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Chickens have come home to roost
We are going through complicated times. Interesting things happen. In June, we say "Oh! Thank God the economy contracted only by 10 percent" and cheer up. On the one hand, "Masallah! You are doing very very well" propaganda goes around whereas on the other hand prevails a "we are ruined, we are done" climate. In such an environment, it is of importance to decide what to do. However, the information pollution prevents not only making a decision but even thinking on one. Therefore it becomes impossible to set priorities. Today, let us examine why protecting export markets is the priority for Turkey and reach a conclusion: Turkey needs an intensive export incentive system. What matters today is protecting the already existent. It is not time to leap forward. Let us see why.
We should come to know that economic crisis and even civil wars does not completely destroy and sweep away countries. I have observed this first time in my visit to Beirut in 1995. The period of civil war made a certain part of Beirut impossible to live. But restaurants out of the borders between the two sides of the war continued working. Life went on. Are not periods of economic crisis the same? Life goes on. A couple of changes are introduced. Directions not to be head toward are determined. Not-to-do-list becomes a little longer. But life goes on whatsoever, just as it is in Turkey currently.
Let us start from this point. What is the general outlook for Turkey in 2009? As was caught by the 2008 crisis before making the necessary preparations, Turkey has to bear the consequences in 2009. The cost of not getting prepared is 5.5 percent contraction in 2009 according to TEPAV's calculations. So what? So, there is no sense in saying "Thank God! 10 percent contraction in June is even amusing!" If the economy is to contract by 5.5 percent at the year-end, rates similar to that in June will be observed till the end of the year. The situation is exactly a "chickens have to come home to roost" situation.
The sad part is: Turkey could have not contracted that much in 2009. The prerequisite for this was to launch a series of measures right at the beginning of the crisis. TEPAV report published in March 2009 was talking about this. But what happened instead? The government failed to acknowledge what is about to hit the economy. It also failed to take the necessary measures. What were these measures? Those measures are what they are trying to take just now (almost after a one year delay). Those measures are the restructuring of cash outflows of firms through Credit Guarantee Fund; expansion of spending opportunities for consumers; signing of an agreement with the IMF; disciplining the budget, and so on. Nonetheless, none has been accomplished yet. Steps failed to be taken at all or in time have deepened the 2009 contraction. With the hand of the government, Turkey was dragged into a process where the impacts of the crisis would be felt more. Turkey's crisis vulnerability intensified. There is nothing else to do to save 2009. Deep contraction is the destiny of 2009. Remember that we said this can be prevented. We also explained what waits us otherwise. Now, all of those have been happening. Let us repeat loudly once more so it does not slip our minds: Indeed, chicken have come home to roost.
And let us take a look at what is next: When doing this, it is necessary to closely examine the four factors that dragged us to this point: foreign demand, foreign credit conditions, domestic demand and domestic credit conditions. Positive growth from 2009 to 2010 will be completely mathematical and infertile. 2010 growth will be so infertile that it will make us miss the 2002-2006 period.
Why? Firstly, foreign demand will not burst. Second, foreign credit conditions will not be the same as the past. Third, given these external conditions, increasing domestic economic activity will be directly related with the measures to be taken. So, let us forget about the domestic developments and observe the foreign milieu.
In the rest of 2009 and in 2010, Turkey at least has to protect its position in the shrinking export market. However, figures indicate that Turkey loses market share to countries like China, Indonesia and Egypt. Why is that so? First, rivals of Turkey support their firms in the shrinking export market. Here, developing countries are not the only ones to blame. Investigations carried out by the World Trade Organization, developing countries rank the second behind developed countries. In fact, in the rate of increase in the number of investigations, developed countries leave behind developing countries. So, our rivals directly support their firms. That we just watch while they provide support is an indicator of negligence. Second, appreciation of the Turkish lira (TL) hinders exports. Nowadays, a depreciation of Turkish lira must not deceive anyone. Stability of the value of TL is of great importance in the current period of uncreative destruction. Third point follows the first two: commentary by Ugur Gurses published on Radikal daily yesterday; on CBRT's balance of payments revision must be read together with the finding published by TEPAV that import payments are made in cash. Along with the fall in imports, foreign exchange denominated operating capital stock kept to make import payments are used for inflexible domestic payments. This makes the appreciation of TL systematic, which is not sustainable in terms of export finance. Why? It is not sustainable because compared with the past, there exists no exit possibility.
The conclusion to be reached is the main point this commentary is to state. Time has changed. Turkey's priority must be designing an incentive system to protect the market share in export markets and immediately implement the system. A priority is on any ground a priority. Turkey must re-explore the Ozal period of 1980s. We will address the domestic climate later.
What must be kept in mind is as time changes, priority changes.
The trick is to notice the change.
Otherwise, we have an easy task to succeed in. Let us repeat: "What gives us trouble today is the tasks we failed to succeed in yesterday."
This commentary was published in Referans daily on 13.08.2009