We lack an important skill. We do not know how to tackle recession under normal conditions. We do not have that feature in our culture. Until now, all recessions were encountered in the face of a problematic economic structure. And therefore, the economic policies we tried to implement to tackle the recession were naturally designed in accordance with the problematic initial conditions. However, the contractionary period we entered in the last quarter of 2008 has a fundamental difference: Initial economic conditions were not 'fatal'. This positive aspect, unfortunately be a misfortune for us and we did not know what to do. And we ignored for a long time those who knew what to do and made recommendations one after another.

If the economy contracts two quarters in a raw, Americans define it as a recession. A part of macroeconomics text books recommend loosening monetary and fiscal policy, i.e. cutting down taxes and interest rates and increasing public expenditures to fight with recession.

Over the last 15 years Turkey also went through such recessionary periods: from the second quarter of 1994 to the first period of 1995; in the last quarter of 1998 and throughout 1999; in the last three quarters of 2001 and currently. Let us put the last one aside. Despite what textbooks say, we pursued stability programs after the first three recessions. We pushed up taxes; tried to control public expenditures and tighten monetary policy. Why? In all of the given periods, Turkey's economic is problematic regardless of whether the crisis was created by Turkey or by another country like it was in 1998-1999 period (the crisis originated in Russia and then transmitted to Turkey). Budget deficit is significant; interest rates and tax rates are high; banking sector does not perform well.

Under these circumstances, also as economics textbooks suggest, economic policies to be implemented shall definitely built confidence as when confidence is built, people start to spend; investment and consumption increases, and interest rates fall as risks go down. In the meanwhile, international fund inflows begin. In brief, the reason why economic tightening rather than loosening was adopted back then is that the 'initial conditions' were severe and problematic.

Thus, the recession culture of Turkey is like this: "Oh God! We made wrong decisions and failed. The situation is severe; we are trapped unless we tighten the budget, increase taxes, raise the prices of the goods public sector produces, someway reduce public expenditures and discipline the banking sector. Otherwise, we will be buried in the wreckage and we will not recover ever after. What is more, there is no foreign fund inflow. How will we repay the debt? We should sign an agreement with the IMF first thing tomorrow, and thus solve the foreign fund problem." In the meanwhile, the IMF and World Bank steps in and asks that along with the firefighting operation, structural reforms should also be implemented to prevent the break out of another fire. Therefore, this is stability and structural reform program rather than a program to fight with recession. It is basically composed of firefighting stage and stage to minimize the risk of another fire. It is assumed that, as a by-product, confidence will be ensured and thus the economy will re-enter in the growth path. Of course, such programs can be left unfinished, fail or succeed. But this is not our concern now.

Our concern is: The deep contraction period we are faced with does not resemble the recessions we are used to encounter. It is in between the 'abnormal' recessionary periods of us and 'normal' recessionary periods of developed countries. Compared to earlier 'abnormal' recessions, 'initial conditions' are much better. However, budget balance was disturbed with political concerns in 2007 and 2008. Moreover, there is a certain level of fragility. For instance, our credit grade is low. Therefore, we do not have the initial conditions of a 'normal' recession either.

In that case, the solution is also in between the two edges. You have been frequently reading this at this column since the second half of 2008: "First loosen; i.e. implement measures to stimulate domestic" just as it is done in 'normal' recessionary periods. "In the medium term, tighten. That is to say, explain in advance how you will compensate for the 'present' loosening. Tell everyone how you will accomplish this. In the meanwhile, put forth in advance the program to remedy structural problems, if any" just as it is done in 'abnormal' recessionary periods.

However, the desired loosening has not been introduced yet. And when there appeared an intention to introduce it, it was too late. Furthermore, the old firefighting operation was launched as done in the past. And, what is more, this time the operation does not contain a structural remedy part. This is the whole story...

This commentary was published in Radikal daily on 23.07.2009