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IMF is definitely useful
I guess talking about the IMF will be subject to prior authorization from now on. What we watched on television last week showed us that to do this it is necessary to take prior permission from Honorable Public Prosecutor principally. In this context, I believe that the second prior permission must be taken from economist Asaf Savaş Akat. Last week on television, Mr. Akat was acting like Deputy Public Prosecutor. So, we must be cautious, just in case. Honorable Public Prosecutor and Honorable Economist; in your sanction, I would like to call back the "Why is IMF necessary over the forthcoming period?" issue today. Yes, it is right; I, your humble servant, think it is a mistake that no IMF agreement has been signed yet. On top of it, I also believe that an agreement has still not been signed yet doubles the mistake. What is more, I ambitiously believe that an agreement will eventually be signed. Unfortunately, economics of the past is not much of a guide over the process we are now in. Let us see why.
A question to begin with: Has Turkey suffered from not agreeing with the IMF? The answer is: it sure has. Turkey still does not have an economic policy framework. Public budget is only as credible as the budget of Miki Mouse countries. Number of unemployed people has reached 4 million. Number of examples can be raised. If an IMF agreement had been signed, we would have had a credible and confidence-building framework. In this context, should a couple of compensating measures had been implemented; the number of unemployed people would have been less by a couple of thousands. There would have been a public budget that can stimulate the dynamism of private sector.
Let us ask another question. So, that no significant exchange rate movement was observed is an evidence that the crisis can be tackled without IMF? The answer is; no it is not. That Turkish lira did not depreciate at a high degree does not prove that signing an agreement with the IMF is unnecessary. This is what we expressed the most last year. Fundamental feature of this crisis is that it has a slow death scenario rather than an instant death scenario. This crisis does not lead to instant price adjustments but quantity adjustments. This is exactly why this crisis is highly destructive and dangerous. It is necessary to put aside the patterns we are accustomed to when thinking on this crisis. Yesterday's customs are exactly what we mean by economics of the past.
We do not need complicated economic models to explain the uniqueness of the period we are in. Now is the time for observations. Please let us share two observations on the debt and prevalence of the current crisis. First, this crisis is deeper than the 2001 crisis. Contraction of manufacturing industry production was on average 8 percent over the first eight months of the 2001 crisis; i.e. from February to September. In case of the current crisis, as those following up the developments would know, manufacturing industry production decreased for the first time in August 2008. Over the eight months until March 2009, the fall reached 16 percent on average. When evaluated from this lens, it is seen that the current crisis is two times deeper than the 2001 crisis. Second, the current crisis is much more prevalent than the 2001 crisis. In 2001, at least the level of production in export sectors was scaling up. This is not observable in case of the current crisis. All sectors of manufacturing industry have been simultaneously contracting. Depth and prevalence analysis give the same results also for employment and export indicators.
When commenting on relations with the IMF, It is necessary to take into consideration the depth and the prevalence of this crisis. In this respect, signing an agreement with the IMF is useful for two reasons. First, because of the budgetary constraints for the next period, it will be quite hard for Turkey to adopt expansionary policies. Resources required to ensure fiscal expansion are and must be IMF resources. If the IMF will stand by Turkey, it will and must do so for the sake of fiscal expansion and those in need. Domestic fiscal imbalances can only be balanced with funds from abroad. Second, the security to be assured by the IMF will prove important as international fund flows gain pace. To make the economy work, Turkey needs not only international resources but also the confidence of international actors in the Turkish economy.
Kindly submitted to whom this might concern and to public prosecutors
This commentary was published in Referans daily on 19.05.2009