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Let’s see how the dance will be
Those visiting the United States of America (USA) nowadays see a uniform sign next to roads being built, at the most prominent point of the bridges that are repaired and at the location of any activity carried out with public funds. The sign, with big font sizes, says "funded by the funds transferred via the Recovery and Reinvestment Act introduced in the context of the program to tackle the crisis". Why do they do so? First of all, to thrust under the eyes of the public masses that something is done. Second, to enable everyone to regain their self-confidence and excitement. Third, of course to support domestic demand and limit the damage caused by the crisis with fiscal expansion. "If there is crisis, there is remedy" campaign launched in Turkey must be evaluated exactly within this framework. Turkish government finally starts to take steps to tackle the crisis. At least, with the press release given on Thursday after posturing at length where it sat, Turkish government seems to accept the offer to dance for the first time and step on the dance floor. We have a tendency to consider this as the first sign of a fortunate period. But, now can we approach the issue? Of course through the title statement: Let's see how the dance will be. It is necessary to monitor the implementation closely. Let us take a short look at the five issues explained by Honorable Prime Minister of Turkey and see how the course of affairs is.
In our consideration, Honorable Prime Minister of Turkey underlined five issues: First, he gave information on the Credit Guarantee Mechanism that will defer existing loan repayments by the corporate sector and the new system to be implemented. It is a positive development that the Credit Guarantee System, which has been implemented by a number of countries as a measure to tackle the global crisis and the positive economic impacts of which were addressed, has finally switched from design to implementation process. What sign will we evaluate? We will evaluate how the implementation will be. But we do not know it yet.
Second, Honorable Prime Minister announced that they have launched a new project titled "utility work programs". The program is based on the temporary placement of unemployed people registered at Turkish Employment Organization in utility works. Under the program, schools and hospitals will be repaired, trees will be planted, parks and gardens will be designed. This way, the government brings forward a measure devoted to stimulate domestic demand. Instead of giving spending checks as underlined in TEPAV's study, the government thinks that the same positive domestic demand impact can be created by the placement of needy people in temporary jobs. Does it work? Experts of the issue say, theoretically it works better. However, Turkey's experience showed us how temporary workers then turned to be permanent workers, didn't it? Then what is necessary? It is necessary to wait and see how the implementation will be. Let's see how the target audience will be selected, how temporary the placements will be and how much support will be given. Mistakes to be made during these steps can results in a domestic demand stimulation system where "the game is not worth the candle". Nonetheless, the step itself and the intention are favorable.
Third, a comprehensive investment incentive system was announced. Incentives are based on regions and sectors; any sector in any province is not provided with incentives. The system is geared to new investments. In the framework announced two days ago, this was the only measure that does not contribute to the immediate agenda in the current period. There is no doubt that Turkey needs a medium term agenda. However, before that, Turkey needs a full-fledged and serious budget as well as a Medium Term Fiscal Framework. What does the private sector do if the public sector of the country has not announced the steps it is to take? Moreover such an environment is not suitable for implementing a new incentive system. It is hard to implement selective policies in crisis periods. There is a high possibility that the sectors announced to be not supported in certain provinces are included in the scope of incentive system in the future. And this implies divergence from the medium term agenda.
Fourth, Prime Minister of Turkey expressed that introduction of VAT and PCT cut to stimulate domestic demand is not out of the agenda. This was also among the favorable points of the statements. Fifth, probably as was in a good mood that day, the Prime Minister of Turkey said that things were on track considering the "What is that with the IMF" issue that turned into a comedy series. This was better. There is a saying: "Where there is life, there is hope". Right?
We believe that the package announced this week involved favorable decisions both in terms of restructuring the cash flow of the corporate sector and stimulating domestic demand. Turkey has started to put the inertia in tackling the crisis aside, and take more serious steps on the issues being discussed for long. This is good.
So, what do need now? Let us emphasize three points. First, public funds spent will decelerate the pace of economic contraction. And the deceleration in contraction will make the structurally-impaired public budget sustainable for a longer while. There exists a dynamic issue. Second and unlike the common view, agreeing with the IMF will not be unfavorable but favorable as it will expand the facilities concerning the public funds to be spent. "make your economy recorded" headed demands of the IMF are not bad but good. For instance, Credit Guarantee Supports are geared solely toward the registered companies. Crisis period can also be the period where companies become registered. Third, it is time for trials and errors. What matters is the intention. Measures announced within this package serve to the objective. There is a need for a healthy monitoring and evaluation mechanism that will closely monitor the breakdowns in the implementation process and immediately remedy the mistakes. This is among the missing points not covered by the package.
This package does not solve the problem and limit the damage; but it reflects a favorable approach. It is good that the government did not reject the offer to dance.
This commentary was published in Referans daily on 06.06.2009