Economists use it to describe the relationship of particular nations to global trends and more particularly, whether emerging markets are able to follow a logic of their own. This crisis was meant to have signaled the end to decoupling -- when Lehman Brothers caught pneumonia, the whole world began to wheeze. However, it is clear that in the current climb-back emerging markets are bustling more than their developed cousins, and so it is premature to declare decoupling’s demise. Decoupling does not mean that developing countries are immune from global events but that they can paddle against the tide. Many argue (Kemal Derviş in a recent contribution to the Financial Times is one) that the Chinese economy cannot be retooled in time to replace America as the engine that drives recovery. This depends on demand from other emerging and developing economies. These, he said, should be allowed to run larger deficits.Turkey didn’t need to be told twice. A government that established its credibility through hard years of fiscal discipline decided it was time to take a break. A primary public sector surplus of some 5 percent of gross domestic product (GDP) in early 2007 declined this year into a 2 percent deficit. Given the dramatic fall in GDP, it is understandable that they would try to reflate the economy. Yet the Turkish Treasury does not have such a strong track record that it cannot afford to ignore the concern that it was on the brink of relinquishing control. That, of course, is why many urged it to do a deal with the international Monetary Fund (IMF). It needed to assure the markets that it would keep to its own mid-term program. Arguably, in trying to avoid the political cost of such a deal it has already paid the price in higher than necessary rates of unemployment
It is clearly against such a background that the government has finally thrown in the towel and announced that an agreement with the IMF is imminent. It is doing so in a way to suggest that the agreement is on its own terms, and no doubt this is a useful device to allow it to swallow its pride. A spate of new year tax increases on items like petrol and booze is further proof of the government’s new resolution.
Decoupling has another meaning in the Turkish context to do with the relationship of politics to economy. Back in 2001, the fragility of public finances meant that any sudden move by its politicians was immediately reflected in the market. When an angry President Sezer hurled a copy of the Constitution at one of his ministers, the country toppled into crisis, the lira lost half its value and overnight interest rates shot up to 4,500 percent. Yet in recent months we have witnessed a profound battle between the civilian and military authority. There are even reports of military assassins camping in front of the homes of senior members of the government. Yet if things couldn’t seem worse, Fitch has upped Turkey’s credit rating to BB+, the highest speculative grade. The markets now recognize a disconnect between the headlines and the management of the economy. And while this may be a good thing overall, there are some dangers.
It is becoming possible to speak of another sort of decoupling -- that between the content of the public debate and reality. Those debates are important, of course, about who wields legitimate authority and how the very fabric of public opinion is formed. Yet there are other more important debates, which is how that authority should be used. Government and opposition exchange bitter words on Kurdish rights or the prosecution of deep state conspiracies. Yet there is very little honing of the vision of how to get the economy back in gear and people back to work. Basic prosperity is the bedrock for social consensus.
