Güven Sak

Constantine P. Cavafy’s poem “Waiting for the Barbarians” is a delightful read in dark times. It’s about a day in an unnamed city-state, where life comes to a halt as everybody, from the king to the crowd, stop whatever they usually do, dress up in their finest clothes and await the arrival of “the barbarians.”

As night falls, and the barbarians have failed to arrive, we get the famous last lines of the poem: “Now what’s going to happen to us without the barbarians. Those people were a kind of solution.”

In Turkey, we have taken great interest recently in the actions of our neighbors in the eastern Mediterranean, the civil war in Libya, and even the possible outcome of the U.S. elections. These are blissful concerns to have because they lend our little polity a kind of intuitive order. I’d like to take some time to look at what they obscure, namely the pandemic-induced crisis.

Look at the numbers in Turkey lately. Active COVID-19 cases reached their peak of 80,000 on April 23, and by May 11, when I wrote on the recovery in this very column, they were down to 40,000. We had higher hopes back then. This number continued to decline until August 3 to around 10,000. But during August alone, we had a 60 percent increase so far. This is not the much-feared “second wave,” since that would imply that the first had somehow been stopped. It is still happening and is at least with 16,000 bodies strong. (already 18,000 by the end of August, with 80 percent increase since August 3).(Now by September 24, active case number has increased to around 30,000. An increase of about 200 percent in less than two months.)

If as an economist, you are looking for what triggered the rapid depreciation of the lira in August, take a closer look at this surge in cases. In 2018 currency crisis, we had all the structural reasons and policy mistakes, yet the triggering event was Trump tweets at the time. Today the triggering event was the unexpected surge in the numbers, I may say. I think that the rising concern in late July and early August regarding the credibility of official COVID-19 case numbers led to the rapid depreciation. Especially the discrepancy between the figures announced centrally by the health ministry and by local governors raised eyebrows. Why?

People don’t know what to expect, and therefore they don’t know how to plan ahead. With the surge in active cases, the central government could do various things. It could tighten up again, bringing back lockdowns or it could rough it out and risk more contagion and maybe find ways to keep the economy open while taking added measures. If the central government has plans and scenarios planned, it is not sharing them with the public and neither firms nor consumers can make plans accordingly. The worst thing it can do in this kind of scenario is to release information that leads the public to doubt the little bit of information it is getting.

In this kind of environment, cutting spending and waiting is generally the most rational thing to do. If you can’t guess how the future is going to unfold, you can’t plan, and if you can’t plan, you can’t invest. The way you wait out the storm is to preserve your purchasing power. The way you do that is to put it into U.S. dollars or gold (or lately, real estate and even cars), as lira assets are only going to melt away. If the number of infected had continued their decline, and recovery was more obvious, people would have returned to spending and, therefore, returned to lira.

The upshot is simple: In this age of the virus, it’s the credibility of both economic policy as well as healthcare management that determines how quickly the consumer will go back to their old consumption basket. Focusing only on sound economic policy choices by itself cannot lead to stronger business sentiment. It is a necessary but not a sufficient condition. A credible health response with well-thought-out local plans of testing, tracking and isolating is the only way to convince consumers to spend again.

At this stage, it is absurd to expect a V-shaped recovery. The recovery is ought to happen gradually on a foundation of trust in pandemic governance. Only if we accept a longer timeline can we truly recover. Otherwise, our expectations and case numbers will be the jagged up and down of a stock market or like the ECG of a patient in trouble.

This commentary was published in Hürriyet Daily News on 29.08.2020

Originally published at https://www.tepav.org.tr.

Notes from Turkey and its vicinity: It’s the economy, stupid