Turkey's economy has been demonstrating a dual structure for a certain time. There are 'well-off firms' on the one hand and 'firms the endurance of which are tested everyday' on the other hand. And this atmosphere is dangerous for the near future and measures to prevent it should be taken. Moreover, Istanbul Chamber of Industry (ISO) president Mr.  Tanıl Küçük is quite right in saying that the government has failed in the task of implementing measures. Along with 2008 and 2009, the government is about to waste 2010. Today let us first take a look at the state of the economy survey conducted by ISO which points to the dual structure in the economy. This way the data, which pleased analysts for signaling a weak light of recovery, would be located on the right perspective.

Professor Hasan Ersel, quoting from Professor Tuncay Bulutay always says "mean is a concept that lacks character."  Mean figures do not help us in collecting solid information on the state of affairs in the economy. From (2 and 4) to (1 and 6) the mean reaches from 3 to 3.5. We say that the economy grows. But if the first digit of the set is sector A and the second digit is sector B; the former contracts by 50 percent whereas the latter grows by 50 percent. Therefore, the industrial production series which are referred to indicate that the 'worst part has passed' should be addressed with caution. Banks' statements that they cannot find any firm to lend to despite the current interest rates low enough to make people think "I am sixty years old and I have not seen such low interest rates before" must also be interpreted cautiously, in this context. This is most probably related with the fact that banks do not know how to lend. But this is a different story which should be told separately.

It seems that corporate sector in Turkey is currently separated into two parts: On the one hand, there are fairly large firms with easy access to banks. These firms managed to ameliorate balance sheets and reduce inventories, and they are waiting. They in a way are operating in the idle mode. The credits these firms received from banks have been restructured several times. So, they are waiting. They are just like old sailboats waiting for the wind. In this respect, news heard from Europe is not pleasing at all. But this also is a different story which should be told separately.

Second group of firms are those with limited or zero access to financial markets. These are mainly constituted for small and medium sized enterprises (SMEs). They either lack the assets to provide as collateral when obtaining a credit or do not have much of a relationship with banks. And the state of affairs still does not look pleasant for them. They need a bit of care. The current government has left SMEs alone in the middle of the ocean. It has not established a systemic crisis assistance mechanism. This is evident from the most recent credit guarantee fund. But this also is a different story which should be told separately.

Let us return to the main purpose of this commentary. Results of the ISO Assessment of the Economic State Survey for 2009 were announced last week. The data denotes a dual structure in Turkey's economy. The results also explain why 2010 will be the year of "infertile growth." The source of employment is SMEs; but they are in pain. The graph below shows how the year 2009 was for the firms participated in the ISO survey. There are two conclusions here: In the first half of 2009, all types of firms experienced rapid contraction. In the second half of 2009, large firms started to recover; but SMEs continue to shrink. And this is the unpleasant part of the story. The second point to regard is that SMEs not only contracted more rapidly in the first half of 2009 but also continued to contract in the second half of the year. A third point which should be emphasized in combination with employment trends is that though SMEs contracted more rapidly, they did not cut down employment right away at the beginning of the year. Large firms, on the other hand, did cut. The conditions for SMEs by the end of the year are quite depressing. And this can be considered as a signal that growth will be infertile.

So, what is the current problem of SMEs, which have been contracting since the beginning of 2009? The first hypothesis can read that the SMEs will follow large firms in recovery. In this context, the data given above can be taken as a signal for healthy recovery. But is it?  We have to be cautious exactly at this point. There are three missing links: First, SMEs have cut down production throughout 2009. They used operating capital for daily activities; they failed to reproduce the operating capital. Now, they are in need of large amounts of operating capital for recovery. Second, SMEs encounter problems in accessing finance unlike large firms. Balance sheets of banks, which have restructured the loans of large firms, are already loaded with large risks. So, banks cannot easily step in to support SMEs since it is also against their working style. The problem of banks is that they do not know the drill.  Third, there is no exciting growth story we have. There is no IMF in the picture and the government has proved once again that it is an amateur at the eighth year at the office. So, what else do we need?

The government should not leave SMEs alone at the middle of the ocean; not this time.

This commentary was published in Referans daily on 18.02.2010