The most interesting data announced last week was the data on automotive sector. Because the data announced was for the month where a significant tax cut was introduced. As you might remember, I was skeptic about the arguments about what this tax cut will enable (see the column on March 19). Because, 80 percent of the sector's production was exported and as they had nothing to do with exports, tax cut was related only with the 20 percent of production. On the other hand, more than fifty percent of the vehicles sold in domestic market were imported. The rate for automobiles was almost 70 percent. Under these circumstances, tax cut was expected principally to be in favor of imports while its impact on production will be highly limited.
Yet it is early to comment on the impact. It is necessary to see what April data indicates. However, I have to note a development that took place in March: Automobile exports were decreasing since June. The downturn intensified as of October: Automobile exports decreased by 35.4 percent in October, by 55.1 percent in November, by 54.7 percent in December, by 37.1 percent in January, and by 33.5 percent in February as compared to the same month in the previous year. However, automobile exports increased by 36 percent in April!
Yes, to prevent fall in production, domestic demand must be stimulated. This can be ensured by various means. The problem is which one we will choose. Unfortunately, we cannot say "Let us do whatever is necessary; cut down tax rates, increase public investments, raise salaries and wages, and give financial aids to unemployed people." The countries that played major roles in the emergence of the crisis can do this and spend resources in all fields; however, we cannot do it as our budgets do not allow us to do so. Even if we try to do so, we can encounter an impact opposite to the targeted impact as the country risk will rise significantly. In this case, domestic demand might decrease instead of increasing.
So, how will we improve domestic demand? The first dilemma here is between long term interests and short term interests. Potential level of production can be enhanced by increasing infrastructure investments. Thus, we can feel more secure about the future of the economy. However, the problem is felt "at the present". We have to survive the day with minimum damage. Otherwise, we are faced with the risk of losing a certain part of current production capacity rather than improving it.
There is a fundamental element countries like Turkey, with limited budget means, must pay regard to when making decisions geared to limit the rapid fall in domestic demand as soon as possible: It is necessary to implement measures tailored to households that have the highest propensity to consume and that will make spending on domestically produced goods. In fact, by doing so, another to accomplish another goal: The mentioned groups are those that are affected by the crisis at the highest degree. Therefore, transferring resources to those groups is also a positive step considering social justice.
In short, the issue is this: The 'thing' called 'economic program to tackle the crisis' will of course primarily involve measures to tackle the channels that increase the rate of unemployment and decrease production level. And there is no doubt that among measures that can accomplish this goal, we must select the most effective ones. It is that simple. When assessed in this context, tax cut geared towards the automotive sector is unfortunately a 'wasted' resource use though it will slightly stimulate the production of the sector. It enhances domestic demand, but its impact on the demand for domestically produced goods is quite limited.
On the last day of the week, capacity utilization data for March is also announced: capacity utilization rate has decreased significantly when compared to the same period last year. As expected, a considerable fall in national income will take place in the first quarter of 2009. Rate of economic contraction will be higher than that in the last quarter of 2008. In this respect, there are no 'new developments'.
The mentioned figures pertain to 'yesterday'. However, "when will we hit the bottom" is a frequently asked question. Is 'yesterday' enough to answer this question? When will it be the time to say "yesterday has passed, it is time to say new things"?
The answer is clear: If the economic policy that has been implemented until now will change radically, there is no doubt that it is necessary to say something new. Then, the question to be asked is: That an agreement will be signed with the IMF is being expressed by official bodies. Is this a significant policy shift? Will it remedy our problems? I will try to touch upon this issue tomorrow.
This commentary was published in Radikal daily on 12.04.2009
