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    “I am currently feeling what the figures will tell you two months from now”

    Güven Sak, PhD10 March 2009 - Okunma Sayısı: 1200


    A few days ago, a businessman while explaining senior bureaucrats the problems companies in his city face said "I am currently feeling what the figures will tell you two months from now". Is not this basically what happens? Nowadays, balance sheets for 2008 are being announced. What do we learn? We learn the condition of the company in 2008. Now, it is March 2009. Turkish Statistical Institute (TURKSTAT) announces 2008 data with a similar delay. As a result, what is going on is reflected on the figures with a two-month delay. Balance sheets are announced and the crisis becomes evident. Announced balance sheets do not provide new information. They just validate what was evident months ago. And they underline how much Turkey needs an emergency evaluation mechanism. Today, let us emphasize how the corporate sector has been affected by the crisis nowadays. Let us evaluate the figures to be announced two months from now and see how authorities and decision makers accelerate the downfall.

    What are the reasons behind the bad performance in 2008? There are two fundamental impacts at the initial phase. First is the fall in raw material prices. Second is that domestic and foreign demand evaporated. The crisis has affected countries like Turkey differently. Let us begin with the fall in raw material prices. This fall seriously hit the firms that thought that raw material prices would rise above the initial level and thus accumulated raw materials in their inventories. The same is valid also for finished products. During the crisis period, firms observed that the cost of the products they produced was above the price. While the tightening of demand decreases prices, costs still reflect the dynamic of yesterday. So, what happened? Firms lost their working capital right at the beginning of 2008. This is the first impact.

    As we mentioned before, second impact is the evaporation of domestic and foreign demand as a result of the crisis. This disrupted the cash balance of the corporate sector. Companies that have signed contracts that will lead to cash outflow assuming that they will receive cash inflows at a certain level lost the ability to fulfill their commitments due to the deterioration in cash inflows. Let us exemplify it: A company that made borrowing assuming that 100 cars will be solved per month, acknowledged in dismay that it will not be able to repay its debt as it understood it can sell only 15 cars per month. What is necessary for the firm to survive in such an environment is debt restructuring. And this is the second effect at the initial phase.

    How can we evaluate the discourse of two fundamental impacts at the initial phase? The crisis was transmitted in Turkey through external sources. This is not Turkey's crisis; this is the others' crisis. It is the first point. Second, the crisis emerging in external sources hit the corporate sector from the heart. The crisis did not "slightly touch" Turkey. And the third is the issue is related to the banking sector.

    So, how did the corporate sector respond to this situation? They followed the advice of honorable Prime Minister and decision makers. Thinking that the crisis will slightly touch Turkey and disappear in a few months, they invested additional capital or borrow at high interests to overcome few harsh months. What does investing capital means in an environment where the aforesaid two impacts are evident? It you invest capital, you pay your debt but then bankrupt. Those who did not follow this option and tried to take measures beginning from 2008 chose to reduce operations systematically. January manufacturing industry growth figures, which is "minus 24.2 percent" as announced by TURKSTAT yesterday clearly indicates this trend. Balance sheets for March will validate the result more clearly. And the picture will appear much clearer in a few months.

    What is the difference between introducing measures in 2008 and looking around to find a solution now? The corporate sector has wasted the armaments at hand. They have wasted the resources that should be spent to reduce operations systematically to pretend that "things will turn back to the start". Wasting resources is bad. In such an environment, it is two times worse.

    The same situation is valid also at the national level. Wasted time both increased the cost of measures and reduced their efficiency. In fact, both have the same outcome. In past, one unit of measure would have ensured three units of relief. Now, it can ensure only one unit of relief. There is an old saying, "early bird catches the worm". But; you snooze, you lose. The issue is; the path is challenging.


    This commentary was published in Referans daily on 10.03.2009