Monday, December 13, 2004

Is Turkey the next Argentina?

/ IMF / disaster zones / next? /
Erinc Yeldan a professor in the department of economics at Bilkent University in Ankara and Mark Weisbrot, co-director of the Center for Economic and Policy Research on the prospects for a new IMF powered economic collapse. They're rather pessimistic about the direction the Turkish economy, under the guidance of the IMF, is taking:

"...The Turkish economy grew by an average of 7 percent annually in 2002-3, and is expected to have grown at the same rate in 2004. Inflation, which was at 68.5 percent in 2001, has been brought to a projected 11.4 percent for 2004.

But beneath these numbers, a crisis looms. The expansion has been driven by a huge inflow of capital from abroad, $10.9 billion in 2003 (4.6 percent of the economy) and $12.5 billion in just the first eight months of 2004. These are overwhelmingly speculative, short-term inflows - not direct investment, for example, which would expand the country's productive capacity and create jobs. Foreign direct investment has in fact fallen since 2000. The country is very vulnerable to a serious economic downturn when the inflow of foreign money goes dry.

These kinds of massive speculative capital inflows have a habit of reversing themselves, as they did in Asia in 1997, setting off the Asian financial crisis and a regional depression. In such situations, investors eventually begin to worry about the sustainability of such borrowing and debt. Any number of external events could trigger such an exodus from Turkey...

...As Turkey and the European Union continue talks on the possibility of EU accession, the Turkish government should re-examine its unsustainable economic policies of the last five years. Continuing these IMF-supported policies in hopes of garnering credibility with the EU may be dangerous. Ironically, such policies could lead to an economic failure that would actually doom Turkey's chances for membership."

Forgive me the extended quote, but this paints a picture quite different than the usual triumphalism. Of course what it fails to take into consideration is that, should Turkey receive an accession date, one could easily make the case that even investor flight would be reigned in and the EU economy would act as a safety valve against the Argentinization of the Turkish economy. Note that the way out of an economic disaster is apparently pretty much the opposite of IMF perscriptions, and it remains to be seen whether EU economies can suffer crashes - and what happens if they do.

It could be argued then, that for Turkey the EU accession talks might be far more important economically than politically. Making December 17th even more crucial in the short term...

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