Note: Tangent is the line passing through a point on the circle. Chord is the line segment linking two points on a circle. The longest chord of a circle is the one passing through the center of the circle. That is, in time, a tangent can evolve into a chord. The acts of the chord cannot be determined at all; it can go and pass through the center of the circle.

When months ago we were discussing how the global crisis will affect Turkey, pointed out three main channels. The exhaustion of foreign credits, the fall in domestic credits, fall in exports and the decrease in the confidence in the economy. The first two will challenge the corporate sector pushing it to contraction and therefore will lower the production and after a short while the employment in the sector. The third implies that the foreign demand for the goods produced by the corporate sector will fall. The last one implies that domestic consumption and investment will fall down. In addition, it implies that instant exchange rate and interest movements can happen. The resultant outcome is the same for each channels: Less production, more unemployed people.
It is harder to tackle the first impact channel as I also argued earlier. The IMF money to be received will ease the external debt payments for the public and to some extent for the banking sector. But it will not make a direct contribution to the corporate sector, unless a new mechanism concerning the way of use of the IMF credit is designed. We are monitoring the developments regarding external credits through the balance of payments data. The data for up to October did not imply a clear-cut fall in external credits. Unfortunately, the prospects 'at last' were realized with the recently announced November data and the figures started to imply an unfavorable movement for external credits.

Table 1: Banks: New External Borrowing and Repayment (Million dollars, 2004-2008)

Table 1 gives information on the short and long term external credits received by the banking sector and Table 2 by the corporate sector. Data for 2004-2007 period reveals the annual sum. Data for 2008 reveals the sum of the credit amount for the first 11 months. Then, average amount for 2008 is given: Average for the last 11 months, last quarter and last two months is given. The table also gives data for November and all amounts are in million dollars.

The issue that should be kept in mind while examining the table for the corporate sector is: Banking sector is receiving external loans so as to extend domestic loans to the corporate sector. Therefore, while assessing how the narrowing in the external credit channel will affect the corporate sector and thus level of production and employment, both tables shall be considered. I guess the tables are explanatory enough; there is no need for much explanation: In short, the course of affairs is not good. 


Table 2: Firms: New External Borrowing and Repayment (Million dollars, 2004-2008)

Explanatory note for the ones unfamiliar with the issue: Balance of payments has three main components: 'current accounts', 'capital movements' and 'net errors and omissions'. Sum of the latter two shall equal the first. In other words, if there exists a current account deficit (import of goods and services are higher than export of goods and services and therefore there exists a need for foreign exchange) the deficit shall be met via external debts. The difference resulting from clerical errors are added under the net errors and omissions. There are four main components of capital movements showing net foreign indebtedness (the difference between the amount of loans received and the amount repaid): 'Foreign direct investment', 'portfolio movements', 'other investments' and 'reserve movements'. The data included in the table is the part of the 'other investments' component pertaining to the banking and corporate sector excluding the commercial credits used solely by the corporate sector. If the latter is included, the result does not change but becomes more striking.

This commentary was published in Radikal daily on 15.01.2009