Fatih Özatay, PhD - [Archive]

For those waiting at bus stops 26/03/2009 - Viewed 2196 times

An expression in the election campaign was quite impressive and was based on the distinction between 'those riding jeeps and those waiting at bus stops'. While I was writing this story, television news announced that fifth measure package will be announced. It is said that the core of the package will be formed of the establishment of a loan guarantee system that was the top priority in the to-do list referred to in this column since September.

If the news is telling the truth, a measure that will limit the damage the crisis created on the Turkish economy will be implemented. Nonetheless, we must keep in mind that in this column, we recommended separate loan guarantee systems for FX loans and TL loans. If the package said to be introduced is solely directed to TL loans, the impact will be insufficient. How the system will work, what type of a fund will be established, how autonomous the fund will be are all important issues. However, these will be addressed as the new package is introduced.

At this point, especially one point must be underlined: These measures do not generate a direct benefit for 'those waiting at bus stops". It of course creates indirect benefits; after all the ultimate aim is to limit the rate of economic contraction and fall in employment. Nonetheless, it is necessary to do something that will have direct benefit for those waiting at bus stops.

This 'something' must also be done in technical sense. Because, if domestic demand has evaporated, measures directed to ensure the functioning of loan mechanism alone will not generate significant production and employment gains. Why would a company receive a loan if it cannot sell the good it produces? So, measures to stimulate domestic demand are also necessary. The last temporary tax cut also does not affect 'those at bus stops'. Furthermore, as I also argued last week, it is open to questioning that the tax cut decision will have a permanent domestic demand stimulation effect.

TEPAV Global Crisis Working Group has launched a comprehensive report involving measures that can be taken to tackle the crisis and the cost and benefit of these measures (http://www.tepav.org.tr/tur/index.php). And a part of measures recommended in the report are directed to 'those waiting at bus stops'.

First, giving one-time bonus payment of 500 TL to people receiving retirement pension less than 1000 TL from Social Insurance Institution (SSK), Social Security Organization for Artisans and Self-employed (Bağ-Kur) and Pensions Fund is recommended. As TEPAV calculations suggest, such plan covers around 97 percent of the retired population, the number of people to benefit from such aid is 5.4 million and the amount of resources to be allocated from the budget is 2.7 billion TL (approximately to 0.4 percent of GDP calculated for 2009).

Second, TEPAV report recommends giving one-time bonus payment of 500 TL to old, handicapped and disabled people receiving salary from the SSK as per No 2022 Law. The number of people to benefit from such aid is estimated to be around 1.2 million. To implement the plan, 0.6 million TL resources must be allocated from the budget (approximately to 0.08 percent of GDP).

Third measure addressed at the report is expanding the scope of unemployment insurance. Here, two alternatives are presented: unemployment allowance can be increased to 80 percent, which is the legal upper bound. In this case, in average 989 thousand people can receive salaries per month. Another option is keeping the per capita unemployment allowance and increasing the number of beneficiaries. In this case, in average 1.4 million people per month can benefit from the system. To maintain the unemployment insurance budget, resource requirement must be met by the public budget. Calculations show that resource requirement is 4.5 billion TL (0.5 percent of GDP).

Basis scenario formed by TEPAV estimates that economy will contract by 5.5 percent in 2009 (if no measure to tackle the crisis is implemented and current global conditions continue). The report shows that, it the recommended measures are implemented, it is possible to limit economic contraction in 2009 by 1.3 points. And the ultimate impact of the measures limits economic contraction by 2.7 percent.

This commentary was published in Radikal daily on 26.03.2009