Normalization?

We have had a very turbulent summer that caused despair, intensified uncertainties and affected basic prices. After the summer, there was some relief; things got relatively calmer prompting some to claim things were going “back to normal.” Official sources, of course, jubilantly praised this return to normalcy. However, outside of certain media outlets, the normalization discourse has not created much joy. A cloud of mistrust remains, pessimism has not dissipated completely and there has been no significant improvement in economic prospects.

In fact, the narrative of normalization is based on a small number of recent developments, most of which are not sustainable. An important example is the development in exchange rates in November. The dollar fell to 5.13 at the end of the month after topping 7 liras in August. This undoubtedly is something to be satisfied about but it is not entirely caused by positive developments in Turkey’s economy - developments in international markets also had an effect. As you may recall, there has been a trend towards developing markets over the past month, and there has been a significant flow of hot money after a long period of stagnation. To a more limited degree, we had a similar situation. The increase in the supply of foreign exchange dues to the inflow pushed down the currency.

We say: “Okay, this is the normal.” But in fact, we are not a stranger to this development; we have enough knowledge and experience on this subject. We know that the hot money inflow can be reversed for reasons independent of our own economic health, and that it would be misleading to develop a thesis or discourse based on such a market operation. As a matter of fact, despite the normalization rhetoric, the fact that the perception of the Turkish lira has not changed shows that people are not convinced; there is still a widespread expectation that the dollar will go through the roof. The decline in inflation in the last month is another pillar of the normalization discourse. (Alaattin Aktas explains the situation here in detail in his article on page 13).

The signs of recovery observed in our foreign payments in recent months also serve as the basis for the discourse of normalization. There is a significant decline in the current account deficit. Official sources say that this development indicates that the Turkish economy has shifted to a positive course. But the reality is different. The downward trend in the current account deficit is not a positive development. On the contrary, what lies behind it is rapidly slowing growth because of the volatile decline in imports due to a slowdown in the economy. For this reason, the rhetoric that these developments will be stable and bring the Turkish economy on a sustainable course is nothing more than empty rhetoric. On the contrary, when the economy starts to grow again, we will see that the table will rapidly reverse, and that the current account deficit will grow once again.