Record High Growth, But How?

One of the most important developments currently has been the IMF setting its growth estimate for Turkey at a record high level. In its World Economic Review report, IMF revised its growth figures, which was declared as 5,2% previously, to 7,8 percent. The reality of this estimation, which was made mostly based on the base effect after 2009 when the crisis showed its impact most seriously can be found to be accurate. This means that Turkey can realise 7,8 percent growth at the end of 2010. However, in addition to the base effect, we must also display another potential which underlies this growth. Peripheral (developing) countries, which were seen as safe ports where the impact of the crisis was less heavily felt compared to central (developed) countries during the crisis, became the destination of hot money flows. Therefore, based on this fact, developing countries whose growth rates are higher compared to central countries, are in an effort to shape their futures around this framework and take the easy way out to growth. Here, the growth estimation envisaged by IMF for Turkey is based on the volume of such hot money entrance. In addition we must very well examine the damages and impact of this phenomenon to the future of the country and its internal dynamics. First of all, we claimed that the increase of Turkey’s growth rates depend on the hot money entrance and accumulation in the country. Hot money investors who make high incomes due to high interest rates flow to peripheral countries like Turkey, which are in need of growth. Hot money, which had a positive impact in stock market and capital markets but which, on the other hand, causes unstable growth, opens the gates for more investment by raising the credit scores of countries whose financial markets attract investment. (Note: detailed examination will show that the advantage of credit note increase for peripheral countries is not direct capital increase but mostly in the form of portfolio investment (hot money)). These developments which lack a sound foundation, and which cannot even be labelled as “progress”, on the other hand carves local production and endangers the future of national industry. The industrialist, who cannot increase production, tries to survive by price adjustments, downsizing or sometimes wage reductions. This situation is also harmful for domestic demand, and it has the potential of causing inevitable problems in the long run. Hot money flows which disintegrate, informalize and cheapens labour force, makes the labourer even poorer, who is already poor, and causes more unfairness in distribution of wealth and divergence from the notion of welfare state. Secondly, exchange rate advantages allow for and whet the appetite for hot money flows. Of course the hot money entering the country cheapens foreign currencies; in addition to that, the main reason why National Bank of Turkey does not intervene in favour of foreign trade is the impact of these flows on growth. Increases in facile daily purchases with the purpose of making foreign currencies more expensive show that these policies have actually increased hot money entrances, as such investments showed the strength of National Bank and how positive it views the markets. But, on the other hand, this situation does not direct the foreign trade balance of the country in any positive way and has the potential to end up in a deadlock; it will cause the exports to lose its competitive power completely and problems in balance of payments (especially current deficit). (The parallel relation between current deficit and growth, which is still valid for peripheral countries, can be displayed in Turkey in a crystal clear manner). Thirdly, thinking must be done on the fact that the growth estimations made by IMF decreased the value of Japanese currency during the most violent period of exchange rate wars and was presented at a time when some central countries, including USA, declared that they would allow monetary relaxation. This is because Fed, having declared that it would print more money, will increase its the impact/advantage on exchange rate with the new dollars and balance this deficit in internal demand and production by this means. It is clear that behind this development which is a proof that the value of dollar will reduce even more there lies the fact that Turkey is one of the main countries of how money that wants to benefit from short-term exchange rate advantages. Hot money does not miss a dual opportunity of low exchange rate-high interest rate; and it will naturally lead Turkey to a record-high growth by the end of the year. One should not be surprised at this record (imaginary) growth. But here is the central question: what then?? In an environment where direct capital investments decreased 35% compared to the previous year, the disaster to which potential money escapes will drag the country and its damages on the people will be at a level beyond imagination. An economic policy that reduces growth to hot money will make richer who make profits out of this process and increase unfairness. Pity for the labourers who are the architects of production.