It's difficult to describe my reaction to an article I read yesterday. Shocked would be an understatement. Shocked at a column I read in a local Turkish financial paper, Dünya. The author, Güven Sak, is a former member of the Monetary Policy Committee of the Central Bank of Turkey. He is also the current director of the Economic Policy Research Foundation of Turkey (TEPAV.) Sak's column was titled "Why I believe in the program of the first 100 days," roughly translated from the Turkish. The column is meant to be critical of previous Justice and Development Party (AK Party) governments and their economic reforms and to cast doubt on the ability of this government and the role it will play in continuing those reforms.
The column starts off by arguing that Turkey hasn't really experienced political change following last week's elections. Sak says that 21 million Turks voted for the AK Party in 2011 and that the AK Party received 2 million more votes in last week's election. His thesis being, for Turkey to grow the economy and attract foreign investment, the ruling party needs to change its course. Had another party been elected to office, this would have been a given. With a new ruling party come new policies for the new government. He goes on to imply that the policies enacted by the AK Party were successful in driving growth in Turkey for the first five years of their tenure but have since waned in their effectiveness.
Sak, appointed by the government that the AK Party historically replaced in 2002, continued to serve at the Central Bank's Monetary Policy Committee for four more years. After his departure he has been known for being critical of subsequent AK Party governments that have administered the economic reforms legislated during its administrations. His method of attack is of particular interest as he uses data from "reputable" sources. He cites three data sets, the first of which combines IMF data with data generated by the foundation he directs, TEPAV. The second and third data sets point to Bloomberg as their source.
If you know anything about Bloomberg and their operations in Turkey, you know that they are actively and passionately anti-government. Normally this wouldn't bother me, everyone is entitled to their own opinion, but Bloomberg sells news and data. Their subscribers and readers depend on them primarily for clear cut numbers, data generated from actual market activity and unbiased reporting. Unfortunately, in Turkey, Bloomberg News is so ridiculously over-the-top anti-government that the word "Bloomberg" immediately attracts doubt to anyone who follows Bloomberg and its news division in Turkey.
Which brings us back to the data. Sak pretends to be shocked at a slowdown in economic activity during The Great Recession. Although Turkey faired far better than most countries during this period of global economic meltdown, its growth did slow, even while many countries experienced nonexistent or negative growth. This is economics 101, when the world's financial markets collapse, expect your economy to slow.
The final and most important data set is one that pits Turkey against other countries, measuring their "Short-Term Foreign Debt" as a percentage of "Foreign Reserves." This is the "gotcha" graph that Sak uses to cement his argument. He asks and answers: "...what is Turkey's problem? Simple. Graphs published in an article by Bloomberg summarize [the problem.]" The graph he's referring to illustrates Turkey's ST Foreign Debt/Foreign Reserves ratio. The data used for all other countries is the data released by their central banks. Turkey's data point, however, is nearly four times greater than the official numbers. Bloomberg claims that Turkey carries four times more debt than it has in reserves, for a ratio of nearly 400 percent. This makes Turkey the biggest offender. Malaysia is a distant second with an ST Foreign Debt/Foreign Reserves ratio of below 100 percent. Sak says this makes Turkey "the champion of champions" as far as how horrific its numbers are.
There's only one problem. These numbers aren't real. They are patently fabricated. Turkey's actual ratio is about 120 percent. If the Bloomberg data is to be believed, this would put Turkey's foreign debt at near half a trillion dollars. This would be enough to convince any foreign investor to look elsewhere and not invest in Turkey. A company with a debt/equity ratio in this range would be insolvent and this is the implication.
Bloomberg cites Morgan Stanley as the source for these data points, which is also peculiar. Why would a company that sells data, that has these data points available on its own database, point to an investment bank for publicly available data points? Maybe because they needed fake data? Who knows. The reality is that an exhaustive search of such a report by Morgan Stanley and these erroneous data points turns up nothing. Morgan Stanley isn't a high school investment club, they would be more careful in plotting a data point that makes no sense. Bloomberg, however, as is their modus operandi, didn't hesitate to take-down Turkey. So here's the question, Sak, do you stand behind this false data? Did you not check them because you trusted Bloomberg? Bloomberg, what's your excuse? No fact-checking? Finally, Morgan Stanley, did you really allow Bloomberg to print this false data and attribute it to your name? The take-away here is fabricated data can prove anything and question data points that make no sense.