An example of micro reforms
Fatih Özatay, PhD
28 May 2011
You can change the written rules overnight; however, it takes a long time to change behavior codes. In last Saturday's commentary, I told that this week I would focus on the disincentive mechanisms that are present in the academic community and the weird outcomes caused by these mechanisms. Nevertheless, I have to postpone this to a later date. I have to settle with the examples about the bureaucracy I provided the last Saturday. It will be wise to give a couple of suggestions on how to remedy this adverse situation. I am interested in incentive mechanisms because they are determined by the institutional structure. Institutional structure is one of the main factors that decide the economic performance of a country. If the economic performance is not much favorable, institutional structure
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What does the public offering of Yandex has for Turkey?
Güven Sak, PhD
27 May 2011
Yandex's cofounder, Arkady Voloj, paved the way in Russia for earning wealth without relying on the state. The day before was a good day for Voloj, one of the cofounders of the Russian search engine, Yandex. Yandex is in a way the Google of Russia. The day before, Voloj learned that the total value of the company he had founded fourteen years ago was worth USD 8 billion. Yandex had raised USD 1.3 billion in public offering on on the NASDAQ stock market. The stocks were snapped up at a premium price at $25. Moreover, after the trading started, the stock price increased to $38 and the total value of the company surged to $13 billion. How can he not be happy? Let me draw a couple of lessons from this case. I believe the public offering of the Yandex is important. I also think that all prepar
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Why should we worry?
Fatih Özatay, PhD
26 May 2011
We are going through an interesting period, indeed. Such a picture is open to all sorts of developments. The foresighted would take all measures at his/her disposal. There are a number of reasons to be worried. It is wise to list those once again. First, current account deficit has reached high levels. Second, this deficit is financed predominantly with short term capital inflows. Third, short term capital inflows are expected to slow down since the factors enabling the current volume are only temporary: interest rates in developed countries will eventually increase and the monetary expansion that emerged after the global crisis will come to an end.
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Going off halfcocked?
Fatih Özatay, PhD
24 May 2011
Measures to limit short term capital inflows can work; but the administration categorically rejects that sort of measures. As of March 2011, current account deficit over the last twelve months have reached a record-high US$ 60.5 billion. It is commonly known that Turkey's current account deficit reaches high levels in periods of rapid growth. We can put this as follows: if you try to ride a car that ideally goes at 120 km/hour at max at 200 km/hour, some components of the engine (the component of current account deficit) start to go bad. The question that really matters here is whether this disturbs and breaks down the entire engine.
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How will the eruption of the volcano in Iceland affect Nairobi?
Güven Sak, PhD
24 May 2011
The distance between them is approximately 9000 kilometers; but the eruption of a volcano in Iceland can affect the wages of agricultural workers in Nairobi. Last weekend the Grimsvotn volcano started to fling lava. Experts maintain that this was the largest eruption in 100 years. The Keflavik airport already has been closed on grounds that the ashes are dangerous for air traffic. Last year, the Eyjafjallajokull volcano, which I still do not know how to pronounce, erupted and the ash clouds spread South, shutting down a substantial part of the European air traffic. The British Guardian reported that Heathrow Airport in London might be affected by the end of the week. Then, it appears that the agricultural workers in Kenya will not be paid their wages.
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Institutional structure and incentive mechanisms
Fatih Özatay, PhD
21 May 2011
Developmental economists define a close link between the institutional structure and economic performance. How individuals are incentivized in an economy is defined by the relevant institutional structure. In other words, written rules, unwritten rules such as habits and traditions, the extent to which these rules are obeyed and the character of the sanctions imposed in the case of the violation of these rules play determinant role in this process.
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Where will this record high current account deficit drag Turkey?
Güven Sak, PhD
20 May 2011
We are about to arrive at the point where fund inflows towards Turkey will be influenced. After that point, there will be no turning back. I am frequently exposed to the above question nowadays. The answers to the question are diverse. On the one hand are those who say, "There is nothing to worry about. I will do some hocus-pocus and all the pain will go away." On the other hand are those who gaze sententiously with a slightly sarcastic attitude. Today let us analyze what actually will happen, and where this record high current account deficit will drag Turkey. Is it wise to be concerned? Let us proceed from the tail to the head: It is definitely wise to be concerned about the recent movements in the current account deficit. The most concrete evidence of this is the unprecedented monetary
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Where does Greece head to?
Fatih Özatay, PhD
19 May 2011
If you are faced with high public debt, you have to take the most radical steps immediately. Ten days ago Greece's credit rating was cut by 2 levels to B. At the same day, interest on Greece's 10-year bonds reached 15.6 percent compared to 3.1 percent interest rate of Germany's bonds. Everyone knows the cause of this difference: High level of public debt accumulated upon decades of ill fiscal policy experience and the efforts to mask this via several statistical tricks. There are a number of lessons to be learned from Greece's situation. Firsts is that, you should not manipulate the statistics as the curse of the figures eventually takes effect.
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Is this excuse valid?
Fatih Özatay, PhD
17 May 2011
In the case with Turkey, the difference between the headline inflation and the consumer inflation will be quite wide if the recent trend proves temporary. For a long time, I talked about the fact that the gap between the consumer inflation and the headline inflation calculated with the "l" index that the Central Bank of Turkey (CBT) pays more attention to. In the last months, a movement in the opposite direction was observed; so I think we would rather get back to this issue. By the way, let me stress that the l index excludes the prices of energy, food, tobacco, alcoholic beverages and gold which are considered to be out of the scope of impact of the monetary policy.
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Turkey can bear a high current account deficit for some time more
Güven Sak, PhD
17 May 2011
The Arab revolts have paved the way for Turkey to become an investment base for the countries of the region. The Arab riots do not appear to have ended. The revolts are spreading in full flood. Meanwhile, they slightly change their character from country to country. Those in Tunisia and Egypt differed, in Libya revolts took a completely different character and the dynamics in Yemen and Bahrain resemble neither each other nor the rest of the countries. Concerning Turkey, there exist a series of short-term risks. I remember talking about oil prices and the commercial relations between Turkey and the countries of the region. I also am aware that I assessed the entire issue in the context of the alarmingly high current account deficit and said, "fasten your seatbelts, please!" But nowadays,
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