Is the Turkish economy on the point of collapse? According to a new study published by the Moshe Dayan Center for Middle Eastern and African Studies at Tel Aviv University, despite impressive growth figures, the Turkish economy faces considerable difficulties, particularly over ballooning debt. The study is by Dr. Eli Amarilio, a researcher on Middle Eastern history.
Turkey's economy grew by 8.2% in 2010 and by 8% in 2011. It is estimated that, this year, it will grow by 4-5%, because of the slowdown in the global economy. But despite the impressive figures, the study says that it is possible to argue that economic growth in Turkey is artificial, and stems from a spending spree that depends on very low interest loans.
According to the study, foreign investment has been Turkey's main growth engine in recent years, leading to a burgeoning of industry. In the period 2003-2008, foreign investment in Turkey totaled $75 billion, or an average of $15 billion annually. However, in 2011, foreign investment dropped to $11 billion, and it is expected to fall further this year, because of the economic slowdown around the world.
As for the Turkish capital market, anyone who invested $100,000 on the stock market there at the beginning of last year lost about $23,000. There has been some recovery so far this year, but it is not strong enough to compensate for the heavy losses of 2011.
The study attaches particular importance to the European debt crisis, as Europe is an important market for Turkish exports, and the crisis in Europe affects Turkey directly. "Turkish industry has developed considerably in recent years, especially in the manufacture of cars, buses, textiles, and construction materials. Exports, which are mainly to Europe, will be hard hit in 2012 because of the euro bloc crisis. In addition, the economic consequences of the 'Arab Spring' are also liable to mean a slowdown in Turkish exports, as most Arab countries are experiencing economic crises and political instability.
In the period 2002-2009, Turkey's exports to the Arab countries grew fourfold, and reached $27 billion in 2010, almost double the figure for 2009. Last year, however, there was a 13% decline. Turkey made up for the shortfall with exports to other countries, and thus expanded its total exports to a record $135 billion.
"The widening of the sanctions on Iran is liable to lead to a rise in the price of oil (about one third of Turkey's oil is imported from Iran) in a way that is liable to affect its economy adversely," the paper states. "Turkey is considering importing oil from elsewhere instead of from Iran, chiefly from Saudi Arabia, but it would seem that such a switch will make the oil dearer, and may even badly hurt trade between Turkey and Iran."
The main problem for the Turkish economy is the credit boom. In 2009-2010, the banks flooded the economy with cheap credit, and the opposition accused the prime minister, Recep Tayyip Erdogan, of buying votes that way in the elections. The danger, of course, is insolvency, as happened to Argentina at the beginning of the previous decade.
"Turkey is not part of the euro bloc, and is not a member of a political-economic association like that of the Gulf states. Therefore, it would seem that no-one will rescue it if it slides into a credit crisis leading to insolvency," the study says.
Turkey's debt to GDP ratio is 40%. This is a lower ratio than in many countries, Israel among them, and a long way from the debt:GDP ratio of 137% that set off the crisis in Greece. However, the study's authors point out that "countries are liable to find themselves in crisis at a much earlier stage; Argentina, for example, defaulted when its figures indicated a ratio of 50% between total debt and GDP."
A further problem is inflation in Turkey, which reached 10% last year, and is expected to stay high this year. Turkey's central bank sold dollars in order to rein in inflation, but it is not clear for how long it can continue to intervene, and how effective intervention is. Economic commentators argue that maintaining interest rates low over a long period harms the Turkish economy, while too sharp a rise in the future will also be damaging.
In 2001, at the time of one of the great crises in the Turkish economy, the value of its currency was halved overnight. "There is no guarantee that the same thing will not happen again," the study says. "Turkey's credit problem, accompanied by high inflation and the eroding value of its currency, create difficulties for its economy. If Turkey does not continue to sell dollars and does not show caution in granting loans, its economy is liable to collapse. The beginning of 2012 indicates that Turkey is aware of the dangers and is acting to diminish them. Nevertheless, the Turkish government has not taken the step of raising interest rates, and as long as inflation is high and interest rates do not rise, the economy is vulnerable."
Published by Globes [online], Israel business news - www.globes-online.com - on April 2, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012