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    Why loans go to shopping malls instead of students?

    Fatih Özatay, PhD12 November 2013 - Okunma Sayısı: 938

    Why is Turkey’s financial system, which is strong and generous enough to extend million-dollar loans for shopping malls, not as generous when extending student loans?

    You obviously need machinery for production: turbines, turning machines, pressing machines, cranes etc. These constitute the physical capital. The level of physical capital goes up with investment. This is why we closely follow how investments change in time as it determines not only growth rate at present but also and more importantly the level of output in the future.

    Yet, there is one thing we seem to neglect in everyday debates: physical capital is not the only type of capital a county needs. There is human capital, and without it you can neither create the physical capital nor use it efficiently. We always say that education is a must, but we seem to ignore that education also is an investment as a critical determinant of human capital. For production, human capital is as necessary as physical capital.

    The financial system also must be analyzed from this perspective. A healthy financial system is required not only to increase the level of investments and hence the physical capital. The processes of credit growth or tightening are also important since they deeply affect consumption as well as investment. Fluctuations and changes in credit volume must be deemed important also for education investments. But I don’t remember coming across such analysis until today. The blame is not on the people who conduct analysis on physical investment and consumption loans. There is no need to analyze the impact of the conditions on the education loan system as such system is absent in Turkey.

    On 7-8 November, fourteenth Jacques Polack conference was held in Washington D.C. The video of the final session panel discussion is available on the IMF’s webpage. Please watch the last 3 minutes, if not the entire video, and the question posed to Fed Chairman Bernanke. It is about the possibility of student loans going to default due to the rise in unemployment after the crisis. Bernanke’s response has no significance for the purpose of this article. What is important is that Fed Chairman was asked a question about student loan debts.

    Don’t you think we need to sit down and think about this? Why is Turkey’s financial system, which is strong and generous enough to extend million-dollar loans for shopping malls or TV channel acquisitions, not as generous when extending student loans? For starters, students do not have a credit history and their capacity to pay the debt is uncertain. That’s one problem for sure. But why does the state not introduce regulations which will overcome such impediments to promote student loans? Is it because investments in education, unlike those in double highways or football stadiums, are invisible to electorates?

    This commentary was published in Radikal daily on 12.11.2013