The Path of Energy Conservation
July 14, 2008
By Stephen Jen & Luca Bindelli | London
This note contains no ‘market calls’ per se, as it examines in closer detail the issue of energy conservation for different countries.
Energy and Food Price Surges Energy prices are central to all macroeconomic discussions these days. If they continue to rise, they will pose a significant challenge to heavy energy users in the world and a policy dilemma for all central banks and governments worldwide. To a large extent, the rise in commodity prices is very much a part of the globalisation process. This concept is by now familiar to most investors. Professor Richard Freeman was the first to succinctly summarise the essence of the driver of globalisation: the effective doubling of the global labour force. The interplay between capital (K) and labour (L) essentially dictated the relative returns on capital and labour. The doubling of the global labour force significantly reduced the return on labour and raised the return on capital. In many ways, the financial bubbles that are in the process of deflating were arguably a direct result of the super-normal returns on capital in yesteryears. However, from a developmental economics perspective, there are various sources of input factors to propel the global economy. In addition to capital (K) and labour (L), there are also resources (R) and land/properties (P). The global economy has evidently grown to a level where demand for R has reached levels where the global supply curve may be steeper. Globalisation does not move in a straight line and the world is not completely flat. Hitting constraints on the skilled labour supply in China and supply of resources (which, in turn, have been strained by strong demand for construction in Asia and the Middle East (P above)), it makes sense that the speed of globalisation should slow. This is roughly the simple big-picture view we have with which to rationalise the powerful trends we’ve witnessed in returns on K, L, R and P. In this note, we focus on the issue of the efficiency of energy use and energy conservation by various economies. Some Facts about Energy Consumption and Conservation There is a relationship between energy efficiency (proxied by the level of energy input to generate US$1 million of GDP) and per capita income. We make some observations: • Observation 1. The US is not much more ‘wasteful’ than the EU or Japan. To generate US$1 million worth of nominal GDP, the US requires 1,250 barrels equivalent of oil, compared to 865 for Japan and 760 for the EU25. However, adjusting for per capita income, the US is only marginally less inefficient than the rest of the OECD. • Observation 2. Improvement in energy efficiency since 1980 is favourable to the EU25. In fact, the US has become significantly more energy-efficient over the years. Its energy requirement back in 1980 was substantially higher and the economy was significantly less efficient than it is now. In absolute terms, energy consumption has declined from 4,770 barrels equivalent in 1980 to 1,250 barrels equivalent now. Relative to the improvement in energy efficiency witnessed in Japan since 1980 (consuming 2.8 times less energy), the US has actually achieved a greater improvement (a 3.8 factor decline). Comparing the movements of Japan and the EU25, from 1980 to now, we see that the two economies have experienced broadly similar gains in efficiency. However, the EU25 has achieved a slightly better improvement in energy efficiency use (its energy intensity use declined by a factor of 4.0 between 1980 and now). While we do not break down energy consumption by type of energy input (e.g., oil, nuclear, coal, … etc.), part of the gain in energy efficiency in both Japan and the EU25 was due to a switch from oil to nuclear and other sources of power. • Observation 3. China is indeed the most energy-intensive economy in the world, but… In The Energy Shock to Asia, July 3, 2008, we pointed out that China’s use of energy is, on our measure, three times more intense than the US and almost five times more than the EU25 and Japan. However, on our measure of energy efficiency, controlling for per capita income – which is a proxy for the level of development of the economy in question – China is now actually more energy-efficient than the US and India were in 1980, and the improvement in China’s efficiency over the past quarter of a century has been immense; this is extraordinary and should be appreciated by investors, because outsourcing of production from the rest of the world to China has been concentrated in energy-intense manufacturing activities. In other words, through globalisation, the world has ‘exported’ energy consumption (and the associated pollution) to China, and so China has received more than its share of energy demand and pollution partly because of its large supply of cheap labour. Despite this, China has managed to enhance its energy efficiency. We believe that this fact should be appreciated by investors. • Observation 4. The energy price impact on Asia (and China) will nevertheless be large. Having said the above, that China has already achieved very meaningful energy conservation, and that much of its energy appetite has been ‘imported’ from the rest of the world, China could still be roughly 30% more efficient than it is now, according to our calculations, relative to its income level. We looked at energy consumption by types of users for the US and China. In the US, 22% of energy consumption is by industries. In China, 71% of energy consumption is by industries. We have pointed out in the past that 70% of China’s energy needs are satisfied by coal; oil accounts for only 20% of China’s total energy consumption. Most of the coal consumption is by power plants, which in turn support the Chinese industries. Therefore, the energy price rise that the world is experiencing should in theory have a relatively bigger impact on China than on most other countries, and within China, industries may suffer more than other sectors. The government will be expected to do its utmost to ’amortise’ this shock. • Observation 5. A threshold per capita income that matters for energy efficiency. It is interesting to note that there seems to be a ‘threshold’ level of per capita income below which very significant energy efficiency gains could be, and has been, achieved, but above which only marginal further gains seem possible. We observe that this ‘threshold’ income level is around US$15,000 per capita. This reflects diminishing returns to investments and policies that encourage energy conservation. The level of urbanisation and infrastructural efficiency associated with this particular income level may also matter for overall energy consumption. For example, for a city or country with this level of per capita income, certain highways or electricity grids may already be in place and further efficiency gains become incrementally more difficult to achieve. This observation has at least two implications. First, developed countries may be able to substitute one form of energy supply (solar, wind, nuclear) for another (crude oil), but the overall level of energy consumption may not improve too much. Second, as a result, developing countries marching toward this US$15,000 income threshold (which include all the BRIC and EM economies) will be relied upon for overall energy efficiency gains. The US$15,000 income threshold corresponds to roughly 1,600 barrels. This implies that, in theory, China could become 2.6 times more energy-efficient in 28 years; India could be 1.7 times more energy-efficient in 36 years. Bottom Line We examined the levels of energy efficiency for different countries, and found several interesting features. First, correcting for the level of per capita income, contrary to popular opinion, the US is not ‘outlandishly’ more wasteful than the EU25 or Japan. Second, the improvement in energy use in the US since 1980 has been even greater than that in the EU25 and Japan. Third, though China is the most energy-intensive user in the world, it has made tremendous strides in the past quarter of a century. Fourth, the energy price impact on Asia/China will likely be substantial. Fifth, there is a threshold income level (US$15,000), above which only modest efficiency gains seem possible. This means that the world will count on EM to do most of the heavy lifting to conserve energy.
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A Nuanced Inflation Shock to Emerging Economies
July 14, 2008
By Stephen Jen & Luca Bindelli | London
Summary and Conclusions Contrary to popular presumption, EM economies have a legitimate choice to either fight to stay ahead of the curve on inflation or accommodate the inflation shock and protect growth. How the investment community reacts to different policy choices will be a function, among others, of its opinion of what EM economies should do. Our guess is that, given that most macro investors appear to have the view that ‘inflation is bad’, the currencies of countries that try to fight inflation may initially be rewarded while those of countries that accommodate inflation may be punished. However, the reaction of the equity markets may be exactly the opposite, that dovish policies that protect growth could be received more favourably. EM Hit by Two Issues: Inflation and Oil In our recent writings, we have focused on two related issues that are impinging on EM. Inflation is more of a cyclical issue that should fade over time (i.e., a couple of quarters to a couple of years, depending on the profile of commodity prices and global monetary policy reaction). The oil price rise, on the other hand, is likely to be secular, and will require structural changes in various heavy energy-consuming countries for this issue to be absorbed. The focus of this note is on the first – inflation – issue. This is an issue because EM, for the first time in over a decade, is facing an upward drift in inflation. While much of this has so far been fuelled by internationally determined food and energy inflation, these items make up such large portions of the CPI baskets in EM that they will most likely have spillover effects on other products and services. EM inflation (proxied by the BRICs) has been steady declining since the mid-1990s, and only the Asian Currency Crisis temporarily disturbed this otherwise steady trend. Recently, however, headline inflation has accelerated, with core inflation starting to be dragged modestly higher. Clearly, if commodity prices collapse now, inflation would not be much of a problem. And we are watchful of this scenario. In fact, some EM economies have the strategy of waiting for, and not acting on, this commodity inflation surge to reverse or to fall out of the inflation calculations. But if commodity prices continue to trend higher, what should these central banks do, and how will their financial assets react to inflation and the policy reactions? These questions are the focus of this note. Widely Held Opinion on Inflation and Growth… Our impression is that the Phillips Curve is the dominant framework most investors may have in mind when they think about the relationship between inflation and growth. This is why there is a presumption that there is a positive relationship between these two variables. …but the Long-Term Relationship Is a Totally Different Story The Philips Curve captures the short-run relationship between inflation and the output gap. But what may interest policy-makers in EM economies is the long-term relationship between inflation and growth. In other words, the policy question is not just whether there is a growth trade-off in stabilising inflation (which is the familiar dilemma confronted by most central banks), but also whether it makes sense for EM economies to try to keep inflation low. In our view, this distinction between the short-term and long-term aspects of how inflation affects economic growth will matter a great deal in the coming months, because we believe that the thought process of many EM policy-makers will be driven as much by these long-term considerations as it will by short-term issues. Statistical Facts about Inflation and Growth The relationship between inflation and the long-term economic growth rate is a (unsettled) five-decade-long debate in the economics profession, both in terms of theory and empirical work. Arguably the more intuitive side of the debate is that inflation is bad for growth. Most arguments supporting this view are based on how money as a medium of exchange is disrupted by uncertainties on future prices. Specifically, the level and volatility of inflation is disruptive for economic agents in the process of them paying for real goods and services. Real resources devoted to avoiding costs associated with settling these transactions with non-interest-bearing money balances are a welfare loss to the society. Keynes made this point in 1920: “As inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” Inflation (a nominal factor) could thus have a negative impact on growth (a real factor). On the other hand, it has been argued by James Tobin – a Nobel laureate – that inflation may, theoretically, be positive for growth, if monetary wealth is allocated to physical investment/capital. This line of argument is centred on the role of money as a store of value. Inflation and growth should thus be positively related both in the short run (Phillips Curve) and the long run. In short, whether inflation is positive or negative for long-term economic growth depends on whether money is a substitute (a store of value) or a complement (a medium of exchange) for physical capital. This theoretical debate can only be settled by statistics. Here are some key statistical facts about this relationship: • No clear systematic relationship between inflation and long-term growth. Unlike the Phillips Curve relationship, and contrary to popular presumption, the long-term statistical relationship between inflation and growth has been rather unstable and inconsistent, over the past decades, and across countries. There were episodes of high inflation and high growth, as well as high inflation and low growth. • High inflation (15-30%) was often accompanied by high economic growth. When inflation rates breach 40% or so, inflation is almost always bad for growth. However, inflation of around 15% has historically not been particularly problematic for economic growth. In the 1960s, Asia and Latin America experienced high growth-high inflation phases. Per capita income growth in these countries actually accelerated when inflation rose from single-digit to double-digit levels. Further, such a state had been sustained for a long time without major disruptions. Even now, China and India’s rapid economic growth rates are accompanied by rising and high inflation, with no apparent extreme tensions in the economies. • Inflation reduction has output costs. Stabilisation of hyper-inflation has had no major output losses. But reducing inflation from ‘high’ to ‘moderate’ has led to costly output losses. The experience of the US under Fed Chairman Volker – with the US economy going through a recession and a period of high unemployment to bring down inflation – is particularly representative of this process. What Does All This Mean to Investors The above discussion and statistical regularities suggest that how well a ‘high inflation’ growth strategy would work could depend on the level of development of the economy. It seems more likely that such a strategy may work for an EM economy than for a developed country. Possibly for reasons related to how the various uses of money evolve with economic development, a ‘high inflation’ growth strategy would be a non-starter for developed economies. Our comments below are limited to the EM economies and their currencies: • Point 1. EM economies choosing to accommodate inflation is a legitimate option. We sense that investors in general do not condone some EM economies taking a dovish stance toward inflation. But these EM central banks may have a case, in choosing to protect growth. The GCC countries and Russia have opted for rapid growth, despite inflation approaching 15%. This, to them, is an once-in-a-lifetime opportunity to leap forward in a short span of time, and so a bit of inflation may not be that bad. Further, given that this inflation surge is accompanied by a major terms of trade issue, there is more fiscal latitude to help minimise the social and distributional implications of high inflation. We are not necessarily endorsing the policy choice of these economies, but simply pointing out that such a choice is arguably as legitimate as the ‘stay-ahead-of-the-inflation-curve’ view that is popular among many investors. In a way, these economies are going through the same phase that Latam and Asian countries went through a generation ago. Even if the GCC were not pegged to the USD and had full monetary independence, we are unsure whether they would choose to tighten the monetary stance now to choke off economic growth in order to stabilise inflation. In the long run, however, it would still make sense for them to have a common currency and independent monetary framework. But a journey towards that end will look quite similar to the journey that began in China in 2005, in our view. A BBC (basket-band-crawl) regime to guide the GCC ‘dinar’ stronger would entail the same issues (hot money inflows and accelerating pressures to appreciate) that China is experiencing now. While the risk of a peg breaking in the GCC in the coming year is still lower than 50%, we believe that it is high enough that investors should have protection against this event. • Point 2. The balance of the ‘loss function’. We have argued previously that, given the high food and energy weights in their overall CPI baskets, the inflation surge will pose a significant policy challenge for many EM economies. Central banks that try to stay ahead of the inflation curve will impose severe output costs, we believe. Essentially, there is a spectrum of choices on the inflation-output balance whereby central banks choose how much output loss and ‘inflation gap’ they are willing to tolerate. The combined output and inflation ‘misses’ is what we call the ‘loss function’. The Reserve Bank of India, for example, chose to have a smaller inflation ‘miss’ at the expense of possible output losses, while China and Korea have refrained from raising rates for seven and 11 months, respectively, despite the fact that inflation has accelerated in both countries. We believe that macro investors will probably reward the currencies of countries whose central banks attempt to fight inflation by raising interest rates. However, the equities of these economies may underperform because of the higher interest rates, exacerbating the energy shock that is already impinging on the economy. In a simulation, the real policy interest rates in BRIC could rise substantially relative to that of the G7 if the BRIC central banks try to stay ahead of the inflation curve. In other words, the currency markets and the equity markets may react differently to EM’s monetary policies, depending on the balance of the ‘loss function’. Of course, the ‘loss function’ itself should vary in size across countries. This is why we are more bearish on INR, IDR and the PHP than the SGD and TWD. A related issue is the high output losses associated with reductions in inflation back to ‘low’ levels. Russia, China and India may eventually choose to tolerate a bit more inflation, in exchange for super-normal economic growth, as the GCC economies have been doing; however, when they need to eventually arrest inflation and push it back down to the low single-digit levels, the process may be painful, in terms of economic growth. Thus, in a way, central banks are confronted with choosing to keep inflation low today, versus pushing it back down several years from now. Using currencies to deal with inflation will likely not be too effective. First, food and energy inflation is a global problem. Exchange rate policies may make sense from an individual country’s perspective but make little sense from the world’s perspective. It is, as we have argued before, as flawed as competitive devaluation. Also, unless the currency in question could be driven continuously stronger, the exchange rate will do little to offset imported inflation. Recent interventions by Korea to cap the value of the dollar are not aligned with the underlying fundamentals. The KRW should eventually weaken, in our view. • Point 3. Oil and commodity prices are still key. The analysis above is predicated on the world remaining in an inflationary environment. But oil prices could continue to rise, or they could fall. There is still a great deal of uncertainty surrounding these critically important prices, which will dictate the inflation trends around the world. In this note, we do not express a strong opinion on where oil and commodity prices should go, but merely assume that inflation remains high. Bottom Line Inflation is not always bad. The positive relationship between inflation and the output gap captured by the Phillips Curve should not be confused with the long-run relationship between inflation and growth, for which there is no clear statistical relationship. The role of fiat money is key in determining whether this relationship is positive or negative. For some EM economies, this relationship could be positive, justifying central banks protecting growth and allowing inflation to rise. Investors should be aware of the risk of EM central banks having a moratorium on inflation-targeting.
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Downward Revisions to GDP Growth
July 14, 2008
By Michael Kafe & Andrea Masia | South Africa
Summary It is becoming increasingly clear that European and Asian growth is likely to slow in 2009/10, and our global economics team has turned a lot less sanguine about their respective regions’ growth prospects than what was the case at the beginning of the year. We take advantage of the changing mood to revisit our South African GDP outlook for the coming three years. Since 2Q07, we have persistently held a sharply below-consensus view on growth for the next three years. This remains the case, except for 2008, where aggressive revisions to analyst estimates have now put the consensus GDP estimate of 3.4% below our existing forecast of 4%. In this piece, we downgrade 2008 GDP growth to 3.7% (i.e., marginally higher than consensus still), and scale back our forecasts to 3% for 2009 and 4% for 2010. Although we believe that weaker global growth and tighter money locally will no doubt hurt South Africa’s growth prospects, we are of the opinion that the trough in the growth cycle will be in 2009, and not 2008. What’s more, contrary to recent speculation, we believe that the probability of a recession in South Africa in 2008 is an unlikely tail event. The Global Backdrop Despite the continued turbulence in global financial markets, global growth has surprised on the upside, particularly in the US as the Fed embarked on a decisive move to ease monetary policy conditions, in conjunction with a fiscally stimulating package from the Treasury. Even so, our US economics team maintains its bearish outlook on GDP growth prospects. In its view, the combination of tight financial conditions, higher energy quotes, higher global inflation and weaker global growth will soon promote a mild downturn in the US economy (see The Perfect Storm Returns, Richard Berner and David Greenlaw, July 7, 2008). Rather than averting recession entirely, they believe that the combined monetary and fiscal stimulatory program of action may have simply pushed out the timing of an inevitable economic contraction to 4Q08 and 1Q09. Our US GDP forecasts have therefore been tweaked marginally higher for 2008 but adjusted downwards for 2009 from 1.2% and 0.9% to 1.5% and 0.7%, respectively. Similarly, our European colleagues have taken a dimmer view on their growth outlook, and have revised their GDP forecasts for 2008 and 2009 from 1.6% and 1.4% to 1.5% and 1.0%, respectively (see Oil Spike Shocks ECB into Action, by Eric Chaney, Elga Bartsch and Carlos E Caceres, June 11, 2008). More recently, our European economist, Elga Bartsch, pointed out that the margin by which Germany has outperformed the euro area appears to be melting away (see Europe’s Last Growth Engine Sputters, July 10, 2008). After a full-year GDP growth rate of 2.3% in 2008, which would put our estimate of Germany’s growth pace at some 50% above the euro area as a whole, she now expects German GDP growth to gravitate towards the euro area’s 1% in 2009. The latter is less than half of the euro region’s trend growth rate. In Asia, our ASEAN regional expert, Chetan Ahya, is of the view that, while stronger-than-expected global growth combined with a relatively slow monetary policy response to emerging inflation risks will lift 1H08 GDP growth above expectations, subsequent tightening of monetary conditions should combine with tougher external conditions to ensure that GDP growth comes in at no more than 5.1%Y in 2009, versus his initial estimate of 5.9%. However, our Chinese economists expect Chinese GDP growth to remain at 10% this year, before falling marginally to 9.5% in 2009. Domestic Implications With global prospects for 2009 looking dimmer, and bearing in mind that only some 14% of South Africa’s exports make their way to the US, while as much as 28% and 33% are destined for Asia and Europe, respectively, we believe that it is only reasonable to acknowledge that weaker growth offshore is likely to impact negatively on South Africa’s exports, and as a corollary, its GDP growth, ceteris paribus. For 2008, however, we maintain an above-consensus forecast of 3.7%, which is largely driven by our contrarian view that expectations of severe power outages this year are likely to be disappointed. We believe, instead, that short-term relief measures implemented by Eskom such as the de-mothballing of existing plants and other demand-side management measures will provide adequate relief in 2008. Primary Sector GDP At the primary GDP level, we maintain our outlook that agricultural GDP will remain well supported, as high international food prices have incentivized local farmers to increase planting acreages. Such higher prices have also helped place local food producers in a favorable position to compete with imports from their subsidized developed market competitors. For example, the most recent data from the Department of Agriculture released this week show that maize crop estimates for the 2008/09 marketing season are now close to 10% higher than previously thought. For mining production, we expect volumes to remain weak, although they are likely to recover from the shocking 1Q08 22.1%Q contraction, thanks to better and more stable power supply than was the case in 1Q08. On the whole, we look for a modest recovery of some 6%Q in the remaining three quarters of the year. This should still translate into a negative annual growth rate of 3.4%, however. Secondary Sector GDP At the secondary level, manufacturing production continues to report unconvincing rates of output growth on a monthly basis, strengthening our conviction that the manufacturing sector is set to experience significant challenges over the next several quarters, particularly as policy rates remain high and manufacturing margin compression intensifies. Although the sector will no doubt benefit from expected ZAR weakness, we believe that this will be insufficient to offset the significantly higher cost of money. We expect electricity production to recover from the technical recession experienced over the last two quarters to post an average annual growth rate of around 2% in 2009 and 2010. Finally, we have priced in a marked deceleration in construction activity from 2H08 through 1H09. As close to three-quarters of total fixed capital formation originates from private enterprise, we believe that higher policy rates will exert a much more dampening impact on construction activity than may be presently discounted. Tertiary Sector GDP We expect tertiary sector GDP to slow meaningfully, from rates of 5.7%Y in 2007, through 4.3%Y and 3.1%Y in 2008 and 2009, respectively, before recovering somewhat to 4.1%Y in 2010. The slowdown here should be led primarily by a deceleration in the financial services and real estate sectors, as well as transport, storage & communication. General government services should remain rather rigid around current growth rates of around 3.5%Y, in contrast to the wholesale and retail sector, which we see decelerating to its slowest pace since 2001 on the back of tighter monetary conditions and a crowding-out of discretionary purchases by higher oil prices.
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Balance of Payments Looks Interesting This Time
July 14, 2008
By Tevfik Aksoy | Istanbul
Another Record Current Account Deficit Balance of payments (BoP) data released by the CBT comprise some interesting aspects for a change. The investor community has gotten used to seeing an ever-widening current account gap in Turkey. Hence, repeating the same arguments seemed to add little value to the overall view regarding assessment of the currency value, the future course of debt and, more importantly, the perception of risk, in our view. However, we note some interesting points regarding the balance of payments data in May, especially on the part of the capital account. Current Account Data Point to Several ‘Record-Highs’ in May In May, the headline current account deficit was US$4.6 billion, in line with the consensus view (slightly lower than our US$5 billion forecast), bringing the 12-month trailing current account deficit to US$43 billion – a record-high. In May alone, the trade deficit was US$5.1 billion (another record-high) on the back of record prints for both exports (US$13.4 billion) and imports (US$17.9 billion). The US$4.6 billion paid for energy imports was again a record-high on a monthly basis, bringing the 12-month trailing energy bill to US$41.4 billion. Tourism revenues reached US$1.26 billion in May alone, which was of course a record-high for any given May on record, and pulled the 12-month trailing level to an all-time-high level of US$16 billion. What Do the IMF and Turk Telekom Have in Common? In May, the two institutions jointly helped Turkey finance its current account deficit. The capital account in May yielded a surplus of some US$5.4 billion, of which US$2.4 billion belonged to portfolio investments. With inflows in debt securities remaining at a meager US$0.3 billion, the main support came from the Turk Telekom IPO, which helped equity-related inflows reach US$1.5 billion. In terms of foreign direct investment (FDI), May had been a dismal month, with a negligible inflow of US$300 million, which brought ‘down’ the 12-month trailing FDI figure to US$14.7 billion. Other Investments to the Rescue Once Again Nevertheless, ‘other investments’, which is composed of the banking and the non-financial corporate sector’s external borrowing, as well the credits extended by the IMF, posted US$2.8 billion, as a result of the US$3.4 billion IMF loans received as the last tranche of the stand-by arrangement that expired in May. Hence, IMF and Turk Telekom brought an inflow of some US$5 billion in May and prevented a sharp decline in FX reserves. We believe that the strength of the currency, which cannot be explained by the trend in Turkey’s current account, could have been seriously tested if the Turk Telekom IPO and the IMF money were not received, as it would have led to a noticeable decline in FX reserves. Keeping Our Forecasts Unchanged: Current Account Deficit at US$52 Billion We are keeping our current account deficit forecast unchanged. The data for May brought no new information to suggest any change to our US$52 billion year-end current account deficit forecast. And while the figure is undeniably large, we believe that the financing is unlikely to be a major issue, given the surprising resilience of the Turkish corporate and banking sectors’ financing capabilities. However, we also do not see the current account deficit easing in the near future; in the absence of a marked improvement in global credit conditions, we feel that the future of the TRY might depend a great deal on the high real interest rates offered by the Turkish Treasury and the central bank.
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