Is it because the wind now blows more rapidly? Or is it because suddenly clouds coated the sky? Is it because the news started to be worse? Or is it because analysts were suddenly surged up with pessimism? Or is it because "the steps taken proved unsuccessful"? We do not know yet. But one thing is apparent: the weather is turning around for the last month. More and more adverse news has been covering the air. The green shoot talks of yesterday that "pretended everything will suddenly be all right tomorrow" is replaced with a more pessimistic climate. Of course this does not have a direct relation with Turkey yet. However, it anyhow is related because there are things to do. Today let us make an assessment on the current state of affairs.
Let us catalog the state of affairs in Turkey to begin with. For the time being we are not interested in economic crisis in Turkey. As we proposed before, we believe we are in the control group of the current crisis. That is the control group which is formed to seek the answer of the question "what happens in countries where no measures are introduced?" We guess while they are implementing measures, we will wait to contribute to the data generation to calculate correctly the cost of not implementing any measure. Or, there exists an event of deep unskillfulness because here in Turkey we are rather interested in knotting the issues than solving them. Like we mismanaged the "headscarf issue" due to unskillfulness and recorded it in the folder of "issues to be left to God for punishment", we now similarly mismanage the "judicial independence issue" with similar unskillfulness and are about to record it also in the folder of "issues to be left to God for punishment". If Honorable President of Turkey fails to invent a way out upon the mistaken start, this is what happens. This way it will be certified that we do not have the political skills to discuss and solve highly mundane issues of our own between one another. Really, do we need a third example of unskillfulness to certify? Or are these two enough? Let us discuss. We are waiting for those who like to discuss rather than solve an issue.
While Turkey is at the phase of knotting, let us turn our head to abroad, though it is hard. Two recent developments must be noted. There are two recent developments that are highly informative considering both the course of the upcoming period and the assessment of state of affairs. First one is composed of two statements which are not related with one another. First statement was made by Russia's President Putin. Second was made by European Central Bank President Trichet. What is more, both statements were on the same subject. The statement by Putin took place in British Financial Times on June 29. Putin got the heads of Russian banks together and asked them to "scrap their summer holidays and focus on extending credits to the corporate sector". The article at the paper specifically emphasized the rising rate of non-performing loan rate in Russia. (http://www.ft.com/cms/s/0/882aeb78-64d6-11de-a13f-00144feabdc0.html) Steps taken did not prove successful. Putin once again had to talk about a subject he does not know much about. But given that Trichet also made a statement of that type, it is necessary to think about it.
The piece about Trichet was published on June 2 at Financial Times. The title was "ECB puts pressure on banks". It said that the President Trichet urged "banks to live up to their responsibilities in reviving credit flows". The statement by Trichet basically proved that the European Central Bank is aware of the problem. European Central Bank, just like the Central Bank of Turkey, had cut down interest rates, invented new finance mechanisms nonetheless failed to ensure a higher volume of credit flow toward the corporate sector. Interest rate cuts did not have any benefit for the ordinary people on the streets. Unemployment rate went up and firms continued to close down. (http://www.ft.com/cms/s/0/f9ccbc1e-66d1-11de-925f-00144feabdc0.html)
So, what happens in Europe and what will happen in Turkey? On July 5, Wolfgang Münchau was telling what happened in the Europe. Liquidity injected by the European Central Bank to banks did not help corporate sector at all. The number of bankruptcy applications went up gradually. Firms fail to make payments when due. Under these circumstances, what could banks have done? What can you say? Good morning at night? Maybe; it must be something like that. What did we say at the beginning of this year? "I am currently feeling what the figures will tell you two months from now". This is exactly the case. European friends go through the same things we do. Do not focus on the rise in sales, focus on the fall in profits. Sell at loss might help you collect cash for your current payment commitments or reduce the cost of accumulating inventory. But for God's sake, to what extent it is sustainable? (http://www.ft.com/cms/s/7e0f4388-6994-11de-bc9f-00144feabdc0)
The discussion to dominate the upcoming period will not be on "green shoots". There will be two dominant discussions in the upcoming period. First is, "how can banks be encouraged to extend more credits?" and the second is "what type of an incentive is necessary to prevent new type of protectionism in countries with strong domestic markets?" The rest is empty talk. We dealt with the former in this article; we will go on later with the latter.
However, for now, we should note this: There are solutions for both problems. It is wise to keep in mind that the world is in a period of public interventionism. Please do not skip the initial question: Why are they more pessimistic now? They are "gambling" in the stock market. They are engaging in daily transactions. There was no reason for them to be optimistic yesterday; but they were optimistic anyway. If you were not among the optimistic ones; you do not need an additional dose of pessimism today.
Let me repeat: Turkey needs a program, a solid public intervention program, a medium term fiscal perspective and the IMF. Otherwise the current period cannot be managed. Rest of the option implies opening the doors to improvidence. If we cannot recognize these trends, Turkey will be among the countries that will be harmed most seriously despite it is innocent. Why is this so? Due to unskillfulness. Kindly submitted to whom this might concern.
This commentary was published in Referans daily on 07.07.2009
