Why can’t we grow?
Because earnings are low. Earnings are low because productivity is low. Profits are also low because firms are heavily indebted, in both FX and TL terms, and EBITDAs don’t translate into the bottom line to shore up equity capital.
Because equity capital is weak, debt takes its place and the vicious cycle continues.
The other side of the coin is: because capital is scarce given high growth and prosperity ambitions – with a retrograde and deteriorating education and university system, things get worse day by day – it all depends on foreign capital inflows, mostly portfolio inflows.
Because the financial account deteriorates as the graphic depicts, growth falls. They go hand in hand.
Because the financial account is going sideways, reserves are being depleted, except of course episodes of somehow booming net errors & omissions. FDI is nothing compared to the financial account.
This is a typical middle-income trap. Unless Prometheus is unbound by chance, it warrants a conscious government-driven all-encompassing initiative.
The private sector alone can’t do it; it has proven this incapacity many times. The private sector is not only myopic, but it is dependent on subsidies, tax amnesties, credit guarantee funds, selected incentives –mostly conditional upon political affiliations- and the like.
The private sector itself struggles to survive these days, and can’t orchestrate a technologically driven investment wave well-ordered within a comprehensive macro framework.
Portfolio inflows don’t help much either. The trend-wise decoupling from EMs over the last 6 years is now clearly visible.
There is never a sudden stop, reminiscent of the 1990s, but the ‘slow death’ endures. Because old generation EM crises are now out of joint with financial realities, the new trend is a slow decay. Everything takes time now.