If the contraction in the use of L/C finance could have been limited to the level of contraction in the use of other finance methods, exports could have been US$5 billion higher.

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ANKARA- TEPAV underlined that finance problems influenced the fall in exports and that if the finance problems were overcome with necessary measures, Turkey's exports in 2009 could have been US$5 billion higher.

TEPAV Policy Note 'Trade and Trade Finance in Turkey: What is the Impact of the Finance Problems in the Decrease in Exports?' by Economic Policy Analyst Sarp Kalkan and Research Associates Hasan Çağlayan Dündar and Ayşegül Dinççağ is published.

The note examined the result of the survey carried out by TEPAV in April 2010 with 40 firms among the 1,000 largest exporters of Turkey and with 5 deposit banks intermediating trade finance in order to monitor the recent developments in trade and trade finance.

Emphasizing that in 2009 Turkey's exports and imports contracted by 25 and 33 percent compared to the period before the crisis, the note said: "The crisis had devastating effect on Turkey's foreign trade."

If it weren't for finance problems, Turkey's exports could have been US$5 billion higher

The note highlighted that the contraction in the use of L/C finance almost coupled that in exports and continued:

"This led to the loss of an export potential at a considerable degree. For instance, if the contraction in the use of L/C finance could have been limited to the level of contraction in the use of other finance methods, exports could have been US$5 billion higher which corresponds to the 5% of exports in 2009. A similar situation appears also for import finance. Despite the 30% contraction in imports, L/C finance contracted by 39 percent in the given period. This implies that the contraction in foreign trade stems from trade finance problems as well as the tightening of global demand."

15 percent of firms expect recovery in exports

The note maintained that as survey results reveal, despite the fact that 1.5 years passed since the crisis, more than half of the surveyed firms feel a limitation in their exports and only 15 percent of the firms expect to achieve the export volume before the crisis and underlined that this gives hints about the severity of the problems facing exporters. The note added, it is an important evidence for the tightening impact of finance problems on exports that more than 5 percent of the firms postponed or cancelled exports due to lack of finance or cost of finance.

Finance possibilities and insurance mechanisms must be developed for foreign trade

Stressing that lack of global demand is the most important factor that affects Turkey's trade adversely, the note added:

"Nonetheless, problems in trade finance also play a role in the tightening of exports. It is observed that during the crisis banks tightened the eligibility criteria they imposed due to liquidity problems; but did not loosen the criteria even after the recovery of the liquidity outlook. In the coming period where exports will tend upwards again, it is of critical importance to expand the trade finance possibilities. Export insurance mechanisms must be developed particularly in the process of entry to new markets."