Title of the column is 'harms of globalization' for the last two days. However, I believe that the benefits of globalization are more than its harms. Gradual increase of foreign trade between countries, articulation of supply chains and even the rise and mobility of financial capital flows...
Yes, I said 'even'; because we all know that this form of globalization is also quite dangerous. At least this is what the crisis we have gone through in Turkey has taught us. Moreover, it is what we currently go through also tells us.
Nonetheless, we have benefited to a high degree from the abundance of international liquidity in particular after 2001. In parallel with the steps taken to strengthen the economic foundations, quality of the capital flowing into Turkey is enhanced. Turkey started to attract higher amounts of long-term capital in time. Throughout the same period, Turkey also experienced an important investment move: Private sector investments increased 2.8 times from the beginning of 2002 to the end of 2007.
That Turkey does not have sufficient domestic savings makes us highly sensitive towards lack or outflow of international financial capital. We need foreign resources at high levels to ensure growth over a certain level. And this phenomenon brings along its problems. That fund flows toward Turkey came to a halt due to the crisis pushes the banking sector and the corporate sector into problems. Because, financial globalization also implies that corporate and banking sectors have direct access to abundant international capital. For instance, loans generously used before the crisis period must be repaid.
In the past, it was mainly governments that made more borrowing. Back then, foreign resource problems also appeared in crisis periods; how the due debts will be paid become a fundamental problem. However, the countries in debt crisis had the chance to conclude an agreement with international institutions and ease the problem by negotiating with creditors. Now, however, this is not a possibility. There are numerous creditors and borrowers. This is an outcome of globalization. Furthermore, this feature shows us that the problems will not be solved when governments receive foreign loans at significant amounts by signing agreements.
For instance, take the IMF credit to be received when an agreement is signed. Assume that the amount of the credit is quite high. Old type IMF credits were directly deposited to the accounts of and used by the Treasury or the Central Bank. Foreign debt problem of the public sector was eased and Central Bank reserves were strengthened.
Recently, Central Bank has created foreign exchange liquidity facilities at significant amounts. This way, problems of the banking sector was solved to a certain extent. The credit to be received might ease if does not solve the problems of the banking sector with such mechanisms. How will this credit solve the foreign resource problem of the corporate sector? That the problems of the banking sector were eased even slightly does not have a benefit for the corporate sector. In an environment where TL loans came to a halt due to the current confidence problem, it should not be expected that the measures that improve FX liquidity will be beneficial as well for the corporate sector.
By also involving the Central Bank in the system, a credit guarantee mechanism for foreign exchange loans might be established with a certain portion of the IMF credit to be received. Of course this measure does not completely solve the problems of the corporate sector; but it can ease them to a certain level.
This commentary was published in Radikal daily on 27.04.2009
