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It is never too late to mend
For the last three days we have been talking about the negative impacts of the global crisis on Turkey and how these impacts can be limited. Actually, it is possible to say that this subject is depressing. While we were discussing on growth strategy only two years ago, the recent subject is successful management of the contractionary period. Crisis management mainly means ensuring that the economy nowadays will contract orderly. In this context, crisis management does not refer to the elimination but limitation of damage. We have two options: Either the crisis will manage us or we will manage the crisis. Former will incur more damage. This is the first point the study carried out by TEPAV reveals.
We underlined one thing at the very beginning: A global crisis requires global solutions. Therefore, national governments would better pursue a bipartite strategy. Here, the first strategy is to develop a mixture of measures that will limit the damage at the national level, and the second strategy is taking part in the international coordination of measure packages. The statement by the IMF President, as we also referred to in this column yesterday, shows that the IMF is "planning to assume a new role pertaining to financing international coordination of public interventions." This is a favorable development. This statement verifies once more the importance of the G-20 meeting.
The second point is this: National governments shall not implement individual domestic measures but work on a specific mixture of measures. The trick here is to decide on the correct mixture. The objective is apparent. It is to ease and limit the economic contraction. The measures to be implemented shall first ensure gains in growth and employment. The gain here refers to the limitation of the loss. It seems possible to ensure growth and employment gains by stimulating domestic demand along with remedying the disturbed cash balance of the corporate sector. In an environment where the number of unemployed people is about to reach 4 million, no government can be indifferent to the problem. It is time for activism in the economic policy, one way or another. What must be done is to decide on the correct mixture of measures and policies.
So, what is the lack of the TEPAV study? Let us underline another point: Unlike the headlines given in this daily from time to time, TEPAV study does not recommend a specific solid measure mixture. The examples given in the study are a sort of indicators. If a measure targeting to increase public expenditures is implemented to stimulate the economy, it creates a positive impact. The only way to do this is not to provide bonus checks to the public. Tax cuts can also fulfill that purpose. The important thing is to point out that an intervention devoted to "ensure economic stimulation" to a certain degree can work. The same thing is valid also for the Loan Guarantee Mechanism recommendation. The important thing is to encourage banks to restructure the contracts the corporate sector had signed. Providing guarantee for loans is not the only way to accomplish this aim. Any other support mechanism that will strengthen the capital of the banking sector can also work and lead to the same positive impact. And this is the third conclusion to be reached.
Naturally, any public intervention has an impact on public expenditures. Each measure to be taken has a cost and a benefit. TEPAV study mainly presents a cost-benefit analysis framework. The benefit works through two channels. Primarily, policy activism will have a positive impact on consumer preferences as it will spread "the feeling that the crisis is being managed". Turkey needs to trust in itself again. Active government policy will contribute to the rebuilding of this trust. Second, active policy will directly generate growth and employment gains. This is the benefit side of the issue and the fourth point for today.
The cost side of the issue is the burden of the measures on the budget. The conclusion reached at this point is that as the measures generate growth and employment gains, the budget deterioration stemming from economic contraction will automatically be limited. Active government policy, by leading to growth and employment gains, limits budget deficit; i.e. in a way finances its own cost. The process in which the measures will be effective shall be considered as a dynamic process. And this is the fifth point to make.
The atmosphere paralyzing the decision making mechanism of Turkey is finally coming to an end this weekend. The way to turn the new week into a new period is the assumption of a more active stance by the government. This is the only way to limit the cost the global crisis puts on the shoulders of Turkey.
It is never too late to mend. This is the message delivered by the TEPAV study.
This commentary was published in Referans daily on 27.03.2009