This week data on two important indicators were announced: industrial production index and balance of payments in April. So today I would like to evaluate the recent developments in these figures. I will start with the net foreign fund utilization ratios for banks and firms, which is the balance of payments item that concerns us the most in the global financial crisis process.

Table 1 shows the figures for the 2004-2009 period and for the first give months of 2010. The column titled 'Total' shows the difference between the total amount of foreign funds utilized and foreign debt repayment. To put it differently, it shows net foreign fund utilization both for short term and long term credits. The column 'long' gives the difference between the two only for long term credits. The last column on the right gives the net foreign credit utilization for banks and firms. The negative values imply that in the relevant period net foreign fund flow to abroad took place. Another note:  all these figures were taken from 'other investments' item under the 'finance account' item in balance of payments.

In April we can observe a significant change: total net foreign fund inflow (sum of firms and banks as given in the last column in the right) was negative continuously beginning from November 2008. This; i.e. the foreign fund transfers to abroad rather foreign fund inflows, was a 'gift' of the global financial crisis for Turkey. However, in April, after seventeen months, Turkey has used net foreign funds. This, obviously, is good.

On the other hand, the picture changes when we take a look at individual sectors. It appears that this positive movement is driven by the banking sector. Besides, fund utilization of banking sector can fluctuate drastically from month to month. And there appear no favorable developments for the corporate sector. Corporate sector still suffers from foreign fund transfers at considerable amounts. With a different lens: considering long term credits, in 2009, when the crisis was much severer, Turkey could access (or desired to borrow) new funds that is 72% of the amount repaid, whereas the relevant ratio dropped to 65 percent in the first four months of 2010. This is not a favorable development.

Graph 1 shows industrial production index net of seasonality. Production hit the trough in March 2009. Production performance tends to recover considerably since then by almost 19 percent. On the other hand the peak level reached before the crisis could not be achieved yet as the graph shows apparently. However we now have a very short way to go to the peak provided that the current course is kept intact. So, does this happen?

In the global financial crisis Turkey's economy contracted more than that in the 2001 crisis. There are two main reasons for that: first is the sharp fall in exports and second is the fact that Turkey made foreign fund transfers abroad let alone accessing new foreign funds. What is more, we have seen that this trend is still applicable for the corporate sector. But export performance is favorable in contrast.

In order to answer the question 'Does the positive movement in production continue?' we should first discuss what will happen in the European Union. I would like to touch upon this tomorrow.

Table 1: Net foreign borrowing by banking and corporate sectors ($ million)

Graph 1: Industrial production index net of seasonality (2005 January - 2010 April). Source: TURKSTAT

This commentary was published in Radikal daily on 13.06.2010