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Fewer sins, more punishment
Yesterday, I started to give some indicators proving that the ones that committed fewer sins are more severely punished. There were two apparent examples for the punishment: First, countries like Turkey faced higher economic contraction as compared to the countries where the crisis was originated or spread from. Second, gradually tightening global capital was escaping from countries like Turkey towards the latter (flight towards quality).
Many developed countries increase government expenditures and cut tax revenues to boost domestic demand. As a result of these expansionary policies, budget deficits of countries, which already suffer from that problem such as the US, will boom. This implies that these countries will need to receive more loan from the capital markets. To put it differently, the amount of capital to flow towards countries like Turkey will decrease not only because of the flight towards quality but also because of the mentioned measures taken by the developed countries.
A few days ago, Institute of International Finance (IIF) announced estimations for the net capital flows in 2009. I do not know to what extent the estimations take the need for indebtedness resulting from the mentioned measures into consideration. However, as estimations suggests, in 2009, 28 IIF member developing countries will receive net 165 billion dollars of international capital. The figure stood at 929 billion dollars in 2007!
Forget about the mistakes made in Turkey in the field of economic policy since 2007. And please understand the incomprehensible passiveness about the design and implementation of a new program. Just focus on the group composed of countries like Turkey. That is, the countries who are not liable of the global crisis and who committed fewer sins. To prevent the rapid contraction of their economies even slightly these countries need funds amounting more than 165 billion dollars. How will this be possible?
There is no doubt that how this will be enabled is ultimately related to the redesign of the global financial structure. However, we do not have time to wait for that new design. The amount of funds shall increase right away. Otherwise, how will countries like Turkey survive the transition period?
This must be the top priority in the negotiations to be made with developed countries. Besides, this problem also affects them. It is in everyone's best interest that international trade does not stop completely. Therefore, income levels of countries like Turkey shall not be hitting the bottom.
Two of the recommendations developed to eliminate this problem works through the IMF and targets to increase the level of funds the IMF provides for this kind of countries. First is devoted to increase the special drawing rights (SDR) of those countries to levels incomparable with early levels and ensure the operability of the mechanism. Second is based on the identification of sinners and fewer-sinners and the provision of IMF credits to the ones with fewer sins under limited constraining conditions and without reluctance.
There is no doubt that Turkey had steps to take to create foreign resources to a certain extent without relying on the design of the transition period. I have been mentioning those steps since September: A mechanism that utilizes the remittances kept in Central Bank as credits for corporate sector. Furthermore, measures to expand this stock (i.e. attracting deposits) might have been introduced (interest paid on those deposits might have been increased). This way, it would be possible to compensate for the loss of confidence, which was the biggest rejection concerning the feasibility of the practice.
So, we were left with the sole option: to wait that a new financial system and the transition period will be designed, and to state a few ideas with this regard in the G-20 meetings hoping to be able to influence their direction. That is okay, but at least we have to benefit from the G-20 platform properly.
This commentary was published in Radikal daily on 16.02.2009