A tale of two Turkey’s

Given my gloomy assessments of the Turkish economy, readers often ask me about the more positive articles they read in the press and elsewhere. We can again refer to Charles Dickens, whom I rediscovered during my recent trip to London.

It was the best of times. Turkey had grown 7.2 percent on average during the five years after the 2001 crisis. Inflation was down to single digits in 2004 for the first time in more than three decades. Real interest rates were nearly zero.

It was the worst of times. Despite having bounced from a major crisis, Turkey did not grow faster than other emerging markets. Neither the government, nor the Central Bank had the resolve to decrease inflation to levels comparable to peers. Savings had plunged, and private debt surged, thanks to ultra-low interest rates.

It was the age of wisdom. The Justice and Development Party (AKP) was wise enough to stick to the economic recovery program after it got elected and they saw the program’s fruits, as Turkey attained macroeconomic stability.

It was the age of foolishness. Macroeconomic reforms were not followed by microeconomic ones. Perhaps the government became complacent, as the Turkish economy and assets performed well because of abundant capital blows.

It was the epoch of belief. Thanks to the newly-acquired macroeconomic stability, Turkish consumers and businesses could see ahead for the first time. They had confidence in themselves and in the economy.

It was the epoch of incredulity. Turks, whether they be consumers or business owners, had no confidence in each other. Turkey came out in surveys as one of the countries with the lowest level of interpersonal trust.

It was the season of Light. Finance Minister Mehmet...