Will Turkey achieve the widely expected positive growth in the fourth quarter of 2009? What will be the growth rate in the coming quarters? To answer this question, I addressed the changes in domestic credit volume yesterday. I will also go after the same questions.

Credit figures for the end of October gives mixed signals. On the one hand, it is seen that volume of credits increased as of the end of April. On the other hand, this is not applicable for all bank groups; the expansion is driven more by public banks. In addition, there is a considerable rise in non-performing loan ratio. These two developments give raise to questions as to whether credit channels will grow.

Central Bank conducts a survey to learn what creditor agencies think on the possible developments in the credit market. In the last week, results of the Bank Loans' Tendency Survey for the third quarter were declared. According to this, no prominent revival in the credit market is expected in the near future. It is observed that only loans extended to small and medium sized enterprises can reflect a growth.

It is most likely that this expectation drives from the $1 billion fund the Treasury is to transfer to the Credit Guarantee Fund. You know, this fund will be used to provide guarantee for the credits to be extended to small and medium sized enterprises. On the other hand, it is also seen that creditor agencies also do not expect a considerable rise in demand for loans, in particular for investment loans. Rather, a rise in demand for credit to be used in debt restructuring is expected.

This is not in fact shocking firstly because of the major drop in global capital flows. Turkey is severely affected by this development. Turkish banks and firms are net foreign debt payers since the last months of 2008. Banks and firms have accessed net $31.5 billion and net $26.3 billion new funds in 2007 and 2008, respectively. But they have transferred in $17.8 billion abroad from November 2008 to September 2009 partly as they could not obtain new loans to repay the due debts and partially as they chose to do so.

This is a clear-cut U-turn. It neither leaves you financial power to make new investments nor lets you maintain the current volume of activities. This means: Firms in such conditions shrink; produce less and fire workers. We should not be deceived by the fact that exchange rate does not rise in parallel with this U-turn. It is most likely that a certain proportion of the debt is paid using the funds kept abroad. Therefore, the sharp U-turn does not lead to a large rise in foreign exchange demand and thus in exchange rate. However, if you put aside the exchange rate and focus on the volume of economic activity, the seriousness of the situation appears.

It should also be underlined that the amount of funds transferred abroad did not drop in the last months. On the contrary, in particular when corporate sector is taken into account, August and September break records in this regard. The latest data announced is for September. Amount of net foreign debt paid by banking and corporate sector in one month is $1.7 billion.

And a pleasant development: Exports rose by 4.6 percent in October compared to the same period last year. Export figures for the first twelve days of November also indicate a rise: Exports rose by 9.5 percent compared to same period the year before. We eventually see favorable figures for the real sector. I will not find fault with this in order not to displease you.

We need at least one more commentary to sum the issue up. What will happen in 2010? I will address this on Thursday.

This commentary was published in Radikal daily on 16.11.2009