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    What is the reasonable and rational story for the year 2010?

    Güven Sak, PhD26 January 2010 - Okunma Sayısı: 1122

     

    Have you ever considered? If your job was to tell foreign investors the virtues of investing in Turkey what would you tell them in 2010? If they were not already investing throughout the world, it would not be a big problem. You would say "Sir, Turkey was the country to recover most rapidly from the crisis" If he seemed surprised, you would add "We also have a freakish Medium Term Program, which is highly credible. We know in advance which steps the government will take." And if you have had a few, you would continue "You know, the global economic crisis did not hit Turkey. We were the almost not harmed." You could also go too far to say "We in fact do not need to settle with the IMF. However, they are so ready to settle with us that we might do so. But you cannot do these now. They know everything better than we do. So, you have to tell a reasonable and rational story. And remember that tomorrow is another day; they can stop working with you. If you seek a career in the sector, you had better always mention pleasant and at the same time worthwhile stories. Let us think about it: what can be the reasonable and rational story for 2010? Here is the expert question of today.

    The answer is, to find such a story for 2010 is quite unlikely. Let us start with the story of 2009. In Turkey, a certain part of the economy was not demolished in 2009. 2009 was not such a devastating year for financial markets and large firms, for three reasons. First, global financial crisis did not affect Turkish banking sector as seriously as the rest of the world. The impact of the crisis did not spread from the banking sector to real sector in Turkey.  Post-2001 measures implemented in the banking sector worked perfectly. And the shallowness of the banking system of Turkey protected us from bigger disasters. We owe the Bank Regulation and Supervision Agency (BRSA) a debt of gratitude for this. Second, Central Bank kept market actors in the game through rapid interest rate cuts. It took risks at the outset, but it worked. Thanks to rapid interest cuts, banks managed to increase accounting profits in 2009. This way, they stayed in the game. We also owe a debt of gratitude to the Central Bank. And the third point: Banks restructured a certain proportion of the credits of the firms they work with a couple of times throughout 2009. They were quite hard on SMEs while they behaved well to large firms. And this limited the harms of the disaster. So, we have to be thankful to BRSA for the Reserves Regulation which made balance sheets of banks more introverted. More or less, this was the story of 2009.

    Of course we also talk about foreign portfolio managers; 2009 was almost an endless year for employees, SMEs and artisans.  It had no good aspect. We should recognize that for those at the bottom, 2010 will be no different than 2009. But we are looking for a story for the use of those in easy circumstances. If your job is to invite foreign investors and encourage them for investing in Turkey, you have to consider those in easy circumstances, rather than those at the bottom.

    So, let us think about 2010. First, we cannot expect a period where interest rates will fall rapidly and those holding government debt securities (GDS) will record easy profits. Central Bank did this in 2009. This year, the Treasury will have to borrow more substantially. What does this mean? The Treasury will have to convince more people to purchase GDSs when compared to today. Or those already holding GDSs will have to purchase more GDSs. How will the Treasury achieve this? With a credible public finance program? No. on the contrary; 2010 will be a year when the public budget of Turkey will be monitored by the whole world; just as the case for Greece now. Therefore, under normal conditions 2010 will be a year where interest rates will go up and where those holding GDS portfolios will face losses. This is the first point.

    Second, European Union receives 50 percent of Turkey's exports. But the slowest recovery must be expected in the European Union. Those discussing China's growth also discuss why the European Market demonstrates a slow recovery trend. Recently, Marek Belka, who currently works at the IMF, discussed how the low level of integration among EU's labor markets and the absence of automatic stabilizers for the EU as a unit slowed down the growth when compared to the United States. So, it seems unlikely to create a pleasant story based on the export performance of Turkey.

    Third, 2010 will be a year where the resistance of banks will be tested. They will have to decide what that they will do with the credits, they restructured several times over the last couple of years. They will either endure the burden for some time more, or give up. In either case, the role of banks in buoying the economy will be limited.

    We have not yet mentioned the fact that 2010 is the year-of-two-elections or the political discussions.

    The anecdote is: Turkey still does not have a reasonable and rational story for 2010.

    It is not surprising that the IMF rumors are to rise from the grave. Everything happens for a reason.

     

    This commentary was published in Referans daily on 26.01.2010

     

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