“I wish we hadn’t given up on this competitive exchange rate policy,” we think. We would have taken steps to reduce the value of our currency, thus embarking on a path where exports would increase and imports would slow down. We would no longer have a current account problem. We were getting ready to reap the fruits of this new policy, when we came out with a full U-turn on December 20, saying “We gave up. There is no competitive exchange rate anymore, there is valuable TRY.”
It was already clear that the policy we call the competitive exchange rate policy was not working very well. Foreign trade data in the last three months of last year revealed neither a significant increase in exports nor a decline in imports. Nothing much has changed. The competitive exchange rate policy was a complete failure. We are still experiencing the costs caused by this policy. We hit a new record with the release of foreign trade data in January, the first month after the exchange rate, which was raised willingly and by force, was lowered on December 20 by following a thousand methods, namely resorting to foreign exchange reserves. But this record is a record in a negative sense. It turned out that we had a very bad start to the new year in foreign trade. The data released on February 2 by the Ministry of Commerce revealed that we had a USD 10.4bn foreign trade deficit in January, the second highest foreign trade deficit in a single month throughout the entire history of the Republic of Turkey. While exports were USD 17.6bn in January, imports exceeded USD 28bn. Previously, the highest monthly deficit was in September 2011, USD 10.5bn. It is not common for the trade deficit to exceed USD10bn.
The exports/imports coverage ratio in January decreased by exactly 20 points to 62.8% compared to the previous year, according to the Ministry of Commerce. This decline was mainly due to the increase in energy imports. Energy imports in January exceeded USD 8bn. Accordingly, non-energy imports amounted to 19.9 billion dollars.
Even when energy data is excluded, the exports/imports coverage ratio remains below last year’s, decreasing by 5.6 points to 88.3%.
We are acting as if Turkey has left its account deficit problem behind. This month’s USD 2.7bn deficit, after months of surplus, had or should have had a grounding effect, but there were still those who acted as if the problem was over. We had a trade deficit of USD 6.8bn in December and USD 10.4bn in January. There was neither tourism income nor any other significant income to close the trade deficit in these months.
The trade deficit in December and January will make up at least half the current account deficit. In other words, we should expect to have a current account deficit of around USD 9bn in December and January.
That means that the annualized current account deficit, which was approximately USD 37bn in February of last year and decreased to USD 14bn in November, will again increase both in December and January and approach USD 18bn by the end of January.
Current account surplus dreams dashed!