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Immediate cost of not signing an agreement with the IMF is reflected in unemployment figures
Have you read the news analysis on Turkey recently published in New York Times (NYT)? The analysis emphasized that Turkish government, who made a bet by not signing an agreement with the IMF, so far seemed to win. The emphasis was put on "so far"; but the news hit the headlines in particular in certain media. As the news analysis suggested, exchange rate did not jump as high as expected; interest rates decreased and the Istanbul Stock Exchange has risen to record-high levels. Thus, the government has won the bet. NYT's analysis also reflected successfully the fact that economic paradigm change was acknowledged completely not only in Turkey but also in the rest of the world. Remember all the commentaries we wrote with the "concepts are not the same anymore" focus. In 2008, we said several times that the crisis contains a slow death scenario we are not accustomed to. We addressed frequently that single digit government debt securities (GDS) interest rate should not be interpreted optimistically. And we did not forego telling the benefits of the IMF. Today, let us return to the same issue through the title statement. Turkey made a huge mistake not agreeing with the IMF at the dawn of the crisis. And this statement is not at all questionable. "Incorrigible betting habit of the administrators" as NYT has put successfully, have put a heavy cost on our shoulders, unlike what NYT interprets. Let us see what this cost is.
If Turkey had signed an agreement with the IMF in 2008, Turkey's economy would not have contracted by around 6 percent and number of unemployed would not reach 5 million in 2009. Instead, employment and production losses would have been more limited and controlled. It would be possible to control the damage. TEPAV's 2009 estimations announced in March 2009 and sent to relevant ministers and bureaucrats even six months earlier successfully summarize this situation. Let us name it: As TEPAV'S calculations suggest; should Turkey had signed an agreement with the IMF, economy would have contacted by 3 percent rather than 5.5 percent and annual unemployment rate would have been 15 rather than 16.6 percent. But, this did not happen. No one took steer or those taking the control of the steer did not want to run the car. Turkey was covered with a senseless inertia. A certain part of the unemployed people all around the country are the victims of policy inertia rather than of the global crisis. Irresponsibility of the government made all of us pay a cost. This is the first point.
However, this is not the sole cost of not signing an agreement with the IMF. Along with the high unemployment problem, loss of the control of the public budget due to policy inertia must also be added to the technical cost of not signing an agreement with the IMF. Mood of inertia have prevented the government to take a measure to discipline public budget in time. So what happened? The government that has to take a measure to reduce unemployment will not do so saying that public budget does not allow it. So, it will not be possible anymore to reduce the damage on the existing capacity. It will be necessary to add losses in near future to existing losses. And this is the second point.
And the third point: That the government did not even add to the agenda agreeing with the IMF made the measures to tackle the crisis issue a secondary issue. Turkey newly acknowledges what economic crisis means. The whole context of economic policy discussion was squeezed within a confined space with the "the crisis did not hit us" talks just to show the IMF the door. A mistake was made; and not just once. The mistake was made twice. While it was possible to take more radical real sector measures and expand the budget space with the support by the IMF, this opportunity was missed completely and there is no second change.
So, what will happen next? The "chickens have come home to roost" principle will definitely apply. Those who failed to develop any attitude will have to do so today. Tomorrow will be tougher than today. This is the situation whether you like it or not. There is no way to prevent it. An agreement with the IMF will be signed regardless of whether the government wants it or not. They had better do this representing a "see, we have the control" image; otherwise the agreement will be signed one way or another.
In the meanwhile, the actual cost will be piled up in the social policy area. Now, Turkey will need more active "anti-poverty" programs.
Poverty has increased in Turkey just to spite the IMF.
Kindly submitted to the information of Honorable Prime Minister of Turkey
This commentary was published in Referans daily on 03.09.2009