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    A bit of geometrics: Circle and chord

    Fatih Özatay, PhD15 January 2009 - Okunma Sayısı: 1224

     

    Note: Tangent is the line passing through a point on the circle. Chord is the line segment linking two points on a circle. The longest chord of a circle is the one passing through the center of the circle. That is, in time, a tangent can evolve into a chord. The acts of the chord cannot be determined at all; it can go and pass through the center of the circle.

    When months ago we were discussing how the global crisis will affect Turkey, pointed out three main channels. The exhaustion of foreign credits, the fall in domestic credits, fall in exports and the decrease in the confidence in the economy. The first two will challenge the corporate sector pushing it to contraction and therefore will lower the production and after a short while the employment in the sector. The third implies that the foreign demand for the goods produced by the corporate sector will fall. The last one implies that domestic consumption and investment will fall down. In addition, it implies that instant exchange rate and interest movements can happen. The resultant outcome is the same for each channels: Less production, more unemployed people.
    It is harder to tackle the first impact channel as I also argued earlier. The IMF money to be received will ease the external debt payments for the public and to some extent for the banking sector. But it will not make a direct contribution to the corporate sector, unless a new mechanism concerning the way of use of the IMF credit is designed. We are monitoring the developments regarding external credits through the balance of payments data. The data for up to October did not imply a clear-cut fall in external credits. Unfortunately, the prospects 'at last' were realized with the recently announced November data and the figures started to imply an unfavorable movement for external credits.

    Table 1: Banks: New External Borrowing and Repayment (Million dollars, 2004-2008)

    Total

    LT

    (net)

    LT

    Used

    LT

    Repayment

    ST

    (Net)

    2004

    5708

    2361

    3514

    -1153

    3347

    2005

    9248

    6544

    8894

    -2350

    2704

    2006

    5814

    9766

    12338

    -2572

    -3952

    2007

    5608

    7271

    10360

    -3089

    -1663

    2008

    5389

    1898

    7416

    -5518

    3491

    2008 averages

    Last 11 months

    490

    173

    674

    -502

    317

    Last 3 months

    -498

    -707

    460

    -1167

    209

    Last 2 months

    -649

    -706

    415

    -1121

    66

    November

    -2492

    -1330

    302

    -1632

    -1162

     

    Table 1 gives information on the short and long term external credits received by the banking sector and Table 2 by the corporate sector. Data for 2004-2007 period reveals the annual sum. Data for 2008 reveals the sum of the credit amount for the first 11 months. Then, average amount for 2008 is given: Average for the last 11 months, last quarter and last two months is given. The table also gives data for November and all amounts are in million dollars.

    The issue that should be kept in mind while examining the table for the corporate sector is: Banking sector is receiving external loans so as to extend domestic loans to the corporate sector. Therefore, while assessing how the narrowing in the external credit channel will affect the corporate sector and thus level of production and employment, both tables shall be considered. I guess the tables are explanatory enough; there is no need for much explanation: In short, the course of affairs is not good. 


    Table 2: Firms: New External Borrowing and Repayment (Million dollars, 2004-2008)

    Total

    LT

    (net)

    LT

    Used

    LT

    Repayment

    ST

    (Net)

    2004

    5107

    4766

    14764

    -9998

    341

    2005

    9889

    9513

    20784

    -11271

    367

    2006

    18812

    18317

    32731

    -14414

    495

    2007

    25815

    2601

    47883

    -22282

    214

    2008

    24164

    23068

    43819

    -20750

    1095

    2008 averages

    Last 11 months

    2197

    2097

    3984

    -1886

    100

    Last 3 months

    1052

    976

    2773

    -1797

    76

    Last 2 months

    505

    417

    2092

    -1676

    89

    November

    387

    55

    1646

    -1591

    332

     

    Explanatory note for the ones unfamiliar with the issue: Balance of payments has three main components: 'current accounts', 'capital movements' and 'net errors and omissions'. Sum of the latter two shall equal the first. In other words, if there exists a current account deficit (import of goods and services are higher than export of goods and services and therefore there exists a need for foreign exchange) the deficit shall be met via external debts. The difference resulting from clerical errors are added under the net errors and omissions. There are four main components of capital movements showing net foreign indebtedness (the difference between the amount of loans received and the amount repaid): 'Foreign direct investment', 'portfolio movements', 'other investments' and 'reserve movements'. The data included in the table is the part of the 'other investments' component pertaining to the banking and corporate sector excluding the commercial credits used solely by the corporate sector. If the latter is included, the result does not change but becomes more striking.

     

    This commentary was published in Radikal daily on 15.01.2009

     

     

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