billion stand-by arrangement Turkey completed in 2008 have talked constantly about the need to contain a shadow economy that analysts believe to amount to a third of Turkish GDP. On May 20, Treasury Minister Mehmet Simsek highlighted the urgent need to “up the fight against the unrecorded economy” and “collect income tax” from a broader base.

Putting words into action now looks set to be tough, though. The IMF expects Turkey’s GDP to shrink by 5.1 percent in 2009, hardly an ideal environment in which to promote zealous tax inspection.

For Guven Sak, this is where a new IMF loan could play a useful role. “IMF funds could reduce treasury reliance on banks for loans, freeing banks up to finance companies hit by more efficient taxation,” he argues.

The Turkish-IMF negotiations have proven mildly acrimonious so far. On June 26, Erdogan complained that the IMF has brought up political issues during loan negotiations. “When the IMF goes into political matters, it is not acceptable to us,” Erdogan said during a visit to Brussels.

There is a political reason for the Turkish leader’s apparent unwillingness to tackle budget and tax reform: general elections in 2011. His party cruised to victory in 2007’s general elections, gaining 47 percent of the vote. But since then, the AKP has seen its political fortunes plummet. Erdogan was clearly stunned when the party garnered only a 39 percent share in local elections this March. “The 2011 polls will define all of Erdogan’s actions from now on”, says Murat Yetkin, Ankara bureau chief for the liberal secular daily Radikal. “If he thinks [a new policy] will cost him votes, he will take all risks and not sign along the dotted line.”

Upping the efficiency of income and corporate tax collection never was a vote-winner. What makes the issue especially sensitive for Erdogan is that tax evasion is widespread among small and medium enterprises and Anatolian businessmen that form a key portion of the AKP’s base of support.

Few analysts foresee Turkey facing major economic problems in the short-term, with or without a new IMF deal. For Murat Ucer, though, the government’s ongoing failure to agree on the need for a fiscal rule bodes ill for the middle-term. “Turkey is losing sustainability of public finances”, he said. “For the past three years, we have been at a crossroads: are we going to tackle structural reforms? Or are we going to basically risk going back to the 1990s, with unsustainable debt and high inflation? We haven’t started that game yet, but the trend is in that direction.”

Editor’s Note: Nicolas Birch specializes in Turkey, Iran and the Middle East.

July 3, 2009