Fatih Özatay, PhD - [Archive]

Harms of globalization 26/04/2009 - Viewed 3083 times

In 2000, ratio of Turkish exports to national incomes was around 10.4 percent. This rate gradually increased in upcoming years; for instance reached 15.2 percent in 2005 and 18 percent in 2008. I believe, in the face of this development, that we can conclude: In recent years, production level has become more sensitive to export level as compared to the past.  Given the Latin American debt crisis that covered almost whole 1980 period, this is a highly favorable development. Between 1982 and 1989, majority of the Latin American countries become unable to pay their debts. Among the main characteristics of the countries facing problems in paying debts was that ratio of foreign debt to exports was quite high (mainly debts between governments, different from the present phenomenon). However, countries which had low ratio of foreign debt to exports; i.e. countries with high debt payment capacity, did not face significant problems.

Recently this ratio decreased as well in Turkey. In 2000, the ratio of foreign debts to national income was around 205 percent. The ratio decreased to 154 percent in 2005 and 150 percent in 2008. But, is this a development that reduces the sensitivity of Turkey toward crises?

The conclusion reached from the Latin American experience of 1980s was that countries with advanced foreign trade were less affected by financial crisis. However, financial crises we have encountered beginning from 1990s revealed that this is not the case. In particular the present global crisis we are faced with is a vital evidence for this. Countries with economies based on foreign trade are affected quite badly by the fall in global trade volume.

This is also valid for Turkey. Therefore, the answer to the question I posed above is 'no'. Furthermore, in the recent period, the only positive development considering export performance was not the steep rise in the ratio of exports to national income. Thanks to the rising pace of globalization, along with this development, Turkish firms either become the supplier of giant firms that operates all around the world or started to make production for direct sale by those giant firms.

In this context, it would be expected that volume of exports would decrease considerably during the present global crisis. And in fact it is so. Rates of fall in export volume as compared to same month previous year are as follows: November 17.1; December: 20.7; January: 26.0; February: 24.9 and March: 34.4 percent (the last figure is based on the export volume announced by Assembly of Turkish Exporters', so the official figure might be slightly different).

In 2009, Turkish economy will contact considerably. Fall in exports will play an important role in this. This is one of the negative outcomes created by globalization. Globalization, which is beneficial under normal conditions, might aggravate the problems some countries face in face of global shocks.

I am aware that I am coming back to the fold. As you might notice, this time I came back trough a harm of globalization. However, globalization also, perhaps mainly manifests itself through financial fund flows.

I am once more coming back to the fold: It is beyond belief that the problem corporate sector will face in fulfilling foreign liabilities in the upcoming period is neglected. Perhaps it is assumed that the FX liquidity facilities offered by the Central Bank will automatically solve this problem. Or maybe it is assumed that the corporate sector will 'somehow' find foreign exchange resources. I will insist on writing on this issue even I am to give the 'I remember this column' impression.

This commentary was published in Radikal daily on 26.04.2009