In a book from 1991 (Inventing the Flat Earth), historian Jeffrey Russell exposes the idea that the Middle Ages were considered flat. Even at that moment, he says, it was already known that this was an assumption and at no time was Christopher Columbus afraid to plunge into the void somewhere in the ocean. Yet we still have crazy people today who amuse us with this despautério, which is already the subject for psychiatrists, not for historians.
In the economy there are bizarre ideas of karat-equivalent. One of the most popular is that if inflation rises, the Central Bank should not raise interest rates, because this can increase the financial costs of companies, which pass on higher costs in prices, causing more inflation. When a student of economics writes this on the test, it means that he has missed a lot in the course. When this is said by the President of Turkey, the case is more serious.
Turkish inflation measured in 12 months rose from 10.2% in March 2018 to 15.8% in July, the highest level in 14 years. The Central Bank itself admits that the upward trend must be continued. He kept the interest rates constant at 17.75%, certainly not to refute the eccentric positions of the president. To make matters worse, Erdogan himself came into the middle of a diplomatic dispute with the United States, from where Trump, another madman, launched a series of commercial retaliatory measures.
Turkey grew by 7 percent last year and in June last year achieved another electoral victory for Erdogan with 52.6 percent of the vote. But your external accounts are vulnerable. The country has a current account deficit of 5.4 percent of GDP, a trade deficit of $ 47 billion and only 85 billion dollars of international reserves, about 10 percent of GDP. Brazil is in better condition in the external sector. Our current account deficit was the lowest in the last 10 years in 2017 and was only 0.48% of GDP. Our trade balance is a US $ 58.6 billion surplus and our reserves revolve around US $ 380 billion, almost 20% of GDP. In the midst of this shootout, the US dollar was up to 83% against the Turkish lira. In the case of the real, the valuation did not exceed 17.8%. Brazil is not Turkey.
But for the commutative property of the truism, Turkey is not Brazil either. Data from the World Bank show that Turkey's GDP in constant dollars increased by 56% in the period 2010-2017, compared with a meager 3% in the Brazilian case. Government debt against GDP is also more comfortable, 53% compared to our 77% (and rising). The Turkish nominal deficit is only 3% of GDP, which is much less onerous than our 7.8%.
Of course, external vulnerability is more likely to cause a strong correction of the exchange rate. The fact that we have stronger external accounts reduces the chance of a speculative attack. But the crucial variable is above all the insanity of rulers. Erdogan, who has appointed his young son-in-law as Minister of Finance, has bizarre ideas and behaviors that have finally destabilized his country. Traders who manage risky paper in Turkey have found a perfect environment to search for profit in volatility. If the market thinks the country is vulnerable and the ruler generates this sensation, the crisis is inevitable.
Like Christopher Columbus, we have to make a crossing. The resumption of growth depends on the implementation of consistent ideas. Our international reserves will be of little value in the hands of a ruthless ruler. The choice of a crazy candidate, with delirious proposals (there are several options on the menu), can play us in the void.
* ECONOMIST, WAS DIRECTOR OF THE MONETARY POLICY OF THE CENTRAL BANK OF BRAZIL AND PROFESSOR OF PUC-SP AND FGV-SP. E-MAIL: [email protected]