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Where does the difference between Korea and Turkey lie?
Nowadays, figures pertaining to the economy are not as exhilarating as before. Export figures for January indicated a 28% decrease. Yes, the performance of Turkey is bad, but are the Asian countries shown as examples of export-oriented growth model performing better? No, they are not. Recently, January export figures for Korea were also announced; exports of Korea have diminished by 32.8%. What is the result? Korea, one of the export leaders of Asia, is experiencing a trade deficit just like we do and more importantly for the first time since the Asian crisis of 1997. Then, where does the difference between the Korea and Turkey lie?
Let us state a few points to begin with. First, the deterioration of the export performance of Korea in January is the continuation of the deterioration in November and December 2008 manifested itself with a fall in exports by 18.3 and 17.4 % respectively. Thus, January figures represent an ongoing trend. Just as it does in Turkey, right? Here in Turkey, exports fall by 22 and 21 % in November and December, respectively. World demand has been rapidly decreasing. Furthermore, South Korea is not the only Asian country experiencing a fall in exports. A similar trend can as well be observed in Japan and Hong Kong. Therefore, Turkey is not alone as regards the changes in export figures in January. The same tendency can be observed in any country.
Second, if we take a look at the export markets for Korea, we see that the exports to the US and the EU countries constitutes approximately one thirds of the total exports. Another one thirds represents the exports to the East Asian markets. Let us remind something: Korea is among the countries positively affected by the Chinese growth. As China grows, the export volume of Korea grows. However, China's current growth performance is far worse from the past. Recently in China, approximately 20 million immigrant workers moving to the eastern part of the country to work have lost their jobs. The great migration has started, but this time to the opposite direction. Can you imagine? Twenty million people losing their jobs means like a medium-size industrial country has completely withdrawn from production. So, as Chinese economy contracts, Korea experiences trade deficits. At this point, it will be wise to highlight that, exports to the US and the EU countries corresponds to two-thirds of total exports of Turkey. It is obvious that as the EU and the US economies contract, exports of Turkey will deteriorate. It is indispensible that Turkey will get affected by the contraction just like Korea.
Third, it is not only the export figures that illustrate a contraction. Import figures are also representing such a trend. Therefore, overall world trade volume has been decreasing. Let us strengthen the point made above: World demand has been rapidly decreasing. The problem is not valid only for Turkey. However, it is also important that we are directly feeling the impacts of the problem. Fourth, according to the latest data announced for the US, level of savings has been rising. This is an unusual development: as the Americans started to save again, world trade volume has started to fall down. Nothing in life is a coincidence.
At the beginning of the column, we said "figures pertaining to the economy are not as exhilarating as before". Yes, they are not. Figures are not joyful anymore. Just look around: Treasury bill interest rates are falling down. Inflation is falling down. Current account deficit is falling down. However, these are not exhilarating us anymore. We are not exhilarated, because the Turkish economy is contracting and unemployment is rising. But note that the situation is not unique for Turkey but valid all around the world.
Until this point, there is no difference between Korea and Turkey. Both Korean and Turkish economies are integrated into the global economy; each is a world economy. Both countries are under the impact of similar global trends. Negative effects of the demand fall originating from the US are felt in both countries. None of the two countries' banking system is problematic. Nonetheless, the government of the Republic of Korea does something different than the government of the Republic of Turkey. Let us see.
First, in December the government of the Republic of Korea announced a package including tax cuts and public spending totaling to almost 100 billion USD. Though the impact of the mentioned decision is not observed yet, the government has chosen to take measures without wasting time. In particular, measures targeting to the automotive industry which employs almost 270 thousand workers have been announced. Korean government turned its steps toward preserving the production capacity of the economy. Second, government of the Republic of Korea is to introduce a regulation in particular to prolong the terms of SME credits. In this context, Korean banks have been provided with state support. Third, by means of credit guarantees, measures enabling the banking sector to offer credits to the corporate sector have been taken. The aim of these measures is apparent: The cash balance of the corporate sector which was collapsed due to the crisis is tried to be reestablished. The aim is to reconstruct the current cash outflows in parallel to the cash inflows.
Though the problems are the same in Korea and Turkey, the responses given are different. And this is the fifth and the last point of today.
But, why do you think this is so? It is not likely that there is a diagnosis problem. The right thing to do is the same everywhere. So, the difference most likely has to do with the decision making process. This is where the difference lies: In Korea, decision making process functions more easily.
Turkey will definitely make the necessary decisions sooner or later. However, it will be too late to save some companies. But, the decisions will definitely be made; either for the sake of the corporate sector today or for the sake of the banking sector tomorrow. The right thing to do is the same everywhere.
Let us hope that the establishment of the Economic Coordination Board (ECB) will rapidly accelerate the decision making process in Turkey, because this inertia will not make any good for anyone.
This commentary was published in Referans daily on 05.02.2009