If you surf on the Internet and look what did countries considered as emerging economies do during the crisis you get depressed. The question "Why did we remain so passive in responding the crisis?" comes to your mind.

Many economies have contracted as a result of the global crisis. Some others grew quite below their potential though they did not contract. This situation will prevail to a certain extent as well in 2010. There are two things that can be done to respond this. Passive approach: "What can we do? The crisis originated in the rest of the world. We will recover as the rest of the world recovers." Active approach: "While other economies are recovering, I should mind my own business. I should implement measures to stimulate domestic demand without increasing the risk perception and fight to a finish as long as the opportunities permit."

It is obvious that if you chose the second option, the actual challenge starts after that point. You will see how you can make use of the opportunities as much as possible. You will design the economic policy so that they do not "increase the risk perception" and thus boosts domestic demand rather than tightening it. These are not tasks that are impossible to achieve; and you do not need any magical formula. You just have to abide to some principles. I have discussed these several times; I will skip this for now.

We did not do so and chose the passive approach. We associated our destiny to the recovery in the rest of the world. When we tried to get rid of the passive approach even slightly, we proceeded into wrong directions. And when we moved in the right direction, those steps proved either weak or too late. It is not easy to determine how much some certain countries spent to boost domestic demand. Different sources provide different figures. Let me refer to a report published by the IMF (IMF Staff Position Note, SPN/09/21, 30 July 2009). The report gives the ratio of fiscal stimulus announced until June to national income of the countries, for G-20 countries. For Turkey, measures implemented until the end of March are taken into account.

Ratio of the loosening impact of the fiscal policies for 2009 and 2010 to national income is provided in the table below. The table also gives estimated growth rates for the relevant countries in 2009. The estimates were made in April; new estimates for 2009 are a bit different. However, new growth figures were not available when fiscal policy measures to boost domestic demand were implemented. So, I will rely on those figures.

Turkey is among the countries that contracted the highest and that gave the weakest responses to economic contraction. Official reports say that the response of Turkey is different than what this table suggests. However, a part of the measures listed in those reports shows the investments that would also be made even if the crisis did not emerge; for instance investments related to the Southeast Anatolia Project. What the IMF report takes into account are the measures implemented directly due to the crisis in order to increase public expenditures and decrease tax revenues.  On the other hand, measures Turkey implemented after March are not included in the report. Nonetheless, the essence does not change.

There are of course several reasons why Turkey remained passive. I occasionally discussed those reasons; I will not repeat them. But one among them is of importance considering the future: When the situation goes beyond the ordinary, we encounter problems of conception and thus we cannot decide what to do. With ordinary, I mean that in the past if a crisis emerged when Turkey had quite disrupted fiscal policy and monetary policy; there was no option other than immediately tightening the monetary and the fiscal policy.

However, the period ahead will be different than ordinary also in other aspects. It is being discussed how global economic imbalances can be overcome. Among those imbalances, the most important is related to current account deficits. It might not be as easy as before for countries to rely highly on other countries' savings. In that case, we should develop a policy other than the "Central Bank can push the $/TL parity to 2 and then cut interest rates" hypothesis or we are done!

This commentary was published in Radikal daily on 01.10.2009