Comment on “Turkey: External Imbalances, Domestic Strengths
Thus, since the 2001 crisis and until 2008, Turkey appeared to be doing better than its East Asian comparators in converting domestic savings to growth. But what matters more is the efficiency of investment, because the savings-investment gap was filled by foreign savings that flowed into Turkey. Investment-to-GDP ratios rose by more than 10 percent of GDP between 2001 and 2007, and the paper conjectures that future growth is likely to be driven by capital accumulation in the near future. But the questions remain: Why did savings fall? Which component of savings explains this anomalous relationship between faster growth and smaller saving in Turkey since 2001? Can changed policies help to increase savings, so that Turkey has less need to rely on foreigners to fuel growth? The main candidates for explaining the behavior of savings are (a) the rapid fall of inflation resulting from tighter monetary policies and (b) accelerating demographic changes, if the trend is being driven by a fall in household saving.
Unexpectedly Severe Impact of the Global Crisis Turkey was hit hard by the crisis in 2008 and 2009, much harder than Korea, Thailand, and Malaysia. The paper points to a sharp rise in unemployment and a sharp falloff in GDP growth (which had been slowing down since peaking at 9.4 percent in 2004). It may be instructive to contrast the experience of Turkey during the crisis with that of Poland, the other large economy immediately to the east of developed Europe (see chapter 10 of this book). In 2008, Turkey’s GDP was about US$795 billion; Poland’s was about US$525 billion. Exports were about US$140 billion in 2008 (18 percent of GDP) in Turkey, and about US$190 billion (about 36 percent of GDP) in Poland, twice the ratio for Turkey. But while Turkey’s GDP growth rates in 2008 and 2009 were 0.9 and –4.7 percent, respectively, Poland’s GDP grew at 5.0 and 1.7 percent, respectively, during these two years. This raises a question: If Poland’s economy is both smaller and more dependent on foreign demand, why did it weather the crisis so much better than Turkey’s economy? The obvious suspects are (a) Turkey’s export destinations and structure and (b) Turkey’s dependence on foreign capital inflows to fuel
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