A. Erinç Yeldan University of Massachusetts, Amherst Bilkent University , Ankara
description
Transcript of A. Erinç Yeldan University of Massachusetts, Amherst Bilkent University , Ankara
Patterns of Adjustment under the Age of Finance: The Case of Turkey as a Peripheral agent of New-
Imperialism
A. Erinç YeldanUniversity of Massachusetts, Amherst
Bilkent University, Ankara
“In these papers all needless matters have been eliminated ... There is throughout no statement of past things wherein memory may err,
for all the records chosen are exactly contemporary, given the knowledge of those who made them.”
-Bram Stoker, Dracula, 1897
With the completion of capital account liberalization in 1989, Turkey is trapped into
• high real rates of interest and
• an overvalued exchange rate (cheap foreign currency)
Inflation of Producer Prices and The Interest Rate on GDIs
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0 Inflation Rate (Producer Prices)Nominal Interest Rate on GDIsReal Interest Rate on GDIs
1994 crisisWeak
Coalition Governments
Contagion of Russian
and Brazilian
Crises
2001 Crisis
Inflation Targeting,
Flexible Exchange
Rates
Real Exchange Rate Index (TL/$)(Deflated by Fixed 1987 WPI)
0.0
25.0
50.0
75.0
100.0
125.0
150.0
Jan.8
2
Jan.8
3
Jan.8
4
Jan.8
5
Jan.8
6
Jan.8
7
Jan.8
8
Jan.8
9
Jan.9
0
Jan.9
1
Jan.9
2
Jan.9
3
Jan.9
4
Jan.9
5
Jan.9
6
Jan.9
7
Jan.9
8
Jan.9
9
Jan.0
0
Jan.0
1
Jan.0
2
Jan.0
3
Jan.0
4
Jan.0
5
Jan.0
6
Financial Liberalization
Completed
Worsening of macroeconomic fundamentals led by capital inflows: The Frenkel-Taylor cycle
Rise in the domestic interest rate:
Stimulate capital inflows
Domestic currency appreciates
Imports expand, current account deficit widens
To finance the foreign deficit, invite even more capital inflows, raise the interest rate
The 2000 Dis-Inflation Programme
From Speculative-led Growth to IMF-led Crisis...
Stanley Fischer
With the implementation of a more stringent fiscal policy,
the crisis might perhaps have been alleviated.
Unfortunately, the fiscal policy had not been strong
enough, and the current account deficit widened ...
Realization TargetA B A/B
Revenues 33,756.4 32,585.5 103.6Expenditures 46,602.6 46,713.3 99.8Personnel Exp 9,982.1 9,899.8 100.8Investment Exp 2,472.3 2,351.7 105.1Interest Exp 20,439.9 21,132.3 96.7Transfers to the SEEs 885.9 594.6 149.0Source: Ministry of Finance.
2000
Developments in the Central Budget under the 2000 Dis-Inflation Programme (Fixed 2000 Prices, Trillions TL)
Annual Volume of Banking Credit Flows From Abroad (Millions US$)
0
50,000
100,000
150,000
200,000
250,000
1997 1998 1999 2000
Adjustment Mechanisms after the 2001 Crisis and the Main Features
of the IMF Programme
2002 2003 2004 2005 2006
GNP Real Growth Rate 3.0 5.0 5.0 5.0 5.0
Non-Interest Budget balance / GNP (%) 6.5 6.5 6.5 6.5 6.3
Inflation Rate 35.0 20.0 12.0 8.0 5.0
Nominal Rate of Interest on Domestic Debt 69.6 46.0 32.4 27.4 23.9
REAL Rate of Interest on Domestic Debt 25.6 21.7 18.2 18.0 18.0
Source : IMF, 2001 Turkey Country Report (www.imf.org )
Macroeconomic Targets of the Current IMF Programme
Inflation is on a falling trend, yet the real interest rate proves to be inertial...
Inflation and Real Interest Rates (WPI1994 =100)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Apr.03 Jul.03 Oct.03 Jan.04 Apr.04 Jul.04 Oct.04 Jan.05 Apr.05 Jul.05 Oct.05 Jan.06 Apr.06 Jul.06 Oct.06
Real Interest Rate of TotalDomestic Debt Stock (Treasury)
Inflation Rate (Producer Prices)
Large scale of Capital Inflows lead to currency Mis-alignment...
Real Bilateral and the Trade Weighted Rates of Foreign Exchange
0
20
40
60
80
100
120
140
160
Real Bilateral Exchange Rate (TL/US$)
Trade weighted Exchange Rate (CB data)
Ratio of Current Account Balance to GNP
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
The current account deficit problem emerges not because of its sheer size, but because of the mode of financing
Composition of Foreign Debt (Millions $)
118,508
130,206
145,022
162,240170,062
206,471
113,619
0
50,000
100,000
150,000
200,000
250,000
2000Q4 2001Q4 2002Q4 2003Q4 2004Q4 2005Q4 2006Q4
Total Foreign debt
Public Sector + CB Foreign Debt
Private - Non-Financial Sector Foreign Debt
Private Financial Sector For. Debt
Dilemmas of Turkish adjustment:
Economic growth relies on foreign capital inflows, which necessitate high real interest rates domestically;yetHigh real interest rates aggrevate the problem of debt management
jobless growth and declining real wages...
Total (Open + Disguised) Unemployment Rate (%)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Disguised Unemployment rate (%)
Open Unemployment rate (%)
Labor Participation Rate and Total Unemployment (%)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.019
97
1998
1999
2000
2001
2002
2003
2004
2005
2006
Un
emp
loym
ent
(%)
45
46
47
48
49
50
51
52
53
54
Par
tici
pat
ion
Rat
e (%
)
Total Unemployment Rate (%)
Labor Participation rate
Turkey: Labor Productivity and Real Wages, 2000-2006
40
60
80
100
120
140
160
180
2000.I 2000.III 2001.I 2001.III 2002.I 2002.III 2003.I 2003.III 2004.I 2004.III 2005.I 2005.III 2006.I 2006.III
Labor Productivity (per hour worked)
Real Wage Earnings per Labor Employed (per hour)
USA: Labor Productivity and Real Wages, 2000-2005
90
95
100
105
110
115
120
2000 2001 2002 2003 2004 2005
USA Median real hourly wages
USA Labor Productivity - Output per hour in thebusiness sector
Source: EconomicPolicy Institute
Wages and Producticity in the US Manufacturing (1950-1998)
Source: "The New Face of Capitalism: Slow Growth, Excess Capital and A Mountain of Debt" Monthly Review, editors, 2002. (www.monthlyreview.org/0402.editr.htm)
Hourly average product of labor
Hourly real wages
0
200
400
600
800
1000
1200
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Value added per Labor
real wages
Productivity and Real Wages in Turkish Manufacturing, 1950-2005
Public policy became synonymous to populism and waste.
“Good-bye Budget deficits,
hello democracy deficit...”
Excerpts from Morgan Stanley Economic Forum on Turkey, March 4, 2003
“the latest parliamentary decision to reject the much-debated ‘war motion’ is such a risk that will no doubt disturb the fragile equilibrium...(Turkey) is unlikely to get the promised $24 billion that would ease pressure on the domestic debt market...”
“what happens if the parliament does not altogether vote for the economic reforms, arguing that 80% of the Turkish population is against the IMF program?”
Lessons
“ the argument that ‘this time things are different’ is a statement that can only be made by fools that fail to take any lessons from history...”
Kenneth Rogoff, 2005