The use of catchy acronyms in financial market jargon has become more prevalent in recent years. But the long-term explanatory value of these acronyms is often questionable, not to mention their risk of over-generalization. The boom in emerging markets in the early 2000s started this trend with the dissemination of the term "BRICS," shorthand for the fast-growth economies of Brazil, Russia, India and China, and later joined by South Africa. Jim O'Neill from Goldman Sachs came up with the notion of highlighting the growth and investment potential of these economies for global investors. In the following years, massive funds poured into these markets and annual net inflows reached $1 trillion on average since 2010. But fundamental performance differentials between the national economies of the BRICS countries surfaced in the postcrisis era.
Inspired by the popularity of his initial formulation, O'Neill embarked on a second attempt to define the next generation of promising emerging markets. He came up with the term "MINTs" to denote Mexico, Indonesia, Nigeria and Turkey; all populous countries with high economic growth potential. As the formulation was based on GDP growth and population at the expense of other factors, there was frequent criticism in the wake of financial difficulties faced by these countries. Nevertheless, investment analysts maintained their affection for catchy acronyms that simplified their projections and captured the spirit of financial markets. Another case in point was the unpleasant notion of "PIGS," denoting those countries most seriously hit by the Euro crisis: Portugal, Ireland, Greece and Spain. The last conceptual invention popularized by financial markets, namely the "Fragile Five," emerged in the summer of 2013 following the Federal Reserve's announcement that it would stop quantitative easing and seize its bond-buying program.
Amidst the atmosphere of panic, James Lord, a junior analyst at Morgan Stanley wrote a research note and unwittingly created the concept of the "Fragile Five." Focusing on the levels of current account deficit and external credit, the new concept caused alarm about Turkey, Brazil, India, South Africa and Indonesia. The notion of the "Fragile Five" was used politically and abused to pump scenarios of financial catastrophe into the emerging markets; and interestingly, Turkey was put under the spotlight as the most fragile of the Fragile Five.
An objective analysis should point out that this artificial discourse was instrumentally adopted to discredit the incumbent government and Turkey's sustained growth story over the last decade. It is true that Turkey has a current account deficit problem, but it is a structural and historical matter that has not prevented sustained growth in recent years.
Moreover, the current account deficit is expected to fall substantially in 2014 as a result of the following factors: a) Due to the fall in the value of the Turkish lira, Turkish exports became more competitive internationally and this will improve export performance; b) The EU is coming out of its economic crisis and the MENA region is becoming more stable after the Arab Spring, which should support exports and direct investments; c) Macroprudential measures in Turkey will control domestic demand and imports; and d) Gold exports will decrease to minimal levels.
On the credit front, most of the Turkish companies that borrowed international credit also have foreign exchange earnings through exports and there is no debt service problem. Therefore, describing Turkey as the most fragile of the Fragile Five would be an unfair and conjunctive assessment serving certain political projects more than economic
projections.