For a while I am trying to call attention to the dual structure of the recovery process. At first glance it appears that positive growth it achieved. After the rapid contraction in 2009, economic activity seems to give signs of weak recovery. In total, bank credits appear to have risen. However, all of these are what we observe at first glance. There exists a milieu of unfruitful growth. Employment loss in industrial sector prevails. And considering the small and medium sized enterprises (SMEs), the story is more complicated. As per the 2009 end figures on bank credits, credits to SMEs head down while others rise. However, SMEs are of importance considering employment. During 2008 crisis, 45 percent of employment loss throughout the USA stemmed from SMEs. Nonetheless, we are told that this ratio was around 9 percent in the 2001 crisis. I guess the crises always hit the small fish and bypass the big ones. This phenomenon prevails not only in Turkey but all around the world. A similar discussion is also held in the USA. Nowadays people discuss why the implication of the recovery is not translated in small enterprises. And if unemployment is our biggest problem, it seems wise to take a closer look at the recovery process for SMEs. Otherwise, there is no point in saying 'let everyone employ one more person', a statement which I personally hate.

The figure below shows the annual change in bank credits as of the end of 2009. What does this imply? Bank credits, in cumulative does not fall but rise because consumer loans and credits extended to large firms rise. But in the same period, credits extended to SMEs decrease in spite of the increase in other credits. What is the reason for this? How can we assess it? Let us make a few conclusions.

Source: BRSA

First, these figures on bank credits should be examined cautiously. Because, due to the amendments Bank Regulation and Supervision Agency (BRSA) introduced on Reserves Regulation, a part of the credits to large firms have already been restructured. Therefore, the rise in credits extended to large firms can be a fictive rise stemming from credit restructuring. This is the first point to take into account when examining credit figures. In that case, we had better discount a certain proportion of the rise in bank credits in 2009. But even in that case SME credits drop.

Second, the fall in SME credit may be a result of the fall in SME's demand for credits. In fact, this is what bank managers claim. So, what can be the reason for a fall in SMEs demand for credits? It might be that small enterprises do not yet feel strongly the impact of the recovery in domestic and foreign demand. If you do not feel deeply the revival in demand and if the memories of yesterday remain freshly in your mind, you might hesitate taking a step. Then, this implies that there is no "strong" signal for recovery. This possibility brings in another question: Why would enterprises wait for a "strong" signal for recovery?

The reason is quite simple; let us note it down as a third point: We should note that the crisis lasted too long; we have lived almost eighteen months with thoughts reading 'economic activities would revive this month' or 'it definitely cannot be worse than the last six months'. But things somehow did not bounce back. Expectations turned positive from time to time; but hopes were not fulfilled. So, at this point you already expect that, 'once bitten twice shy' rule will apply. Therefore, no one would demand credits or take big steps unless a "strong" recovery signal is received.

But, would enterprises that have lost the working capital not demand credits? They would, but not yet. They first need the "strong" signal for recovery. What is more, a small enterprise which is aware that the working capital melts away does not carry on production and accumulate inventory. Inventory replacement as done by large enterprises should not be expected from small enterprises with the same means. This is the condition that prevails for enterprises which have been hit severely by the crisis via the loss of working capital and which face problems in accessing working capital. And let this be the fourth point.

Fifth, due to the rise in postponement of bankruptcy applications, banks might think that it is harder to collect debts from enterprises facing rough conditions postponement of bankruptcy is newly introduced in Turkey's legislation. Courts are not experienced in this issue. There exists no uniformity in implementation. Therefore, we should expect that banks narrow down the credit opportunities in expense of the smallest enterprises. Maybe this is exactly what the figures tell us.

The truth is evidently a mixture of the above mentioned points. It is for a reason that some countries implement additional measures to back small enterprises. And it is impossible to understand why Turkey, instead of implementing measures, creates a milieu of political conflict making the investment climate more parasitic. It appears that Honorable Prime Minister of Turkey is convinced that elections cannot be won without provoking a quarrel. This is an evident mistake. Given the current milieu, conflict seeking political mindset hinders economic recovery.

Have you ever thought why anyone in the USA or in Europe does not think of the 'let everyone employ one more person' formula? Did their administrators not read "Keynes, Ricardo etc" when they were young? Or, why cannot we say that formula does not work and end this discussion forever?  In the early 1990s, Mrs. Tansu Çiller wondered something that administrators of normal countries know well that should not be wondered at all: she said "what happens if we cut down interest rates off the cuff?" Then came the 1994 crisis out of nothing. Let us see where fate will take us this time?

May God give Turkey's administrators a clear and healthy mind. It is evident that they need it.

This commentary was published in Referans daily on 11.03.2010