The European China

[luvdovz.livejournal.com]

While Europe and most of the world is taking heavy financial blows, Turkey has switched on the turbo gear. During his visits abroad, Erdogan is looking like the confident leader of a nation which some analysts are already calling "the European China". But is the Turkish ascent stable?

Well, no doubt Turkey is undergoing huge development, while the EU is going from bad to worse. The Turkish economic power per capita may be still just 1/5 of the German one, but Turkey is catching up very fast. Erdogan could brag with an average annual growth of 8-9%. The Turkish public debt is about 41% of the GDP, while the European average rate is at least twice bigger (Italy's even exceeds 100%). Under Erdogan, Turkey has reached 17th place in the world economy ranking, with a tendency to reach 15th in a couple of years. The Economist first called Turkey the "European China". And recently, Standard & Poor's decided to upgrade Turkey's currency ratings. Looks like the markets are feeling confident about the boom at the two sides of the Bosphorus. But how stable is this growth? And does Turkey really intend to leapfrog the big European economic powers? And what can Turkey do, which Germany cannot? Interesting questions.

The Turkish business, from the small one to the biggest, is obviously feeling pretty confident right now. And we should acknowledge that this good environment didn't start with Erdogan. The foundations were laid in 2001. The then minister of the economy Kemal Dervis started some important reforms. He knew exactly what he was doing - after all, he had previously worked at the World Bank. During the latest financial crisis, Kemal Dervis introduced reforms that saw the banks experiencing a more strict oversight, the central bank being more autonomous, the privatization of public industries was accelerated, etc. Dervis also cut the deficit in the public budget. When Erdogan came to power, his party simply continued and built on this trend.

The Turkish economic ascent could turn out too fragile, though. We shouldn't rule out that after such an abrupt boom, a bust inevitably follows, as the economy is unable to cope with the speed of expansion. The experts and business people in Turkey are concerned that the country has been importing more goods than it sells abroad, and it's been like that for many years. So Turkey is piling more debt at great speeds. The reasons for the deficit in the public budget are the increasing private consumption and the specific structure of the Turkish economy. Turkey is forced to import not just oil, but many other resources, in order to be able to produce anything at all. Such an imbalance could often be a reason for panic on the markets. It's enough for the investors to grow nervous and withdraw their capital. Then Turkey would really be threatened of a collapse.

The Economist makes a ranking of the fast-developing countries, whose economy is most threatened by "overheating". Turkey is at one of the top ranks there. If anything, the Turkish growth is tightly tied with Europe's economic situation. Of course, Erdogan's government is trying to diversify by making inroads into other markets, mainly the Middle East and Africa. What's more, their new diplomatic stances in regards to Israel and the Middle East as a whole might be read as a direct projection of that same aspiration. Turkey is opening new embassies and consulates in more countries, establishing new links and maintaining the old ones. That's why most Turkish economists are hoping that Erdogan's party would orientate the country more towards Europe. That would be an important step to a more stable economic growth in the future, because Turkey could not just be Europe's door to the East at large (thanks to its beneficial geographic location), it could actually be the door-keeper itself, and that's a role whose potential shouldn't be under-estimated.

Comments

[htpcl.livejournal.com]

The present rulers of my country (a tiny Balkan country just next to Turkey) are constantly bragging how they're building new highways with European funds, and how that upgraded infrastructure would stimulate business to invest here.

What they're missing, or are deliberately omitting, is the fact that these highways would actually serve not the domestic business so much, they're meant to be used by the big players on the global Eurasian business scene, because those need a fast lane that would carry their craved resources, materials and goods from East to West and viceversa. We're only a transit stop on the way.

There's this recent saying around here: "People don't eat asphalt". Whenever our prime minister brags about opening a new stretch of highways, he should be reminded that in the meantime he's neglecting everything else, from social security, to making the very necessary reforms in education, health-care, the pension system, banking, and even the way political elections are being conducted.

That's a slight tangent here, but it's related to Turkey. Because, while we've been bickering over petty things here, Turkey is building its future. And the very fact the Turkish leaders are even considering the implications of rapid growth, shows a great deal about them.

Gee...

[sophia-sadek.livejournal.com]

... doesn't Bulgaria present Turkey with some nice wide open lebensraum? That was a fear in the past. Is there still a fear of great Turkish horde next door?

Re: Gee...

[htpcl.livejournal.com]

There's been concerns with our very own domestic Turkish residents who are good and hard working people, but seem to be too easy to manipulate by unscrupulous politicians.

Re: Gee...

[sophia-sadek.livejournal.com]

We have the same problem in America with unscrupulous politicians, but the people who are easily manipulated are not Turks.

Re: Gee...

[htpcl.livejournal.com]

I wish it was just the Turks who could be manipulated so easily.

[mahnmut.livejournal.com]

Fog of war:

[luvdovz.livejournal.com]

Sure, chaos theory does have a lot to do with the dealings of macroeconomics and geopolitics. There is no way to precisely predict what happens if you do X. Politicians and business people are not clairvoyants. The only thing is to do what you deem most appropriate towards the desired end at a given moment, using the resources you got at your disposal, and given the circumstances, and then hope for the better. Of course doing something that would boost your chances of achieving a positive result, and planning for the long-term while keeping an eye on the short-term developments, does help a lot more than not doing anything and leaving yourself and the system you're managing to steer itself on its own.

[luvdovz.livejournal.com]

Balance is the key to success. That's a thing that got engraved at the inside of my skull from early on. :)

[luvdovz.livejournal.com]

I'd say northern. :)

[luvdovz.livejournal.com]

Hands off, lamb's head is AWESOMENESS! :D

[abomvubuso.livejournal.com]

The key to Turkey's success is that they restructured their economy after the crisis in 2001. And not only the financial sector but also the production industries. They stimulated not only the traditional sectors like textiles and citrus fruits, but also automobile industry, chemistry, machines. So they created a stable basis to step on, and that helped them overcome the global financial crisis from 2008. In other words, Turkey is successfully applying baron Munchausen's principle, dragging themselves out of the bog.

It's also important to note that the demographic structure is very different in Turkey. They have a vast young population, people with more purchasing power in recent years. The average income per capita is 4 times bigger now than it used to be 8 years ago.

The risks are related to the situation elsewhere, and Turkey cannot influence those processes. Turkey's export to Europe has shrunk by 1/4 for the last couple of years, which is why they're trying to find new markets like the Middle East, the Maghreb, etc. In turn, the internal problem with rapid domestic growth is that it could pump up the prices and send inflation out of control.