Back home, the rule of thumb translates roughly as “it's the economy, stupid.” On this exotic Turkish terrain, public opinion seems to march to a different tune. Buried somewhere on the inside pages of the newspapers is the astonishing figure that the economy contracted during the first quarter of this year by 14 percent, a figure more terrifying than the worst quarter of the 2001 economic crisis (9.8 percent in the fourth quarter). While the expectation is that things are getting better (the overall decline in the gross domestic product [GDP] is projected at 5.5 percent compared to 5.7 percent in 2001), there can be little doubt that the global crisis is causing a great deal of domestic pain.In 2001, the sight of overnight interest rates soaring into four figures and of an economy out of control brought about the massacre of an entire political generation. Not a single party elected to Parliament in the 1999 general elections was re-elected in 2002. (It was Deniz Baykal's good and bad fortune to score less than 10 percent of the vote in 1999, which encouraged voters to give him yet another chance). Yet nowadays, opposition parties hardly mention the economy at all. Devlet Bahçeli (whose Nationalist Movement Party (MHP) had to wait until 2007 to get re-elected to Parliament) has promised not to yield an inch in resisting recognition of Kurdish rights. He seems to be exploiting a mood of discontent among Turkey's growing army of unemployed rather than putting his finger on the real issue -- how to produce more jobs.
The government must be blessing their luck. So far they have rightly pointed to the epicenter of the crisis not in their own lack of policies but in the systematic imprudence of big foreign banks. They also point to the measures which Turkey took after 2001 to get its own finances and financial sector into order. They wave this as an amulet to suggest that once the recovery comes, Turkey will be first in the queue. There is now some evidence that huge rescue packages mounted in the developed world have at last succeeded in breaking the fall. Of course, we don't know what shape the bounce back will take. Optimists hope for a “V,” but there are plenty of commentators warning of a “W” and that things could soon take a dip for the worse as the markets begin to unpack more bad news.
The US and part of Europe have managed to spend their way out of the worst of the recession. In America, the deficit is expected to reach 14 percent of GDP. In Turkey, a surplus has now turned into an expected 5 percent deficit -- although that figure may be larger. This may be all the profligacy it can afford. The problem is that Ankara has a long history of ignoring structural problems -- which is why the economy hit the wall in 2001. If its starts running up an even larger deficit, the international community will begin asking when and how it will ever make the adjustment to get public finances back under control. The government has not made things easier for itself by playing a “will she, won't she” game of flirtation with the International Monetary Fund (IMF), so far refusing to sign a stand-by agreement. With a general election on the horizon (by 2011, at the latest), it is clearly hoping to avoid austerity measures or any other IMF limitations on its freedom of action.
So our visiting Martian shrugs his many shoulders as he revs up the saucer to begin the journey home. So far things are running the Turkish government's way. It has been able to reduce interest rates without affecting the value of the currency, relying on the global deflationary trend. Yet there could still be dangerous times ahead. Should the market suspect the economy is beginning to wobble out of control, we will begin to see inflation creep back up and the government forced to borrow at higher rates to pay back its debt, all at the expense of the real economy. We wouldn't be back in 2001, but we would be entering a period of stagnation.
