Have you ever visited Dubai? Those who did know how unreal it looks: it is like Disneyland. There is nothing genuine; it is all imitation. At least this is the impression I get. Liquidity abundance before the 2008 crisis led to a real estate madness also in Dubai. It was when those huge buildings were constructed. It was then when the fake city called Dubai rose over the desert. Back then, money could make things happen. You could carry out an activity worth hundred dollars with only one dollar. Payback time came along with the crisis. On the eve of the Sacrifice Festival, Dubai World, public company administering these activities in Dubai, requested to delay debt payments for six months. Asking a six month delay in effect implies a call to restructure debts. Minister of Finance of Turkey, Mehmet Şimşek, said "Dubai does not affect Turkey "directly."  Let us see how this incident can affect Turkey "indirectly." Or does this incident imply that the W possibility rose during the 2008 crisis? What should we conclude from the Dubai incident?

Now, let us skip the details and derive several conclusions that can affect us all. First conclusion is: Each firm has a certain level of endurance. That you have survived until today does not necessarily mean that you will also survive tomorrow.  2008 crisis have lasted too long. Firms fail to reproduce their working capital but spend it for a couple of production periods. Nonetheless, the trick here is to reproduce the initial working capital again and again. For instance, it is crucial to make debt payments in each production period out of the amount added up to the working capital. And this is exactly what firms fail to do for a while due to the crisis. We are thus going through a period where the endurance of firms with debts, except those who have a wide base of working capital and/or have easy access to credit, is tested over and over each day. This is the first conclusion derived from the Dubai incident.

Second, if we assume that the above conclusion is correct, in the coming period a group of firms will come to the end of their endurance both in Turkey and in the world. Whether or not a second trough comes will depend on the total size of such firms. Everyone visiting Anatolian cities can easily see that such firms exist. Obviously, there are many of them in number. And we will see together what their size is. End of 2009 and beginning of 2010 will bring the end of endurance for many firms. Banks have the means to determine better the endurance of firms. Therefore, Dubai World incident must not be assessed as one related with financial sector alone and directly. For instance it is closely related with the endurance of the real sector.

Third point is: We cannot expect that economic activities will not be affected by the shift from a period where the norm is carrying out business with high debt ratios to a period based on lower debts or higher owner's equity. If one dollar that could be translated into a hundred dollars of business yesterday now brings ten dollars of business; this will definitely imply an economic contraction. The issue here is related not directly with Turkey; it is global. Therefore, Dubai incidents provides us with a framework considering what can happen during the shift from large to lower debts. In this sense, this incident is valuable as a lesson.

From this angle, Dubai incident is not limited within the fake city of Dubai. Dubai is the signal of good old days. Does this incident affect Turkey? Both yes and no. It does not affect Turkey directly except the construction projects in the bay. However, three points must be emphasized. First, if the Dubai incident is a signal for the endurance of firms; such a signal also applies for Turkey. In this process, the prolonged crisis period and the still-dead domestic demand will be determinant. Second, international funds did not tend to adopt a home bias along with the Dubai incident. The reason is that the returns on investment at home are low stemming from the crisis. Considering fund flows; we are at a period where the "good" and the "bad" disassociated. Turkey will lose its chance to receive funds as long as no deal is signed with the IMF and the applicability of its budget is under discussion. This period of deterioration, which is already on the track, is expected to get severer along with the Dubai incident. Third, though debt of the Dubai World is not in effect the debt of Dubai government, the deference of payment will increase the risk responsiveness of the global capital about public debts. In this context, it will be wise to expect that Turkey will be affected adversely.

Turkey needs a story like that Brazil has.

Lula has overtaken Erdoğan. He is aware of the steps he takes. Though he will be retired; he will strengthen the cards at the hands of his party for the coming elections.

This commentary was published in Referans daily on 03.12.2009