It is like we are living in a global Hodja Nasreddin anecdote. We get amused for finding what we had lost. The world has been trying to compensate for the loss of the economic crisis that has completed the second year. Therefore, the matter at hand has a dual character. On the one hand, we are no longer at the bottom of the pitch as we were two years ago. However, we are yet not out of the pitch, either. We are in the middle. Meanwhile, some countries perform better than some others. For now, Turkey is not among the best-performers. We will continue questioning why. But first let me finish my undone business. Last week I was questioning why the exporters are not happy with the current value of lira. Today let me finish with this issue so that I can switch to the "what must be done" part. First the identification, than the diagnosis and finally the prescription.

Let me summarize the previous discussion first. Export market has been expanding back but quite slowly. All countries try to compensate for their losses. Some do this more rapidly. Concerning the export performance, Turkey is not among the rapid recoverers. In the first quarter of 2010, the export markets recovered by 27 percent whereas Turkey's exports improved only by 7 percent. The first reason to this related to the geographical location. European Union is the biggest export market for Turkey. The said market has regained 85% of the size before the crisis as of the end of the first quarter of 2010. Some countries have increased their market share despite the contraction of the market. Turkey is not among this group that includes China, Poland and Czech Republic. We have to monitor whether this market share gains will be permanent calmly and without disregarding the reality. You cannot find with reality, as we argued before.

Did not Turkey achieve anything, then? It certainly did. We can extract two success stories from the above discussion. First, Turkish exporters managed to survive in the face of stiff competition. Turkey is trying to maintain its share in the shrinking European Union market. In fact, they managed this despite the labor-intensive sectors. This is the first point to keep in mind. The second is that Turkey succeeded in diversifying export markets rapidly in the period of crisis. It tried to respond to the contraction in European Union markets by opening up to new export markets. Although €1.4 billion was earned against the €3.8 billion of loss, Turkey has a promising ability in "diversifying export markets." This is a sign of buoyancy. The shift of axis in this regard is not a negative development.

Then, in this picture, how must we need the exchange rate debates? The first point is already emphasized above. Turkey has been trying to maintain the export markets and the stiffer competition in the face of shrinking markets melt down the earnings of exporters. Second, the global crisis has completed its second year and therefore Turkish exporters, at least some, face a challenge of resistance. It is not at all easy to bid in the face of a crisis the end of which is yet to come for two years. Exporters are still unable to predict the future.

The third point is related to the costs in lira terms. The below table shows the changes in rent, water, electricity and natural gas bills and unit labor costs as well as the exchange rate movements. When 2006 is taken as the basis year (2006=100), the cost of rent increased from 100 to 151.9 (an increase by 52 percent approximately) by the end of the first seven months of 2010. Domestic costs increased whereas the Euro/Dollar parity did not change, furthering the drops in markups of exporters. Exporters are complaining not only about the international competition but also the rise in the domestic costs. They in a way are unhappy with the domestic inflation. It is evident that exporters have a problem, which should be solved.

Table 1. Cost Items for Exporters and Euro/Dollar Parity   (2006=100)

Source: TURKSTAT, CBRT

Nevertheless, the costs of all items did not increase as the table also demonstrates. In fact, real labor costs decreased from 2006 to 2010. Cost of labor per unit of product decreased due to the crisis. Similarly, the unit tax in the labor market also decreased with the state subsidies. Since 2009, 20% of the social security premiums of employee's have been financed by the Unemployment Insurance Fund. Then, it will be wise to assess the picture more carefully.

The increase in input costs for exporters must be analyzed separately for each sector to identify the impacts on Turkey's export performance. The importance of the cots items given above might be different for particular sectors. In that sense, only upon sector-specific detailed analysis it is possible to develop meaningful solutions to exporters' problems.

So, is there any effort to this end? Not yet.

Then, the debates on the value of the lira currently hang in the air.

As Uğur Gürses emphasized the day before, we had better focus on input costs and input price inflation now.

Let us wait and see.

This commentary was published in Referans daily on 12.08.2010