Not Bahceli, all economy

Turkey will go to the polls at an unprecedented pace. On top of that, this election will put in force some crucial systemic changes to Turkey’s democracy.

To hold such a critical election 16 months before its scheduled date, in the absence of adjustment laws needed to transition to an executive presidency and at such high speed - just 67 days before polling, indicates some serious alarm bells ringing in Ankara. Indeed, there are, and they are all economic.

The economy has become so fragile that it can blow up with any accident. Last year’s growth rate of 7.4 percent, far from reducing vulnerabilities, has increased them.

The annual current account deficit soared by 56.3 percent to $53.35 billion in February. The current account deficit to GDP ratio slipped into high risk territory at 6.27 percent.

As a result, the foreign fund structure has deteriorated. Total short-term capital inflows increased by 216.3 percent in February, whereas long term capital inflows decreased by 31.2 percent.

While foreign capital inflows are increasingly short-term and risky, short-term liabilities – foremost in the private sector – are in an alarming state. That leads to more volatility, and upward curve, in foreign exchange rates.

Foreign funding distress curbs credit expansion. Despite all the incentives, credit expansion can barely catch the inflation rate. And that’s a signal of a slow-down in the economy.

A heavily indebted real sector has difficulties paying its debts which increases bad loans for banks. Major corporations negotiating with banks to postpone their multi-billion dollars of debt is a clear sign of this.

What does that mean for Main Street? Inflation and unemployment will rise. The section of society which didn’t receive any share of the wealth created with a 7.4 percent growth last year will suffer even more with double digit inflation and unemployment.

In short, this economy couldn’t survive even until the autumn.