• March 2024 (1)
  • December 2022 (1)
  • March 2022 (1)
  • January 2022 (1)
  • November 2021 (1)
  • October 2021 (1)
  • September 2021 (2)
  • August 2021 (4)
  • July 2021 (3)
  • June 2021 (4)
  • May 2021 (5)
  • April 2021 (2)

    Or is Mr. Erdoğan not completely wrong? How about the caches of firms?

    Güven Sak, PhD10 November 2009 - Okunma Sayısı: 1128


    Do you follow the Asian economies nowadays? They are performing really well. In Asian economies, exports are quite important. Yet, world trade does not reflect an astonishing recovery. So, looking at the impressive performance of Asian economies, one wonders what goes on. What is that which they have but we do not? Is it that the caches of firms there are wider than ours? Honestly, what does the firms' caches talks put into our minds by Honorable Prime Minister of Turkey imply? Or is not Mr. Erdoğan completely wrong? How about the caches of Turkish firms? Let us see where do we head when we ask questions one after the other.

    Asian economies demonstrate an impressive performance in the process of recovery. Korea's economy grew by 3 percent in the third quarter of 2009, Singapore grew even faster and China experienced 9 percent growth in the same period. First let us give the references. Notes about this subject are taken from IMF blog called IMFdirect since the beginning of November (

    So, why are these growth figures interesting? Asian economies are in principle dominated by exports. Considering value added one third of the national income is generated by exports. Nonetheless, world trade does not demonstrate an astonishing recovery. Yet, there is an impressive recovery trend at the global scale. The question to occupy our minds is: What does the difference between Asian economies and other world economies lie?

    According to what Anoop Singh from IMF writes, first difference of the Asian economies lies in their response to the global economic crisis. These countries implemented strong fiscal stimulus programs similar to those introduced by developed countries. These programs created a positive effect on growth since the beginning of 2009. Policy activism served its purpose. As bad as policy inertia was for Turkey, policy activism was beneficial for Asian economies. This is the first point to consider.

    So, what is the prerequisite for ambitious fiscal expansion programs? It is to be prepared. A strong budget is the prerequisite for the credibility of fiscal expansion programs. It is of importance to ensure the flexibility to create budget means for fiscal expansion. The basis of the recent period fiscal policy is introducing in a credible way the funds to increase public expenditures. The countries failing to do this have to watch the ones managing to do this. How is Turkey's performance in this field? Purpose of the monetary policy of Turkey put forth with the Medium Term Program does not aim to save from unfruitful expenditures to raise fruitful expenditures. The Program seems to raise prices and taxes in order to make the inflexible expenditures to be made in any case under lower budget deficit. To be honest, the route designed to avoid the IMF appears to have a side effect of putting powder on the fire. The reason why the measures to be implemented were not communicated in sum is most likely that they are not in a form to be communicated in advance. Can we announce in 2009 the raises in electricity and other prices to be made in 2010?

    The third interesting point about Asian economies is the high corporate savings. Firms in Asian countries do not pay out profits as dividends. They mainly finance their investments through equity capital. In this context, firms translate period income into working capital. These internal resources arising from each production circle are accumulated in the balance sheet as corporate savings. As IMF suggests, there are two main reasons for this: First is that the rules about corporate governance and shareholders' rights are not developed enough. Second point is that the financial sector as a whole is not developed enough and access to finance for firms is limited. If there is a "corporate wealth" generated from the accumulation of internal resources, it becomes possible for the firm to initiate its own growth to replace its inventory or make use of another opportunity. We had better analyze this fact as well when assessing the performance of Asian economies.

    In the case of Turkey, research reveals that internal resources are of importance for financing corporat investments. "Corporate wealth" stemming from the accumulation of internal resources is nothing but a part of cache of firms pointed out by Honorable Prime Minister of Turkey. So, what is the result? It is that firms could have caches. So, in what condition the caches of firms in Turkey can be? This is another question which can be analyzed later.

    For now, Honorable Prime Minister of Turkey does not seem completely wrong.


    This commentary was published in Referans daily on 10.11.2009