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I believe that the need for an integrated approach against the crisis is apparent. Despite this, however, the current administration has always done 'piecework' until now: That decision two months ago, this decision two months later... This does not have a confidence-building impact. What is more, since the decisions are not taken under the framework of an economic program by paying regard to consistency, the funds that might improve growth and employment when allocated for a different area are wasted in less-efficient areas. So to speak, arms are wasted for nothing.
Currently, the only institution that fulfills its duties against the crisis is the Central Bank. All measures so far are taken by the CB: Interest rate cut, providing guarantee to the system with respect to TL liquidity, measures to provide foreign exchange liquidity, future estimations and so on... However, as nearly no other measures are taken under a consistent framework, the efficiency of the monetary policy measures decreases.
Furthermore, some measures introduced or to be introduced waste the resources that will be necessary when a comprehensive policy measure package is announced. This is not the fault of the CB of course, however, ultimately in macroeconomic terms, i.e. on the integrated level, this is the result observed.
In the previous two articles, I touched upon one of the most critical measures against the crisis. I said that the corporate sector would have hard time in repaying the credit debts due in 2009. I argued that, to eliminate this problem, both the IMF fund and in partial the CB reserves might be used temporarily.
The system I detailed in my previous two articles will work. But, one point shall be taken into consideration. According to the recommended system, out of each 100 dollars of credits extended to a company, 30 would be provided by the commercial bank and 70 by the Central Bank. A credit guarantee fund (not necessarily the current credit guarantee fund) would provide credit for the 70 dollars.
Commercial banks participate in the system voluntarily to give the 30-dollars part; they must feel secure with respect to foreign exchange liquidity. Banks as well has foreign debt to be due in 2009, though not as higher as that of the corporate sector. Latest balance of payments data reveals that banks are repaying credit debts using their own resources. There are two reasons behind this: First, they have hard time in receiving foreign funds in such an environment, and second, the cost of the foreign funds they are able to receive is quite high.
However, this is not a desired situation. Our first target is to ease the troubles of the banking sector in the repayment of foreign funds. And the second target is to ensure the banking sector has liquidity and guarantee enough to extend credits. Under these circumstances, the banking sector shall be provided with 'sweeteners' so that they will voluntarily participate in the system. Here, 'sweeteners' mean some financial measures that will build confidence. For instance, lowering the amount of foreign exchanges the banks have to keep in the Central Bank in exchange for the foreign exchange deposits might be an example to these measures. As another 'sweetener', the Central Bank might ease foreign exchange stock foreign exchange borrowing limits and usage.
A few months ago, the Central Bank has cut down the required reserve ratio for foreign exchange. On Friday, it announced some measures pertaining to the usage of foreign exchange stocks, in favor of banks. All of these are required measures. However, these measures might have been introduced in a more incentive-generating way in connection with the credit guarantee system I recommended. By this way, the Central Bank would have reached its main purpose and the guarantee system would have worked more easily. This is what I meant by saying 'wasting the armaments'.
I would like to repeat: Of course it is not the Central Bank that will decide on the establishment of the credit guarantee system or a similar system. Therefore, the Central Bank cannot say "I will wait for the others to fulfill their part; then I take the measures in my part". But, solely under one condition: The duty of 'the others' must be conveyed to 'the others' as well as to the public.
This commentary was published in Radikal daily on 26.02.2009