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The ones missing the essence of the matter will just be laughed at
Life is becoming harder and harder for the ones missing the dynamics of the global economic crisis. Are you aware of the local example that is apparent with all aspects? Lately, the countries all round the world are shaken as the impacts of the global crisis are becoming apparent in full flood. However, in case of Turkey, our rulers are of the opinion that there is no anomaly. Honorable Prime Minister of Turkey recently said that "The economy will begin recovering as of June". Minister of Treasury had expressed "interest rate and exchange rate are on track thanks to the measures we have taken". There is the dead of winter outside, but the rulers are talking about sunny summer. In such a period, the ones failing to keep in mind or even recognize the essence of the matter will just be laughed at. They might not feel embarrassed, but they will certainly be laughed at. This is not what we think; this is what the trends in the international fund flows imply. People that do not pay attention to this tendency cannot get through this period.
The situation we face is a sad example of a "mute and mold" situation. Turkish government not only seems to have sworn not to take a considerable measure to tackle the biggest disaster the humanity in the latest phase of its existence has encountered, but also demonstrates the "everything is under control" image. If everything is under control as much as possible, what does the unemployment figures imply? The problem of masses comprised of about 2.5 million people, a gift of the 2001 crisis to the unemployment figures, has not been solved. Yet, the effects of a new shock are started to be felt. Unemployment data as announced yesterday by the TURKSTAT reveal that the number of unemployed increased by 645 thousand from November 2007 to November 2008. The situation is severe.
So, how does this crisis differ from the previous ones? Previous crises led to significant price fluctuations. Now, however, significant quantity adjustments take place. For the ones thinking that crisis means significant price adjustments, quantity adjustments may not seem like a crisis at the first instance. But this perception is completely wrong. There exists a perception fallacy. The fact that prices remain constant does not mean there is no crisis. Prices remain constant as the crisis simultaneously hits the markets closely integrated into one another, including Turkey. Supply and demand deteriorates simultaneously for all countries. However, prices remain constant as they both move in the same direction. I am wondering whether the people unaware of this simple introductory economic phenomenon are as well unaware that Turkey, as of 2001, has been rapidly integrating into the global economy.
Turkey is under the impact of the global crisis. Unemployment figures also prove this. The contraction of the Turkish economy shouts that the country is under the impact of the crisis. Export figures testify the existence of the crisis. Recovering current account balance figures testify the existence of the crisis. The whole world is conveying the signals of the crisis. Let this be the last call to the ones that do not see or feel the crisis.
After this point, the indicators will only become clearer. Ostrich tactic has not worked. It is useless to bury our heads in the sand. I am wondering, are you aware that "Turkey is now leaving behind the period to take measures and entering the period to list the symptoms". In a short while, Turkey will enter the phase: "The doctor says it does not matter; do whatever you want". It will be wise to get prepared for the free fall.
The crucial thing to do in such a period is to pay attention to the essence of the matter. This crisis in no aspects resembles the 2001 crisis. This crisis is way worse than the 2001 crisis. TEPAV economists have graphed the prospected tendency for the international fund flows. In doing this, they used the 2009 estimations by the Institution of International Finance (IIF). The graph can be seen below. And the related evaluation note can be found at TEPAV website.
Figure 1: Share of Private Capital Flows to Developing Countries in GNP of Developing Countries
It is possible to reach three conclusions from the graph showing the share of the fund flows toward developing countries in the national income of those countries. The first one is obvious: The level of private capital flows toward developing countries like Turkey is falling down to the pre-1980s levels in 2009 and most likely in a couple of years after.
But, what does going back to pre-1980 period mean? Going back to pre-1980 period means going back to a period where capital accounts liberty does not exist. In 1980s, financial liberalization measures coming on the agenda in countries like Turkey established the channels required for the flow of international private funds toward countries like Turkey. The thing that shall be noticed under this context is that today, there exists a structural problem. Since the channels and bridges ensuring the fund transfer toward countries like Turkey have collapsed, the share of capital inflows in the national incomes will steeply diminish. This is the second point. And please note that this is a medium-term problem.
The third point is directly related to the need for coordination. Let us highlight the issue: To ensure fund transfers toward countries like Turkey, there is a need for the design of a new interim period based on inter-governmental fund transfer. This need is observed regardless of whether it is desired. Simultaneously, within countries like Turkey, it will be necessary to built new channels that will transfer funds from the public sector to the private sector. The ones failing to notice this need cannot direct this period. In this context, if the G-20 fails to put forth a successful coordination example, the corporate and banking sectors of countries like Turkey may inevitably become a part of the problem. It is important to foresee and anticipate the future.
It is definite that the river meant to flow will flow anyway. The challenge for Turkey is the following: Shall the flow be transferred towards areas where it can be efficient through certain channels and in a controlled manner or shall the effects of the crisis be aggravated with floods and consequent losses? The ones missing the essence of the matter will end up being laughed at.
Once again submitted to the attention of the ones failing to see and feel essence.
This commentary was published in Referans daily on 17.02.2009