You know how you feel when you lend your flaky friend some cash? That's basically how the world feels as lira falls, inflation rises, and the GDP slowdown continues in Turkey. But there's a debate about just how bad this is for the country. Economists Robin Brooks, Mark Bentley, and Paul McNamara weigh in a fairly spirited Twitter debate (well, you know, spirited for economists anyway).
Robin Brooks: It's not so bad
Brooks is the Managing Director of the International Institute of Finance (IIF) and isn't exceptionally worried about the overall economy. He points out that Turkey is rapidly getting back on track when it comes to repaying their debt (balance of payments) and that the world economy is strong enough to support the turnaround (unlike in 2008 when everyone was struggling). See chart from Twitter below:
It's true that last year's credit boom made the Turkish Lira vulnerable by widening the current account deficit. But the balance of payments is adjusting at lightning speed now, given the negative credit impulse underway. The fundamentals of the Lira are therefore improving fast. pic.twitter.com/fDFluwPDOc— Robin Brooks (@RobinBrooksIIF) August 18, 2018
Mark Bentley: Are you sure, Brooks?
Bentley is the ex-Turkey bureau chief and the current head of international investment news for Bloomberg. He argues that non-exporters have too much credit to support a major recession of the import economy (which he thinks is inevitable). He thinks Erdogan failed his Econ 101 final and is mistakenly placing Turkey’s financial future in an undeveloped export economy to fully cure their sick economy. See confusing text below:
Indeed. Banks/corporate debt come to mind. A surplus in Turkey means a recession as economy import-driven (70% of exports imported). Erdogan thinks mistakenly they can export their way out. With so much credit given to non-exporters (construction/energy) the picture looks bleak— Mark Bentley (@MarkABentley) August 20, 2018
Paul McNamara: I see both points
McNamara is an investment director at GAM Investments who understands where both economists are coming from. He doesn’t think the situations is as dire as Bentley, but he’s also not quite as optimistic as Brooks either. He points to other emerging economies in similar predicaments as evidence that Turkey is likely to recover, but he’s unsure how long it will take. See response to Brooks below:
Yep. All big current account corrections are primarily import collapses. But less sure than you that this isn’t going to be a Mexico or an Indonesia rather than something more benign (UK ‘92 for example)— Paul McNamara (@M_PaulMcNamara) August 18, 2018
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