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Which factors must be considered when thinking on the year 2010?
Don't you also think that the shallowness in the current economic policy discussion is highly annoying? As you see, we are not discussing what type of measures must be implemented. We are in June 2009, and it must be annoying for everyone with a good head on their shoulders to see that the economic policy discussion in Turkey is stuck within the "Let us agree with the IMF" and "No way! First, they have to accept our terms" debate. There is no sense in Honorable Prime Minister's saying again and again "We have to wait and see about the IMF issue. They first have to accept our terms". The only feeling this statement evokes is the urge to ask the question "Which terms are you talking about?" And as you might see, that question does not have an answer either. Do you believe that negotiations are being carried out between Turkey and the IMF? We do not think so. As no official a good judge of and familiar with the issue makes any statements, "our terms first" based statements of the Prime Minister day by day lose seriousness. Soon, those statements will not have any meaning at all. Then, tidying out the results will be much harder. Signs that the government is making a mistake concerning the IMF issue will appear soon.
If it appears that current so-called economic policy discussions do not have any meaning, there is no sense in dealing with or attributing a meaning to them. Then, let us go back to "How will 2010 be like?" discussion. Thanks to the proficiency of the government, 2009 will be a bad year the issue this point onwards. Next week we stated, "At that rate, the government will make us lose not only 2009 but also 2010". Today, let us underline under what circumstances 2010 will be lost.
In fact, there are two parameters that will decide how 2010 will be as we started to touch upon this issue last week. First is the behavioral pattern of banks and the second is how the public finance policy will be shaped. To begin with the first issue, we are still at square one. What did we say? We said "If the corporate sector of an economy is performing badly, banking sector cannot perform well". Now, we are approaching to that point step by step. As of the end of March 2009, non-performing credit portfolio of the banking sector increased almost by 50 percent and reached 4.6 percent of the balance sheet value. Nowadays, banks are restructuring the credits of their customers all over the country once considered sound, at their own expense. They are doing this in expense of taking risks. As you might remember, the Banking Regulation and Supervision Agency (BRSA) regulation we once appreciated entitled banks to do so. On the other hand, it seems quite challenging that banks extend new credits to the corporate sector and consumers without any additional public support. In such an environment, there are two indicators that can affect bank behavior in the positive direction.
First among these is banks' ability to roll over easily funds received from abroad. The signals with this respect indicate that the volume of balance sheets of banks in terms of foreign funds will ever increasingly be limited over the rest of the year. And this is bad. This is bad because tightening of the balance sheets of banks eventually means economic tightening. The second indicator is that the rise in tracked deposits continues. This development limits the tightening in banks' balance sheets. Thus, this is a good development. Those who are good judges of the issue acknowledge that things are not going well. If the abovementioned two factors force banks to avoid risks further, banks might feel obliged to retire into their shells and/or into government debt securities (GDSs). And this will most probably not have positive outcomes. This accelerates the perishing in the corporate sector and we as well lose 2010.
The second main parameter to be kept in mind is the mess public finance is currently in. Despite this mess, in the short run Turkey has to head toward raising public expenditures to stimulate domestic demand. To ensure that the "Don't lock yourselves in the house, go out for shopping" campaign launched in the leadership of TOBB has a meaning; there is a need for a meaningful public expenditure package. Nonetheless, there exists a problem. There is no credible medium term program concerning how the government, who has to make spending immediately in the short run, will tidy up the messy budget in the future. It seems quite impossible that the government, who has to make more spending in the short term puts forth a credible program for the medium term. The current state of the public finance prevents the government from taking steps oriented to stimulate the economy in the short term. The current situation is exactly a "chickens have come home to roost" situation. You are between two fires; one is unemployment and the other is elections. But the result is apparent whether you fear or not.
It appears that Turkey has wasted the period of abundant fund inflows licentiously. Just as grasshoppers, we do not have a pool of resources that are saved and accumulated from the previous period and can be spent now. Th3 4 billion USD support package recently announced by Chile and the Chilean government survived despite all criticisms, by saving resources when they were abundant. It was last weekend in this column when we touched upon the skillfulness of Finance Minister of Chile Andres Velasco. Chile has a skillful Minister; but same skillfulness was not observable in Turkey. The current inertia in Turkey stems from nothing but its unpreparedness for such periods.
The common conclusion to be driven from these two points considering 2010 is: Turkey immediately needs a solid economic program. Since the government somehow fails to do this and since there is no bad in asking help from whom can ever help, agreeing with the IMF as soon as possible can relieve 2010. Otherwise, we will also lose 2010.
This commentary was published in Referans daily on 02.06.2009