Hope is the poor man's bread, but it will be wise to draw lessons for Turkey's fiscal policy.

The impact of the global financial crisis on production and employment began to be felt completely as of the late 2008 and during the first half of 2009. As of the end of 2010, the outlook in the countries that account for 90 percent of world's gross domestic product (GDP), excluding poor African countries was as follows: All developed countries and emerging market countries excluding China, Indonesia, India and Poland contracted substantially during the crisis. Turkey was also in this group.

The burden of the crisis is huge

The majority of these countries took action in response. According to an IMF report, as of May 2009, total burden of the measures that the developed countries of the G-20 took or declared to take equaled 17.1 percent of the total GDP of the countries in this group. More than half of this amount (8.7 out of 17.1) reflected the cost of the bailout plans for the financial sectors in major turbulence. Legislative budget expenditures such as unemployment benefits executed in economies that faced contraction and rise in unemployment had the second biggest share (automatic stabilizers: 4.9 out of 17.1). The rest corresponded to the cost of measures introduced to boost domestic demand. The burden of the mentioned measures in emerging G-20 economies' budgets was 6.6%. These figures reveal that the budget burden of the crisis was huge especially among developed countries. Considering that cost of the measures declared to be introduced after May 2009 was also included in the figures, one can state that this burden was not completely shouldered. Nevertheless, the outcome would not change that much if the figure was a couple of points smaller as a ratio to GDP. It still implies a considerable budget burden.

Risk of contraction emerged

For this reason to a large extent, public debt increased dramatically in many developed countries. The mentioned ratio was high even before the crisis in some European Union countries and Japan. Expectations were that with the help of the measures, developed countries would recover and achieve the pre-crisis GDP levels as well as a growth rate close to the traditional average. This way, they would improve budget revenues. Moreover, since the automatic stabilizers and one-time expansionary measures used to boost the economy would phase out, public debt would in time gain a sustainable character. But expectations proved wrong. At the present, developed countries are again faced with the risk of contraction. This was not likely only a year ago. Now, however, the risk is large. European Union is occupied with skidding, Japan was hit by an earthquake, US economy is recovering more slowly than expected, the Middle East is in chaos, and experts talk about signals of a slowdown in emerging market economies. What really terrifies the world is that budgets of these countries have huge deficits and the level of the public debt in some of them disturbs markets. This disturbance pushes the interest rate on borrowing for these countries. Thus, it is believed that many developed countries will not have enough means to fight with a possible contractionary movement. I hope these concerns will prove wrong and the positive climate felt last year spreads. Trying to see the bright side is a good thing. Hope is the poor man's bread, but it will be wise to draw lessons for Turkey's fiscal policy. I will continue. Note: the IMF report I mentioned is titled "The State of Public Finances" and is accessible online (IMF Staff Position Note, SPN/09/21).

This commentary was published in Radikal daily on 16.08.2011