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Search for a bridge to the other side
I have been repeating after and after that the global crisis will affect Turkey through four different channels. There are measures to tackle with the first three, namely the fall in external credits, narrowing down of domestic credits and worsening of confidence, as we also discussed here in this column. On the other hand, we do not have any means eliminate the negative affects realizing through the fourth channel, i.e. to prevent the fall in foreign demand for the goods produced in Turkey, in the short term.
This phenomenon is a key feature differentiating the current crisis from the 2001 crisis. Back then, we had the opportunity to compensate for the fall in domestic demand via exporting goods. Though apparently, using that potential and making export depended on the fulfillment of some other conditions, the important thing is that such an opportunity was present in 2001.
This bitter situation creates a harsh impact especially on export-based sectors. And it is doubtless that automotive sector stands at the most dangerous part of the impact scale. Although total production data for the sector does not provide information specific to certain goods (such as trucks or passenger cars), it gives a brief idea. In January 2008, production in number has increased by 53 percent as compared to same in January 2007. Then, rate of increase in production fell down continuously. Nevertheless, increase in production in July is satisfactorily high: 25 percent higher than the production in the same month of the previous year.
However, from this point after, not the rate of increase in production but the level of production falls down. Constriction of production stands at 22 percent for October, 50 percent for November and 62.5 percent for December. In other words, 39 thousand vehicles were produced in December 2008 while the total number for December 2007 was 105 thousand vehicles. The same trend can as well be observed for the export figures for the sector or good-specific figures.
Let us head towards other sectors. Graph 1 below illustrates the month-based change in total exports of Turkey as of the beginning of 2001. To offer a clearer picture, main trend for export (straight line) is illustrated along with the trend excluding the seasonality effect (dashed line). The fall in recent months and the distinctive magnitude of the fall as compared to previous years is really attention grabbing.
Fall in external demand is a nightmare also for other individual exporter countries.
I would like to make two inferences as regards the economic policy before I finish. First one is oriented to medium-long run: How dangerous it is to "put all of the eggs in one basket" appears clearly once again. Of course, adopting export-based growth as a growth strategy is appealing though adopting it as the sole strategy is extremely dangerous. It is obvious that export-leader countries that have small domestic markets will be highly affected by the crisis. It will be more appropriate to discuss on this issue on another platform.
The second one is a current fact: Policies improving domestic demand shall be implemented at the cost of pushing the limits. We have to haggle and negotiate with the IMF with this respect. Of course, we cannot throw money around as some advanced countries do.
However, as an immediate act, we can alter the priorities of the budget so that we can survive to the other side, i.e. 2010. And this requires altering the features of the budget in a way that increases domestic demand within the shortest period to the highest extent possible. Secondly, if Turkey can convince people that we can compensate for the losses in the other side (in 2010 and 2011), we can increase budget expenditures now, to some extent.
Graph 1: Total exports (in million dollars, monthly, December 2003 to December 2008)
This commentary was published in Radikal daily on 19.01.2009