Exports increased by 24.3% in January - July compared with the same period of the last year...
According to the provisional data, in July 2007; exports grew by 26% and reached to 8,907 Million Dollars, and imports grew by 28.5% and reached to 15,041 Million Dollars. At the same period, foreign trade deficit raised by 32.1%, reached from 4,642 Million Dollars to 6,134 Million Dollars.
In July 2007 exports coverage imports was 59.2% while it was 60.4% in 2006.
In January-July 2007, exports grew (24.3% in 2007 compared with 2006) to 58,413 Million Dollars; imports grew (18.6% in 2007 compared with 2006) to 92,512 Million Dollars. As compared with the same period of the previous year, the foreign trade deficit was up by 9.9% reached to 34,099 Million Dollars.
57.1% of the exports to the European Union...
The weight of the EU in Exports has continued in January-July 2007 period. As compared with the same period of the previous year, exports to EU were 33,332 Million Dollars increased by 25.5%. The proportion of the EU countries was 57.1% while the proportion of Free Zones in Turkey was 2.8% and the others was 40.1%.
In January-July 2007, the main partner for exports was Germany with 6,605 Million Dollars and increased by 22.1%. In July 2007, exports to Germany was 983 Million Dollars and increased by 28.3% in comparison with the same period of the previous year. For exports, Germany was followed by the UK (751 Million Dollars), Italy (571 Million Dollars), France (486 Million Dollars), Spain (408 Million Dollars) and Russia (398 Million Dollars).
In January-July 2007, while the European Union Countries were the most intensive country group for imports (37,598 Million Dollars), followed by other European Countries (18,934 Million Dollars), Asian Countries (24,350 Million Dollars) and Free Zones in Turkey (691 Million Dollars).
For July 2007, the top country for Turkey’s imports was Russia (2,025 Million Dollars), records for imports range from Germany (1,448 Million Dollars), China (1,113 Million Dollars), Italy (962 Million Dollars) and Switzerland (904 Million Dollars).
Road vehicles are forefront in exports according to chapters...
For January-July 2007, road vehicles and their parts has by far the highest value exported at 8,976 Million Dollars and then, iron and steel 5,023 Million Dollars, machineries, mechanical appliances, boilers, equipments and parts 4,910 Million Dollars and articles of apparel and clothing accessories knitted 4,616 Million Dollars.
At the same period, the top categories for imports were mineral fuels and mineral oils (17,520 Million Dollars) and then machineries, mechanical appliances, boilers, equipments and parts (12,279 Million Dollars) and iron and steel (9,178 Million Dollars).
In July 2007, the volume indices increased.
In July 2007, according to foreign trade indices, with the 2003 base year, produced by the provisional foreign trade data, the overall export and import volume indices increased by 12.5% and 20.5% respectively, compared to the corresponding month of the preceding year.
In July 2007, by the corresponding month of the preceding year, while the export volume index for agriculture and forestry decreased by 35.4%, fishery, mining and manufacturing increased by 61.4%, 28.5% and 13.9% respectively.
The import volume index for agriculture and forestry, mining and manufacturing went up by 54.6%, 7.8% and 23.9% respectively, over the same month.
The unit value indices rose.
In the year to July, compared to the corresponding month of the preceding year, the overall export and import unit value indices rose by 12.2% and 8% respectively.
In the same month, compared to July 2006, the export unit value index for fishery fell by 5.7%. On the other hand, the same index for agriculture and forestry, mining and manufacturing increased by 28.5%, 21.9% and 11.6% respectively.
In July 2007, the import unit value index for agriculture and forestry, mining, manufacturing, raised by 11.3%, 2.6% and 8.7% respectively, as compared with the corresponding month of the preceding year .
From July 2006 to July 2007, the export unit value index for textile and wearing apparel, the major components of the index, increased by 10.6% and 13.8% respectively.
The volume indices for motor vehicles and trailers increased.
In July 2007, compared to July 2006, the volume index of export and import for motor vehicles and trailers went up by 23.2% and 8.6% respectively.
In the year to July, compared with the corresponding month of the preceding year, the export and the import volume index for manufacture of basic metals, one of the important sector within manufacturing sector increased by 6.9% and 82.3% respectively. The export and import unit value indices for the same sector rose by 17.7% and 12.4% respectively
Friday, August 31, 2007
Wednesday, August 29, 2007
The Lira and the Dollar
What a ride we had — from the ocean of liquidity to the desert of uncertainty, as the unwinding of the credit cycle has undermined confidence and led to the sudden withdrawal of market liquidity. Aftershocks of the financial turmoil eased in recent days, but there is still a dichotomy in markets about the future direction of the global economy. For the time being, real economic fundamentals stand strong against a hard-landing scenario. However, even though we have no doubt about structural improvements (especially in emerging economies), the global economy is vulnerable to financial turbulence and a major downturn in the US business cycle. After all, expansionary financial conditions in the last six years had an overwhelming effect on economic activity across the world. Therefore, even if we assume the resilience of structural gains, tighter financial conditions would still have an adverse effect on the real economy. Furthermore, a broader repricing of risks implies a possible contraction in cross-border capital movements that could put pressure on emerging market currencies. In Turkey’s case, for example, the exposure to liquidity-driven capital flows represents the most critical vulnerability.
Nevertheless, having such a ‘weak spot’ does not necessarily mean that there are no cushions to safeguard the economy against exogenous changes in global risk appetite. First, economic fundamentals are now far stronger than at any other time in recent history. Second, the banking sector is robust and liquid enough to provide funding to the troubled European banks. Third, residents accumulated more than US$30 billion in foreign currency-denominated deposits over the last year, which now stands at US$90 billion against foreign investors’ US$32 billion in domestic government debt.
The lira has already depreciated by more than 5% against the dollar in the last couple of days, with a sharp increase in its degree of volatility. Despite all the fundamental improvements in the economy, Turkey remains susceptible to the unwinding of carry trades because of its significant exposure to liquidity-driven capital flows. Foreign investors own about 45 billion lira worth of domestic debt, accounting for 38.1% of non-bank holdings in the country (up from 32.7% at the end of 2006 and 20.7% last summer). The extent of international portfolio investments is not limited to the fixed income market, as foreign investors also hold 72% of free float in the equity market (see The Istan-Bull Paradox, June 13, 2007). Therefore, it would not be surprising to see a global liquidity squeeze and a possible increase in home bias leading to abrupt portfolio and exchange rate adjustments. Given the sensitivity of consumer price inflation to currency fluctuations and changes in inflation expectations, we have no doubt that the deepening of liquidity concerns will affect the timing and magnitude of interest rate reductions.
Yesterday the Hungarian forint snapped a four- day rally against the euro as a decline in global stocks crimped demand for riskier, emerging-market assets. The forint fell from a two-week high as the NTX Index of stocks in central and eastern Europe's 30 biggest companies slipped for the first day in a week. Poland's zloty, Turkey's lira and the Romanian leu all dropped.
Against the euro, the forint fell to 257.68 by 4:42 p.m. in Budapest, from 256.15 late Tuesday.
The Turkish lira fell to 1.3292 per dollar, from 1.3185 Monday, when it touched a two-week high. Turkey's Foreign Minister Abdullah Gul won a parliamentary election to become the country's president today.
The Polish zloty slid 0.1 percent from near a week-high to 3.8305 per euro, while Romania's leu traded at 3.2527 versus the common European currency, from 3.2446.
The Czech koruna rose to 27.681 per euro, from 27.771 yesterday. Investors borrow the koruna at its relatively low 3 percent interest rate to fund higher-yielding purchases elsewhere in the so-called carry trade, so the currency tends to strengthen when they pare riskier investments.
The Slovak koruna was little changed at 33.766 against the euro after the Bratislava-based central bank kept its two-week repurchase rate at 4.25 percent, as forecast by economists surveyed by Bloomberg News.
On Monday
Turkey's lira rose to a two-week high against the dollar as an advance in Asian and European stock markets stoked investor appetite for higher-yielding assets.
The lira added to last week's advance, its best performance in more than a year, as investors bought the currency by borrowing the Japanese yen or Swiss franc more cheaply. The NTX Index of stocks in central and eastern Europe's 30 biggest companies advanced for a fourth day while Istanbul's ISE National 100 index rose the most in almost a week.
``The Turkish lira is mainly driven by risk sentiment,'' said Elisabeth Andreew, chief currency strategist at Nordea Bank AB in Copenhagen.
Against the dollar, the lira gained as much as 1.6 percent to the highest since Aug. 14, and traded at 1.3180 by 4:12 p.m. in Istanbul, from 1.3327 at the end of last week. The currency also rose versus the euro, to 1.7993 from 1.8166 on Aug. 24.
Turkey's government bonds rose, according to an ABN Amro NV index of debt yields.
So-called carry trade investors buy lira-denominated assets because of Turkey's 17.5 percent interest rate, the highest in Europe.
Nevertheless, having such a ‘weak spot’ does not necessarily mean that there are no cushions to safeguard the economy against exogenous changes in global risk appetite. First, economic fundamentals are now far stronger than at any other time in recent history. Second, the banking sector is robust and liquid enough to provide funding to the troubled European banks. Third, residents accumulated more than US$30 billion in foreign currency-denominated deposits over the last year, which now stands at US$90 billion against foreign investors’ US$32 billion in domestic government debt.
The lira has already depreciated by more than 5% against the dollar in the last couple of days, with a sharp increase in its degree of volatility. Despite all the fundamental improvements in the economy, Turkey remains susceptible to the unwinding of carry trades because of its significant exposure to liquidity-driven capital flows. Foreign investors own about 45 billion lira worth of domestic debt, accounting for 38.1% of non-bank holdings in the country (up from 32.7% at the end of 2006 and 20.7% last summer). The extent of international portfolio investments is not limited to the fixed income market, as foreign investors also hold 72% of free float in the equity market (see The Istan-Bull Paradox, June 13, 2007). Therefore, it would not be surprising to see a global liquidity squeeze and a possible increase in home bias leading to abrupt portfolio and exchange rate adjustments. Given the sensitivity of consumer price inflation to currency fluctuations and changes in inflation expectations, we have no doubt that the deepening of liquidity concerns will affect the timing and magnitude of interest rate reductions.
Yesterday the Hungarian forint snapped a four- day rally against the euro as a decline in global stocks crimped demand for riskier, emerging-market assets. The forint fell from a two-week high as the NTX Index of stocks in central and eastern Europe's 30 biggest companies slipped for the first day in a week. Poland's zloty, Turkey's lira and the Romanian leu all dropped.
Against the euro, the forint fell to 257.68 by 4:42 p.m. in Budapest, from 256.15 late Tuesday.
The Turkish lira fell to 1.3292 per dollar, from 1.3185 Monday, when it touched a two-week high. Turkey's Foreign Minister Abdullah Gul won a parliamentary election to become the country's president today.
The Polish zloty slid 0.1 percent from near a week-high to 3.8305 per euro, while Romania's leu traded at 3.2527 versus the common European currency, from 3.2446.
The Czech koruna rose to 27.681 per euro, from 27.771 yesterday. Investors borrow the koruna at its relatively low 3 percent interest rate to fund higher-yielding purchases elsewhere in the so-called carry trade, so the currency tends to strengthen when they pare riskier investments.
The Slovak koruna was little changed at 33.766 against the euro after the Bratislava-based central bank kept its two-week repurchase rate at 4.25 percent, as forecast by economists surveyed by Bloomberg News.
On Monday
Turkey's lira rose to a two-week high against the dollar as an advance in Asian and European stock markets stoked investor appetite for higher-yielding assets.
The lira added to last week's advance, its best performance in more than a year, as investors bought the currency by borrowing the Japanese yen or Swiss franc more cheaply. The NTX Index of stocks in central and eastern Europe's 30 biggest companies advanced for a fourth day while Istanbul's ISE National 100 index rose the most in almost a week.
``The Turkish lira is mainly driven by risk sentiment,'' said Elisabeth Andreew, chief currency strategist at Nordea Bank AB in Copenhagen.
Against the dollar, the lira gained as much as 1.6 percent to the highest since Aug. 14, and traded at 1.3180 by 4:12 p.m. in Istanbul, from 1.3327 at the end of last week. The currency also rose versus the euro, to 1.7993 from 1.8166 on Aug. 24.
Turkey's government bonds rose, according to an ABN Amro NV index of debt yields.
So-called carry trade investors buy lira-denominated assets because of Turkey's 17.5 percent interest rate, the highest in Europe.
Consumer Price Inflation in Turkey August 2007
Consumer price inflation is generally on the decrease in Turkey, although the annualized rate is likely to pick up a little in the next couple of months. 2007 started disappointingly in this respect since a surge in unprocessed food price inflation from 12.9% at the end of 2006 to 20.7% in January pushed the headline inflation figure up. However, the lagged effects of monetary tightening on domestic demand and the gradual correction in food prices have helped to bring inflation dynamics onto a more favourable trajectory and as a result, consumer price inflation eased from 10.9% in March to 8.6% in June and 6.9% last month (see graph below).
This is the lowest inflation reading Turkey has been able to achieve in the past four decades and confirms the secular character of the current disinflation in Turkey.It therefore looks perfectly possible that the CPI headline rate can be in the 6% range by the end of the year and can get below 4% during the second quarter of next year.
It is unrealistic, however, to expect this to be an entirely linear process, and there are bound to be ups and down in store for us along the road. Indeed the year-on-year inflation rate may well increase in the next couple of months. The principal culprits here will undoubtedly be base effects and the behaviour of food prices (see below). There is also the risk emerging from higher volatility in global markets. It is not a secret that inflation — and therefore the monetary policy stance — is susceptible to change in global risk appetite through the effect of this on Turkey's exchange rate.
In Turkey, for example, food prices account for 28.5% of the CPI and thereby can turn into a major source of volatility. Over the last couple of years, food price inflation declined from 12% at the beginning of 2004 to 4.9% at the end of 2005, but then surged to 14.6% earlier this year. Although the year-on-year rate of change in food prices eased to 9.2% last month, as Serhan Cevik points out Turkey is very dependent on meteorological data and thus prices for unprocessed food still face a volatile future.
However, a closer look reveals that there has been a sharp slowdown in private consumption (especially of durable goods that are sensitive to interest rates). In our view, all these real factors have helped in lowering durable goods inflation (excluding gold) from 3.1% at the start of the year to -2.2% in July.
Even the infamously sticky non-tradable inflation eased from 12.2% to 10.2%, contributing to the drop in the seasonally adjusted annualized inflation rate from 12.8% just a few months ago to 2.4% on the last reading (see graph below).
To get some idea of the evolution of Turkish prices over the years, here is a graph of the price index itself from 2003:
This is the lowest inflation reading Turkey has been able to achieve in the past four decades and confirms the secular character of the current disinflation in Turkey.It therefore looks perfectly possible that the CPI headline rate can be in the 6% range by the end of the year and can get below 4% during the second quarter of next year.
It is unrealistic, however, to expect this to be an entirely linear process, and there are bound to be ups and down in store for us along the road. Indeed the year-on-year inflation rate may well increase in the next couple of months. The principal culprits here will undoubtedly be base effects and the behaviour of food prices (see below). There is also the risk emerging from higher volatility in global markets. It is not a secret that inflation — and therefore the monetary policy stance — is susceptible to change in global risk appetite through the effect of this on Turkey's exchange rate.
In Turkey, for example, food prices account for 28.5% of the CPI and thereby can turn into a major source of volatility. Over the last couple of years, food price inflation declined from 12% at the beginning of 2004 to 4.9% at the end of 2005, but then surged to 14.6% earlier this year. Although the year-on-year rate of change in food prices eased to 9.2% last month, as Serhan Cevik points out Turkey is very dependent on meteorological data and thus prices for unprocessed food still face a volatile future.
Global warming is not just about warmer weather, but also — more importantly — leads to unpredictable changes in variability patterns. One of the immediate consequences of extreme weather conditions is droughts with greater severity that cause agricultural supply shocks and higher volatility in food prices (see Stay Tuned to the Weather Channel, August 4, 2006). And we may now be observing such an event on a global scale, as the ratio of stocks to consumption dropped to its lowest reading on record, leading to a sustained increase in food prices. Indeed, virtually every country around the world has experienced a surge in food prices and consequently pressures on headline inflation rates.
Serhan Cevik, Morgan Stanley
However, a closer look reveals that there has been a sharp slowdown in private consumption (especially of durable goods that are sensitive to interest rates). In our view, all these real factors have helped in lowering durable goods inflation (excluding gold) from 3.1% at the start of the year to -2.2% in July.
Even the infamously sticky non-tradable inflation eased from 12.2% to 10.2%, contributing to the drop in the seasonally adjusted annualized inflation rate from 12.8% just a few months ago to 2.4% on the last reading (see graph below).
To get some idea of the evolution of Turkish prices over the years, here is a graph of the price index itself from 2003:
The quality of disinflation has improved in the past couple of months, as the seasonally adjusted annualised inflation rate over three months moved from 12.8% in April to 6.1% in June and 2.4% last month. Deflationary pressures on tradable goods have certainly played an important role, lowering durable goods prices (excluding gold) by 2.2% in July. Although the lira’s appreciation had an obvious effect, the key factor is still the correction in domestic demand, in our view. The growth rate of consumer spending dropped from 9.9% in the first half of last year to 1.3% in the second half and 1.6% in the first quarter of this year. No wonder, even non-tradable inflation showed a slow but steady improvement, declining from 12.2% at the end of 2006 to 10.2% last month. This is why we expect consumer price inflation to come down to 6.2% by the end of the year and then just below 4% in the second quarter of next year. However, there are early signs of recovery in domestic demand and the unwinding of carry trades could also easily turn into a source of inflation. Therefore, we expect the Central Bank of Turkey to remain on hold in the coming months and to initiate a gradual, measured easing cycle as long as the inflation trend moves in line with its target
Sehan Cevik, Morgan Stanley
Tuesday, August 28, 2007
Turkey Demography
One of the central arguments of this blog is going to be that Demography Matters, especially in an economic context. One of the key points about why one can have a certain confidence that Turkey is now on a serious and sustained growth path, is that the age structure is arriving at just the right point to be able to really take advantage of a process known as the demographic dividend. Nowhere is this favourable movement in Turkey's age structure clearer than in the steady upward rise in the median age.
Two things should be immediately evident here. Firstly that during all those years of - often dramatic - economic instability Turkey's median age was fluctuating in the 20 to 24 range. Evidently a very difficult age this. Secondly, since 2000 Turkey's median age has been steadily climbing up the 25 - 30 range, and at this rate Turkey should enter the 30 age group - a very good period for sustained economic growth this - sometime after 2012.
Now one of the reasons that Turkey's median age has been rising has been the fact that Turkish fertility has been falling steadily.
As can be seen from the graph Turkey is now below the standard replacement fertility level of 2.1 (and has been since the late 1990s, at least if you accept the US census bureau data (which differs slightly from the Turkish Statistical Office version).
Another reason for the continuing rise in median ages is, naturally, the increase in Turkish life expectancy which has been taking place:
Two things should be immediately evident here. Firstly that during all those years of - often dramatic - economic instability Turkey's median age was fluctuating in the 20 to 24 range. Evidently a very difficult age this. Secondly, since 2000 Turkey's median age has been steadily climbing up the 25 - 30 range, and at this rate Turkey should enter the 30 age group - a very good period for sustained economic growth this - sometime after 2012.
Now one of the reasons that Turkey's median age has been rising has been the fact that Turkish fertility has been falling steadily.
As can be seen from the graph Turkey is now below the standard replacement fertility level of 2.1 (and has been since the late 1990s, at least if you accept the US census bureau data (which differs slightly from the Turkish Statistical Office version).
Another reason for the continuing rise in median ages is, naturally, the increase in Turkish life expectancy which has been taking place:
Erdogan, The Turkish Army and Asset Sales
From Bloomberg today:
Erdogan, Gul Widen Army Rift, Gain Freer Hand on Turkish Sales
Turkish Prime Minister Recep Tayyip Erdogan, who chose a shining light bulb as his party's symbol, is struggling to keep the power on.
Turkey's largely state-owned electricity industry had trouble coping with high demand in the record temperatures of July and August. Now that Erdogan has won re-election to a second five-year term, he can proceed with plans to privatize the power companies.
``The state doesn't have the necessary funds to solve these problems,'' says Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul. ``One advantage of privatization is the chance for more investment.''
In the electricity crisis, Erdogan, 53, whose Justice and Development Party sold more state assets in its first five years in office than all of his predecessors combined, is a victim of his own success. Turkey needs more power because its factories are humming, and wealthier Turks are demanding more and better services after 21 straight quarters of growth. Turkey's gross domestic product has expanded an average of 7 percent a year since Erdogan's party was first elected in 2002. Per-capita GDP has doubled, to $5,500. Erdogan promised to lift the number to $10,000 in a second five-year term.
The strategy worked. Erdogan's Justice and Development Party, known by its Turkish acronym AKP, won 47 percent of the vote, the biggest plurality in more than four decades.
Assets for Sale
The win gives Erdogan the freedom to step up the sale of state companies and push for new foreign investment. It also may widen the rift with the Turkish army. The country's military has questioned Erdogan's commitment to the secular system that's been in place since 1923, when Mustafa Kemal Ataturk founded the modern Turkish republic. The military forced the government to call early elections by challenging Erdogan's nominee for president, Foreign Minister Abdullah Gul. In the wake of Erdogan's election victory, the AKP nominated Gul, 57, again.
A majority of lawmakers backed Gul's candidacy in the initial stages of voting for a new head of state last week. That means he has enough support to ensure his election when the parliament meets for a third round of voting on Tuesday.
``We'll definitely have a new president in Mr. Gul,'' says Hasan Koni, professor at Bahcesehir University in Istanbul and a former lecturer at a military academy. ``Erdogan and Gul will work together to help Turkey's democratic and economic development. Meanwhile the military has become like a lion that's been shot -- more dangerous.''
`What Do They Want?'
Barry Rubin, a researcher at the Global Research in International Affairs Center in Herzliya, Israel, says the election establishes Justice and Development as a long-term ruling party.
``Now they can do what they want,'' says Rubin, who also is editor of the journal ``Turkish Studies.'' ``The question is, What do they want?''
One thing Erdogan says he wants is to put power stations, regional electricity grids and the national lottery on the block. Earlier this year, his government sold the right to operate a group of airports in Istanbul and the resort of Antalya for $5.8 billion. And in early July, after years of delay, Petkim Petrokimya Holding AS, a state-owned chemicals maker, was sold for $2.05 billion to a group of Russian and Kazakh investors.
Foreign direct investment is also booming. It rose to a record $19.8 billion in 2006 and totaled $11 billion for the first five months of 2007.
Bank Stocks
Turkey's banks have been the chief target. In January, Citigroup Inc. paid $3.1 billion for a 20 percent stake in Akbank TAS, Turkey's biggest company by market value. Amsterdam- based ING Groep NV agreed in June to pay $2.67 billion for Oyak Bank AS.
Bank stocks have driven gains in Turkey's stock market. Shares of Turkiye Garanti Bankasi AS, a lender in which General Electric Co. has a 26 percent stake, rose 82 percent in the 12 months ended on Aug. 24. The benchmark ISE National 100 Index jumped 28 percent this year as of Aug. 24, even with sharp corrections in April and July.
``We expect strong growth in banking,'' says Hayri Culhaci, executive vice president of Akbank. ``It's still the most-bullish sector in Turkey.'' He says loan issuance will expand about 25 percent this year and 35 percent in 2008 as interest rates drop. The central bank has kept its benchmark rate at 17.5 percent since July of last year and says cuts are possible in the fourth quarter.
Budget Deficit
Erdogan says keeping the budget deficit under control is a top priority. In 2001, Turkey paid more interest on the national debt than it collected in tax revenue. The country's 2006 budget deficit, at 4 billion liras ($3.1 billion), or 0.7 percent of economic output, was smaller in percentage terms than those of European Union members France and Germany. Inflation, as high as 70 percent in 2002, hit a 37-year low of 6.9 percent in July.
Turkey's fiscal restraint loosened ahead of the election, as Erdogan increased spending on government salaries, municipal services and health care and extended roads and water pipes to rural villages, where the AKP is strong. In the first half of the year, outlays excluding interest payments jumped 26 percent from a year earlier, to 73 billion liras, according to Finance Ministry figures.
Central Bank Governor Durmus Yilmaz said at a press conference in Ankara on July 27 that the government needs to cut spending in the second half of the year to ensure it hits an International Monetary Fund-backed budget surplus target, before interest payments, equal to 6.5 percent of economic output. The bank might postpone interest rate cuts if the government fails to hit the mark, Yilmaz, 60, said.
`Fiscal Hammer'
Tolga Ediz, an economist at Lehman Brothers Holdings Inc. in London, says that with growth at 7 percent, the economy is in danger of overheating.
``They need to put the fiscal hammer down in the next few years, as confidence comes back, rates come down and capital flows in,'' Ediz says. ``The economy's going to kick off now, and you need a really tight policy.''
Turkey's budget targets have been in place since it negotiated an economic plan with the IMF in 2002. The government pledged to curb spending and sell state companies in exchange for about $23 billion in IMF loans. The government hasn't said whether it will maintain its ties with the fund once the accord ends in May 2008.
IMF Role
Kubilay Cinemre, head of the Turkish office of Merrill Lynch & Co., credits IMF-backed spending cuts with bringing inflation down and attracting buyers for the country's bonds. Foreign ownership of Turkey's domestic debt has risen almost 10- fold in the past four years to about $36 billion, according to the country's bank regulator.
``The IMF is still injecting a certain degree of credibility into Turkey's overall economic policy,'' Cinemre says. ``The IMF connection should continue.''
Alongside IMF loans, Turkey's bid for membership in the EU has served as a guarantee for investors that the country will stick with its economic program.
Erdogan's fresh mandate may help him revive stalled EU talks. Until now, he's delayed addressing EU demands that Turkey expand the rights of its Kurdish minority and repeal Article 301 of the country's penal code, which forbids ``insulting Turkish national identity.''
The law was used to prosecute Nobel Prize-winning novelist Orhan Pamuk after he said that Turks had massacred Armenians during World War I. The charges were dismissed in January 2006.
Tread Softly
Political changes in Europe haven't helped Turkey's bid. German Chancellor Angela Merkel and French President Nicolas Sarkozy both oppose Turkish membership and favor a ``special partnership'' instead.
Even with his election win, Erdogan must still tread softly in his dealings with Turkey's army, whose leaders are suspicious of the AKP's religious roots. Erdogan and Foreign Minister Gul both started out in politics as members of the Welfare Party, which was pushed out of office by the army in 1997 and shut down by the courts a year later for alleged Islamist activities.
Erdogan and Gul's wives wear the Islamic-style head-scarf that's barred in state offices and universities under Turkish law. The politicians say they favor an end to that ban, though they took no steps to repeal the law during the AKP's first term.
Army Mistrust
Erdogan and Gul say the AKP is a conservative party rather than a religiously motivated one and that they support the separation of Islam and the state. They oppose the headscarf ban and similar laws, they say, because they are restrictions on free speech.
Army mistrust of the AKP government peaked in April, when Erdogan sought to replace the secularist president, Ahmet Necdet Sezer, whose term was expiring, with Gul. (The president, who has final say on the appointment of top judges and the central bank president, is elected by parliament.)
On April 27, Turkey's generals, who have ousted four governments since 1960, posted a late-night statement on the General Staff Web site criticizing Gul's presidential bid. ``It should not be forgotten that the armed forces are the determined defenders of secularism,'' the statement said.
Turkey's benchmark stock index slid more than 7 percent in the two days following the army warning.
The Constitutional Court then canceled the vote for the presidency, ruling that an opposition boycott meant there wasn't a quorum. That forced Erdogan to bring the general election forward to July from November, with Sezer, 66, staying on as president.
This time, fewer lawmakers are staying away from the presidential vote. On Tuesday, in the third round of voting, Gul will need only a simple majority, instead of the two-thirds majority required in the two previous rounds.
Erdogan's election victory suggests that for Turks who have prospered under his rule, concerns about Gul's secular credentials count for less than the fact that the country's economy is enjoying its most-productive period since World War II.
Erdogan, Gul Widen Army Rift, Gain Freer Hand on Turkish Sales
Turkish Prime Minister Recep Tayyip Erdogan, who chose a shining light bulb as his party's symbol, is struggling to keep the power on.
Turkey's largely state-owned electricity industry had trouble coping with high demand in the record temperatures of July and August. Now that Erdogan has won re-election to a second five-year term, he can proceed with plans to privatize the power companies.
``The state doesn't have the necessary funds to solve these problems,'' says Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul. ``One advantage of privatization is the chance for more investment.''
In the electricity crisis, Erdogan, 53, whose Justice and Development Party sold more state assets in its first five years in office than all of his predecessors combined, is a victim of his own success. Turkey needs more power because its factories are humming, and wealthier Turks are demanding more and better services after 21 straight quarters of growth. Turkey's gross domestic product has expanded an average of 7 percent a year since Erdogan's party was first elected in 2002. Per-capita GDP has doubled, to $5,500. Erdogan promised to lift the number to $10,000 in a second five-year term.
The strategy worked. Erdogan's Justice and Development Party, known by its Turkish acronym AKP, won 47 percent of the vote, the biggest plurality in more than four decades.
Assets for Sale
The win gives Erdogan the freedom to step up the sale of state companies and push for new foreign investment. It also may widen the rift with the Turkish army. The country's military has questioned Erdogan's commitment to the secular system that's been in place since 1923, when Mustafa Kemal Ataturk founded the modern Turkish republic. The military forced the government to call early elections by challenging Erdogan's nominee for president, Foreign Minister Abdullah Gul. In the wake of Erdogan's election victory, the AKP nominated Gul, 57, again.
A majority of lawmakers backed Gul's candidacy in the initial stages of voting for a new head of state last week. That means he has enough support to ensure his election when the parliament meets for a third round of voting on Tuesday.
``We'll definitely have a new president in Mr. Gul,'' says Hasan Koni, professor at Bahcesehir University in Istanbul and a former lecturer at a military academy. ``Erdogan and Gul will work together to help Turkey's democratic and economic development. Meanwhile the military has become like a lion that's been shot -- more dangerous.''
`What Do They Want?'
Barry Rubin, a researcher at the Global Research in International Affairs Center in Herzliya, Israel, says the election establishes Justice and Development as a long-term ruling party.
``Now they can do what they want,'' says Rubin, who also is editor of the journal ``Turkish Studies.'' ``The question is, What do they want?''
One thing Erdogan says he wants is to put power stations, regional electricity grids and the national lottery on the block. Earlier this year, his government sold the right to operate a group of airports in Istanbul and the resort of Antalya for $5.8 billion. And in early July, after years of delay, Petkim Petrokimya Holding AS, a state-owned chemicals maker, was sold for $2.05 billion to a group of Russian and Kazakh investors.
Foreign direct investment is also booming. It rose to a record $19.8 billion in 2006 and totaled $11 billion for the first five months of 2007.
Bank Stocks
Turkey's banks have been the chief target. In January, Citigroup Inc. paid $3.1 billion for a 20 percent stake in Akbank TAS, Turkey's biggest company by market value. Amsterdam- based ING Groep NV agreed in June to pay $2.67 billion for Oyak Bank AS.
Bank stocks have driven gains in Turkey's stock market. Shares of Turkiye Garanti Bankasi AS, a lender in which General Electric Co. has a 26 percent stake, rose 82 percent in the 12 months ended on Aug. 24. The benchmark ISE National 100 Index jumped 28 percent this year as of Aug. 24, even with sharp corrections in April and July.
``We expect strong growth in banking,'' says Hayri Culhaci, executive vice president of Akbank. ``It's still the most-bullish sector in Turkey.'' He says loan issuance will expand about 25 percent this year and 35 percent in 2008 as interest rates drop. The central bank has kept its benchmark rate at 17.5 percent since July of last year and says cuts are possible in the fourth quarter.
Budget Deficit
Erdogan says keeping the budget deficit under control is a top priority. In 2001, Turkey paid more interest on the national debt than it collected in tax revenue. The country's 2006 budget deficit, at 4 billion liras ($3.1 billion), or 0.7 percent of economic output, was smaller in percentage terms than those of European Union members France and Germany. Inflation, as high as 70 percent in 2002, hit a 37-year low of 6.9 percent in July.
Turkey's fiscal restraint loosened ahead of the election, as Erdogan increased spending on government salaries, municipal services and health care and extended roads and water pipes to rural villages, where the AKP is strong. In the first half of the year, outlays excluding interest payments jumped 26 percent from a year earlier, to 73 billion liras, according to Finance Ministry figures.
Central Bank Governor Durmus Yilmaz said at a press conference in Ankara on July 27 that the government needs to cut spending in the second half of the year to ensure it hits an International Monetary Fund-backed budget surplus target, before interest payments, equal to 6.5 percent of economic output. The bank might postpone interest rate cuts if the government fails to hit the mark, Yilmaz, 60, said.
`Fiscal Hammer'
Tolga Ediz, an economist at Lehman Brothers Holdings Inc. in London, says that with growth at 7 percent, the economy is in danger of overheating.
``They need to put the fiscal hammer down in the next few years, as confidence comes back, rates come down and capital flows in,'' Ediz says. ``The economy's going to kick off now, and you need a really tight policy.''
Turkey's budget targets have been in place since it negotiated an economic plan with the IMF in 2002. The government pledged to curb spending and sell state companies in exchange for about $23 billion in IMF loans. The government hasn't said whether it will maintain its ties with the fund once the accord ends in May 2008.
IMF Role
Kubilay Cinemre, head of the Turkish office of Merrill Lynch & Co., credits IMF-backed spending cuts with bringing inflation down and attracting buyers for the country's bonds. Foreign ownership of Turkey's domestic debt has risen almost 10- fold in the past four years to about $36 billion, according to the country's bank regulator.
``The IMF is still injecting a certain degree of credibility into Turkey's overall economic policy,'' Cinemre says. ``The IMF connection should continue.''
Alongside IMF loans, Turkey's bid for membership in the EU has served as a guarantee for investors that the country will stick with its economic program.
Erdogan's fresh mandate may help him revive stalled EU talks. Until now, he's delayed addressing EU demands that Turkey expand the rights of its Kurdish minority and repeal Article 301 of the country's penal code, which forbids ``insulting Turkish national identity.''
The law was used to prosecute Nobel Prize-winning novelist Orhan Pamuk after he said that Turks had massacred Armenians during World War I. The charges were dismissed in January 2006.
Tread Softly
Political changes in Europe haven't helped Turkey's bid. German Chancellor Angela Merkel and French President Nicolas Sarkozy both oppose Turkish membership and favor a ``special partnership'' instead.
Even with his election win, Erdogan must still tread softly in his dealings with Turkey's army, whose leaders are suspicious of the AKP's religious roots. Erdogan and Foreign Minister Gul both started out in politics as members of the Welfare Party, which was pushed out of office by the army in 1997 and shut down by the courts a year later for alleged Islamist activities.
Erdogan and Gul's wives wear the Islamic-style head-scarf that's barred in state offices and universities under Turkish law. The politicians say they favor an end to that ban, though they took no steps to repeal the law during the AKP's first term.
Army Mistrust
Erdogan and Gul say the AKP is a conservative party rather than a religiously motivated one and that they support the separation of Islam and the state. They oppose the headscarf ban and similar laws, they say, because they are restrictions on free speech.
Army mistrust of the AKP government peaked in April, when Erdogan sought to replace the secularist president, Ahmet Necdet Sezer, whose term was expiring, with Gul. (The president, who has final say on the appointment of top judges and the central bank president, is elected by parliament.)
On April 27, Turkey's generals, who have ousted four governments since 1960, posted a late-night statement on the General Staff Web site criticizing Gul's presidential bid. ``It should not be forgotten that the armed forces are the determined defenders of secularism,'' the statement said.
Turkey's benchmark stock index slid more than 7 percent in the two days following the army warning.
The Constitutional Court then canceled the vote for the presidency, ruling that an opposition boycott meant there wasn't a quorum. That forced Erdogan to bring the general election forward to July from November, with Sezer, 66, staying on as president.
This time, fewer lawmakers are staying away from the presidential vote. On Tuesday, in the third round of voting, Gul will need only a simple majority, instead of the two-thirds majority required in the two previous rounds.
Erdogan's election victory suggests that for Turks who have prospered under his rule, concerns about Gul's secular credentials count for less than the fact that the country's economy is enjoying its most-productive period since World War II.
Thursday, August 16, 2007
Turkish Lira Drops on Subprime Crisis
From Bloomberg today:
Turkish Lira Drops on Subprime Crisis; World's Worst Performer
By Yon Pulkrabek
Aug. 16 (Bloomberg) -- The Turkish lira fell 4.5 percent, the most of any currency against the dollar, as so-called carry trades unwind amid the spreading credit crunch.
The lira dropped the most since May 2006, leading other emerging-market currencies lower, including Iceland's krona and the Thai baht. Credit-default swaps trading showed the risk of holding corporate bonds increased, and UBS AG's risk index soared to a record on rising volatility in stocks and currencies.
``Turkey is looking very, very risky at the moment,'' said Lars Christensen, senior strategist at Danske Bank A/S in Copenhagen.
The lira traded at 1.3926 to the dollar by 5:50 p.m. in Istanbul, after earlier dropping 6 percent to the lowest since March, from 1.3325 yesterday. Turkey's currency has dropped 7 percent versus the dollar since the beginning of this month.
Turkish bonds declined for a third day, with the ABN Amro NV index of government yields rising to the highest since May.
Turkey's benchmark ISE National 100 Index of stocks fell 7 percent. More than $3.6 trillion has been wiped off global stock markets since June 23.
Turkey ``is the biggest'' European destination for emerging- market funds for many investors, said Lucy Bethell, currency strategist at Royal Bank of Scotland in London. ``People are thinking this crisis is going to be the crisis of the year.''
Crisis Spreads
Investors continued to cut back on riskier investments on signs the U.S. subprime mortgage crisis is still spreading.
Australian mortgage lender Rams Home Loans Group Ltd. failed to refinance $5 billion of short-term U.S. loans, while Canada's Coventree Inc. said it was seeking emergency funding to refinance debt after its units failed to sell asset-backed commercial paper yesterday.
The Polish zloty weakened for a third day, touching a two- month low and recently trading at 3.8345 per euro, from 3.8169.
Hungary's forint fell for a sixth day to 260.28 per euro from 258.73, after earlier sliding to the lowest since November. The Slovak koruna dropped to a 1 1/2-month low against the euro, and was recently at 33.770, from 33.624 yesterday.
``It's the unwinding of'' carry trades, funded by borrowing currencies like the yen more cheaply, that's pushing these higher-yielding currencies down, said Debbie Orgill, London-based senior economist at ABN Amro Holding NV.
The Czech koruna, also used to fund carry trades, rose to 27.557 per euro, from 27.862 yesterday, it's largest daily gain in more than four years.
``The Czech koruna is going to be among the best-supported because it's a regional funding currency,'' said Jon Harrison, strategist at Dresdner Kleinwort in London. ``It's clearly the regional safe haven.''
In the government bond market, the yield on Poland's 4.25 percent note due May 2011 rose 3 basis points to 5.64 percent, while the yield on Hungary's 6.75 percent bond due February 2017 gained 9 basis points to 6.95 percent.
Turkish Lira Drops on Subprime Crisis; World's Worst Performer
By Yon Pulkrabek
Aug. 16 (Bloomberg) -- The Turkish lira fell 4.5 percent, the most of any currency against the dollar, as so-called carry trades unwind amid the spreading credit crunch.
The lira dropped the most since May 2006, leading other emerging-market currencies lower, including Iceland's krona and the Thai baht. Credit-default swaps trading showed the risk of holding corporate bonds increased, and UBS AG's risk index soared to a record on rising volatility in stocks and currencies.
``Turkey is looking very, very risky at the moment,'' said Lars Christensen, senior strategist at Danske Bank A/S in Copenhagen.
The lira traded at 1.3926 to the dollar by 5:50 p.m. in Istanbul, after earlier dropping 6 percent to the lowest since March, from 1.3325 yesterday. Turkey's currency has dropped 7 percent versus the dollar since the beginning of this month.
Turkish bonds declined for a third day, with the ABN Amro NV index of government yields rising to the highest since May.
Turkey's benchmark ISE National 100 Index of stocks fell 7 percent. More than $3.6 trillion has been wiped off global stock markets since June 23.
Turkey ``is the biggest'' European destination for emerging- market funds for many investors, said Lucy Bethell, currency strategist at Royal Bank of Scotland in London. ``People are thinking this crisis is going to be the crisis of the year.''
Crisis Spreads
Investors continued to cut back on riskier investments on signs the U.S. subprime mortgage crisis is still spreading.
Australian mortgage lender Rams Home Loans Group Ltd. failed to refinance $5 billion of short-term U.S. loans, while Canada's Coventree Inc. said it was seeking emergency funding to refinance debt after its units failed to sell asset-backed commercial paper yesterday.
The Polish zloty weakened for a third day, touching a two- month low and recently trading at 3.8345 per euro, from 3.8169.
Hungary's forint fell for a sixth day to 260.28 per euro from 258.73, after earlier sliding to the lowest since November. The Slovak koruna dropped to a 1 1/2-month low against the euro, and was recently at 33.770, from 33.624 yesterday.
``It's the unwinding of'' carry trades, funded by borrowing currencies like the yen more cheaply, that's pushing these higher-yielding currencies down, said Debbie Orgill, London-based senior economist at ABN Amro Holding NV.
The Czech koruna, also used to fund carry trades, rose to 27.557 per euro, from 27.862 yesterday, it's largest daily gain in more than four years.
``The Czech koruna is going to be among the best-supported because it's a regional funding currency,'' said Jon Harrison, strategist at Dresdner Kleinwort in London. ``It's clearly the regional safe haven.''
In the government bond market, the yield on Poland's 4.25 percent note due May 2011 rose 3 basis points to 5.64 percent, while the yield on Hungary's 6.75 percent bond due February 2017 gained 9 basis points to 6.95 percent.
Wednesday, August 01, 2007
Turkey Plans Spending Cuts
From Bloomberg this morning:
Turkey to Cut Spending, Lower Target for Budget Gap
By Steve Bryant
Aug. 1 (Bloomberg) -- Turkey cut planned government spending this year by 3.1 billion liras ($2.4 billion) as it seeks to meet budget targets agreed with the International Monetary Fund and open the way for interest rate cuts.
The government cut its spending target for the year to 148.9 billion liras, and also lifted its revenue target by 2.8 percent to 193.3 billion liras, the Finance Ministry in Ankara said in a report on its Web site today. The revisions mean the country targets a budget deficit of 1.3 percent of gross national product this year, compared with a 2.7 percent target in the original budget announced in October last year, the ministry said.
Turkey loosened budget discipline in the first half of the year as tax income rose more slowly than planned and the government spent on farms and infrastructure ahead of parliamentary elections on July 22. The higher spending may delay cuts to the central bank's benchmark interest rate, governor Durmus Yilmaz said on July 27.
The revisions are ``positive, but we need a detailed statement on how they'll achieve them,'' said Sertan Kargin, economist for TEB Investment in Istanbul. ``We've seen an explosion in pre-election spending on agriculture and municipalities and they'll have to rebalance the spending side.''
The Justice and Development Party won re-election after campaigning on its record of budgetary discipline and economic growth. The government reduced the budget deficit last year to 0.7 percent of economic output from more than 14 percent when it was first elected in 2002.
`Non-Priority Activities'
The spending reductions this year will come from ``determined implementation of cuts and savings on non-priority activities and projects,'' the ministry said in its statement.
Tax income for the year will be 157.9 billion liras, lower than the 158.2 billion originally targeted in the budget, the statement said. The revenue increase will come from sales of assets such as the phone company Turk Telekomunikasyon AS, it said.
Turkey's IMF accord demands a budget surplus, not including interest payments, of 6.5 percent of economic output every year. The IMF doesn't include one-off items such as asset sales income when it calculates Turkey's budget performance.
The central bank may lower interest rates in the last quarter of the year ``if we see that measures have been taken'' to trim the budget, Governor Yilmaz said in Ankara on July 27.
The bank raised its benchmark interest rate by 4.25 percentage points to 17.5 percent, the highest in Europe, in three moves in June and July last year.
Turkey to Cut Spending, Lower Target for Budget Gap
By Steve Bryant
Aug. 1 (Bloomberg) -- Turkey cut planned government spending this year by 3.1 billion liras ($2.4 billion) as it seeks to meet budget targets agreed with the International Monetary Fund and open the way for interest rate cuts.
The government cut its spending target for the year to 148.9 billion liras, and also lifted its revenue target by 2.8 percent to 193.3 billion liras, the Finance Ministry in Ankara said in a report on its Web site today. The revisions mean the country targets a budget deficit of 1.3 percent of gross national product this year, compared with a 2.7 percent target in the original budget announced in October last year, the ministry said.
Turkey loosened budget discipline in the first half of the year as tax income rose more slowly than planned and the government spent on farms and infrastructure ahead of parliamentary elections on July 22. The higher spending may delay cuts to the central bank's benchmark interest rate, governor Durmus Yilmaz said on July 27.
The revisions are ``positive, but we need a detailed statement on how they'll achieve them,'' said Sertan Kargin, economist for TEB Investment in Istanbul. ``We've seen an explosion in pre-election spending on agriculture and municipalities and they'll have to rebalance the spending side.''
The Justice and Development Party won re-election after campaigning on its record of budgetary discipline and economic growth. The government reduced the budget deficit last year to 0.7 percent of economic output from more than 14 percent when it was first elected in 2002.
`Non-Priority Activities'
The spending reductions this year will come from ``determined implementation of cuts and savings on non-priority activities and projects,'' the ministry said in its statement.
Tax income for the year will be 157.9 billion liras, lower than the 158.2 billion originally targeted in the budget, the statement said. The revenue increase will come from sales of assets such as the phone company Turk Telekomunikasyon AS, it said.
Turkey's IMF accord demands a budget surplus, not including interest payments, of 6.5 percent of economic output every year. The IMF doesn't include one-off items such as asset sales income when it calculates Turkey's budget performance.
The central bank may lower interest rates in the last quarter of the year ``if we see that measures have been taken'' to trim the budget, Governor Yilmaz said in Ankara on July 27.
The bank raised its benchmark interest rate by 4.25 percentage points to 17.5 percent, the highest in Europe, in three moves in June and July last year.
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