It is signaled that business people tend to be more cautious due to the current milieu facing the world.

The Greek parliament has to adopt the planned budget measures for a certain part of the loan extended for Greece to be released and for the additional bailout package decided by the European Union to be approved. The voting is scheduled on Wednesday. The ruling party holds 155 of the 300 seats in the parliament. But it is announced that some MPs from the ruling party declared that they are against certain proposed measures. Meanwhile, a 48-hour general strike is taking place. Still, it is expected, or more correctly hoped, that the measures will be adopted with the support of some MPs from the opposition party.

The unrest about Greece
The circumstances in the neighbor Greece closely interests Turkey. The country is on the world agenda since the late 2009. It appears that this will continue even if the measures planned by the government are adopted and the additional loan package is received. The valuable time lost since the late 2009, the fact that the European Union gave the patient, who needed 4 antibiotics a day, a half, then one and finally two antibiotics, the delays in the treatment and the failure of Greece to somehow undertake its responsibility have exacerbated the problems.

This milieu righteously bothers the Turkish economic administration. On the other hand, it helps the Central Bank of Turkey (the CBT) to reach the objectives on the agenda since the second half of 2010. Due to these developments in particular, independent of the relevant CBT and Banking Regulation and Supervision Agency (BRSA) decisions, and the current milieu facing the world in general, signals that business people tend to be more cautious started to be witnessed. A certain slowdown in credit demand might be observed.

Meanwhile, another development which might have two different impacts on Turkey is witnessed in the US: There are many indicators revealing that the US economy is recovering much slowly than expected. President of the Federal Reserve (FED) Bernanke stresses this phenomenon in a speech in last week.

Time was saved
If these estimations prove right, the negative effect on Turkey will be the following: If the world economy recovers later than expected, the desired pace of increase in Turkey's exports will most likely be achieved later than anticipated. There also is a possible positive effect, if the opportunity can be seized: FED is not expected to increase interest rates in 2011. This is good news in particular for countries like Turkey which attract short term capital flows.

If the FED had initiated the interest rate hikes, consecutive and gradual decisions to increase the interest rates would have taken place in the US. In that case, short term capital inflows to countries like Turkey would have slowed down or would be reversed to some extent. This possibility is postponed for now. Therefore, the economic administration earned time to limit the rapid credit expansion considered to be the number one challenge. In addition, they have saved time to introduce additional measures tailored to slow down the short term capital inflows. Nonetheless, it is evident that in order to make use of the time in the best way possible, an intention to this end must be in place.

Let me finish with some notes on the BRSA decisions announced after the elections. To begin with, I want to draw attention to the fact that the decisions do not cover all consumer loans but applies for approximately half of the consumer loans. Moreover, it should be noted that it is of critical importance to what degree credit demand is sensitive to the credit cost (interest rate). In other words, the following question must be answered: "By what degree the interest on credits should be increased so that the credit demand decreases?" Third, it should be considered that by increasing the number of installations     monthly payments can be kept constant despite the rise in the interest rate. The recent decision by the BRSA on the capital requirements defines additional cost on credits only for receivables with more than two years to maturity. Nevertheless, the last point I mentioned must still be regarded.

This commentary was published in Radikal daily on 28.06.2011