Economists discuss current account gap
Posted by meb at April 14th, 2008
Representatives from various sectors and academics met Friday to discuss Turkey’s pressing current account deficit problem at a conference organized by Istanbul Kültür University. The conference, titled “Current Account Deficit and Stars of Export,” also dealt with increasing exports.
Turkey’s current account deficit was about 5.8 percent of gross domestic product last year, reaching $38 billion. “The current account deficit issue is structural rather than cyclical for Turkey,” said Ege Cansen, a columnist at daily Hürriyet. “Its roots go back to the Ottoman Empire in the 1860s. At times of crisis, the Ottoman Empire could not establish a public finance system but preferred to become indebted. Accordingly, this became part of the ‘constitution’ of Turkey’s economy.”
“The solution is the ‘J trajectory,’ which can be described based on the principle that ‘if the relation between cause and effect has become a vicious circle, venturing business downturn may be the only way to break the circle,” Cansen explained. “When this principle is applied to Turkey, following the path of high inflation and a low growth rate for a while may be a remedy for the current account deficit.”
Foreign currency behind the scene:
“Whether it is structural or cyclical, foreign currency is behind the scenes in the current account deficit problem,” said Gazi Erçel, former chairman of the Central Bank. “The appreciation of the local currency gradually destabilizes external trade.”
“The recovery procedure includes overcoming macroeconomic imbalances, revising the exchange rate regime, decreasing the effects of external factors and ameliorating the quality of floating,” Erçel said. If implementing these principles is not possible, then increasing the real interest and waiting for the realization of the principle that “a current account deficit that cannot be financed compensates for itself” would be the solution, he added.
“The current account deficit is a good indicator of a country’s savings,” said Deniz Gökçe of Bahçeşehir University. “There is a strong consuming tendency among the Turkish population. The urban population, which was 15 percent of the general population in 1950s, constitutes 70 percent of the entire population now. All those people have increasing material demands that enforce the economy,” he said.
“The issue is related to structural problems rather than currency and interest rates. It has sociological extensions relating to a lack of awareness of saving,” Gökçe continued. “Society needs to understand the necessity of saving. The government should […] encourage society not to consume in luxury.”
“We expect an export volume of $125 billion by the end of this year,” said Ali Boğa, general manager of the export department of the undersecretary of external trade (DTM). “Turkey tripled its exports within six years through financial and political stability. We consider the developing competitiveness to be a key factor in achieving sustainability in exports.” Turkey should focus on exporting more value-added products, Boğa said.
Source: Turkish Daily News
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