80 percent of the production of the automotive sector is directed to exports. As it is considered that the tax cut has nothing to do with exported products, it is immediately identified that the announced measures  is related only to one-fifth of the total production of the sector. On the other hand, more than half of the vehicles sold in domestic market are imported. Therefore, tax cut is to a high degree in favor of imported vehicles.

Of course, as the number of vehicles sold increases, it creates significant commercial activity and stimulates the market even the mentioned rise is to a high extent in favor of imports. It is right; however, there is one more question to be answered: "Which one of the measures that will put the same additional burden on the public budget must be chosen so that the contribution to domestic production and thus employment will be highest?"

Let us think: If we provide unemployed people and low-income groups with financial aid, where would they spend the money allocated for them from the public budget? It is obvious that almost all of the transferred amount will be consumed. This is a desired outcome in an environment where the economy contracts rapidly. But, is it enough?

Obviously, it is not: This resource must be spent. Okay, but for what? If it will be spend for imported goods, its benefits will be limited. A significant proportion of the total spending will be transferred to a foreign firm. On the other hand, it the same amount was spent on a domestically produced good, the whole amount would have remained in the domestic economy and been spent again. As a result of new spending, additional profits would have been made, wages of employees would have been paid and the employees in turn would have made more spending. It is apparent that the national income generated as the amount transfer from budget is spent for domestically produced products will be quite different than that generated through spending on imported products. The conclusion of this short argument is this: If you are trying to tackle economic recession with limited resources, there are two points you must pay regard to. First is that you have to transfer the resources to groups with highest propensity to consume. Second, among these groups, you have to target those having higher demand for domestically produced products. With 'these groups' we refer predominantly to unemployed people and low-income groups. But of course, life is not this easy. There are two main challenges. First, automotive sector is highly important for Turkey. Main and sub industry generate high levels of employment. So, steps to ease the problems of the sector must be taken. Nonetheless, there are two 'but's. First 'but' is there is a risk that the 'step you have taken' might be in favor of foreign producers and employees rather than domestic producers and employees. Second 'but' is that, you end up shifting budget resources that can generate higher national income and employment to 'less beneficial' areas.

The second challenge appears when a medium-term lens is applied. By allocating resources at the same amount to infrastructure investments, level of potential future income of Turkey can be improved. On the other hand, with measures directed to stimulate direct consumption, you use limited resources to 'cross over the river'. In this context, the outcome does not change regardless of whether the measures are directed to a specific sector or to low-income groups in form of financial aid.

On the other hand, the river we refer to is not a mild one; it babbles strongly. You have to cross over the river before you are drowned. You have right to say "Please, that is enough!" Nonetheless, there is a way out of this deadlock. The crucial thing to do is to design an economic package involving coherent measures and to calculate the burden and the outcomes of the measures.

This is exactly where the importance of integrated approach lies: 1) signing an agreement with the IMF. 2) Establishment of a loan guarantee fund that will provide guarantee for FX loans. 3) Transferring a certain portion of IMF loan to this fund. 4) Central Bank extends FX discount loans to commercial banks using IMF loan. 5) Central Bank will cut down FX required reserve ratio the banks to participate in the guarantee mechanism will keep. 6) Transferring capital from the budget to a loan guarantee system that will provide guarantee for TL loans (for new loans or for restructuring existing loans). 7) Increasing the duration or amount of unemployment benefits. 8) Giving one-time financial aid to retired people with low salaries, to handicapped and disabled people.

In this column, I referred to details of these measures and the potential impact they will create. In brief: If all of the aforementioned measures are implemented, ultimate impact is that rate of economic contraction is limited by 4.5 points. It is doubtless that all of these impacts will not be felt in 2009; a significant part will be delayed to 2010. Calculations show that rate of contraction will be limited by 2 points in 2009.

This way, the fall in tax revenues will be limited. Therefore, the budget deficit increasing impact of the aforementioned measure package will be felt only at the initial phase of implementation. Calculations show that while the ratio of the rise budget deficit to national income will be 1.5 points at the initial phase of implementation, this ratio will be limited to 0.8 points at the end of 2009. And as the national income impact that will be felt in 2010 is considered, the rise in budget deficit disappears.

This commentary was published in Radikal daily on 22.03.2009