An economic crisis unlikely in Turkey

The world is being subjected to another period of economic turbulence obviously triggered by the malaise of the US economy. As a matter of fact, nobody can predict the extent or magnitude of anxieties existing in markets around the world. It seems as though loan problems in the US mortgage market are proving responsible for the recent issues. This is actually the simplest and perhaps most visible sign of unregulated global capitalism — financial markets are blind and short-sighted. Similar to what happened in East Asia in 1997, the same story is being repeated for the US, supposedly the most transparent and accountable working market in the world. The American economy has several structural imbalances such as current account, budget and saving deficits. In order to preserve the system, the economy continuously accumulates record levels of public debt. However, as the competitive strength and macro-economic bases of the American economy deteriorate, the value of the dollar has declined more than 50 percent against the basket of major currencies, including the yen, sterling, euro and yuan, in the last five years. Nobody knows how this economy’s soft landing could be possible without seriously damaging the world economic system.

Still America seems to be capable of exporting its problems around the rest of the world, thereby maintaining its underachieving economic system. The rest of the world is well aware of the fact that even if the US economy continuously creates global problems, it must be kept alive at any cost. In order to maintain the current growth momentum, major global actors ranging from states to big companies are ready to pay the cost, supporting the US economy through several different channels.

Coming back to Turkey’s position on the latest crisis, we can argue that its impact on the Turkish economy could be much deeper when compared to other emerging market economies. Still I do not expect a deep economic crisis comparable to the situation in 2001. The following factors I will mention briefly would prevent any major crisis in Turkey. First, it seems that economic actors, including the public sector, have learned to live together amid global turbulence. In that regard, they invested in risk management techniques and increased their risk-taking capacity.

Second, financial indicators of the banking sector are quite robust. We owe this success to the recent structural reforms in the financial system after the economic crisis in 2001. Third, major macro-economic factors are quite satisfactory in comparison to the situation prior to 2001. We can observe all these factors with the table and figures provided.

As can be seen, Turkey’s capacity to make payment on short-term obligations is quite healthy. I agree that strong and long-lasting overshooting in foreign exchange rates would critically harm the financial situation of many companies as they have large amounts of short-term, foreign exchange-dominated debt. Despite that, it seems that they either have already hedged these debts or their debt-equity ratio is not dramatically high.

Finally, Turkey is a rising star for global capitalism. Opening our eyes 15 years into the future, we can envisage an economy exceeding a YTL 1.5 trillion gross domestic product (GDP). There is a huge potential for profit as growth and stability continue

03.08.2007