Turkish Government, Business Now Poised To Face Deepening Crisis

Istanbul, Turkey | November 24, 2008 by D-8 Secretariat

the 5th Turkish Commerce Industry Consultation Meeting

Economy-related ministers and a number of representatives of the business world discuss possible measures against the crisis in the Fifth Turkish Commerce and Industry Consultation Meeting.

Despite incessant calls from businessmen to take measures to head off the probable effects of the global financial crisis before they spread to Turkish markets, the government waited until the very last moment to make a move, with Prime Minister Recep Tayyip Erdoğan equating early steps to “damaging the house rather than dousing it with water before it is engulfed by the fire.”

On his way to India on Friday for an official visit, Erdoğan for the first time mentioned a comprehensive economic package, or action plan, to provide extra strength to non-financial businesses in particular to help them survive the worst of the crisis. The prime minister said economy bureaucrats are currently working on the plan and that its details will probably be disclosed to the public at a press conference on Wednesday. The backbone of the plan, or the financial resources to back attempts to provide shelter to Turkey’s industries, will be funds to be acquired from international organizations, including the World Bank, the Islamic Development Bank and the European Bank for Reconstruction and Development (EBRD) at low costs and acceptable conditions. Among the major articles to be included in the action plan, as reported by a number of wire stories on Friday from anonymous bureaucrats, is delineating the steps to help new employment or at least halt job dismissals. With this aim, the government will ready several billion lira during 2008 and 2009 for the use of small and medium-sized enterprises (SMEs). Up to $250 million in loans will be obtained from the EBRD to be especially extended to the food and energy industries. European Investment Bank (EIB) funds will primarily go to large enterprises and partially to SMEs, which are thought to sustain more damage. Executives at the EIB said they had planned on granting Turkey a 2.2 billion euro loan in 2009 under normal circumstances but that they could increase this amount for special projects. The executives said the loan could be increased to 3 billion euros and that 1 billion euros of this would be transferred to banks to be used for loans to SMEs. In addition to this, Turkey will receive a $150 million project loan from the World Bank. This figure could also be increased threefold in the coming year. Industry and Trade Minister Zafer Çağlayan also spoke on the issue as he prepared to leave for India, accompanying the prime minister.

It seems, however, that the banking industry will be left outside of the coverage of the economic package. Economy Minister Mehmet Şimşek said on Friday, “If it’s not broken, why fix it?” The banking sector has shown good performance so far and appears to not be affected by the current crisis at all thanks to its well-regulated structure. The Turkish banking sector’s revenue increased to $11 billion in the first nine months of this year.

Negative comments, however, were not completely absent as some claimed the situation may not always be so good for Turkish banks. Fitch Ratings warned on Wednesday that the Turkish banking sector is likely to face a challenging short-term outlook.

In a special report, it said that although Turkey’s banks were not reliant on wholesale international funding and foreign exchange risks are well contained, there are some significant risks for Turkish banks in this period of global de-leveraging, a deteriorating global economic growth outlook and scarce funding.

Calls answered

Almost not a single day went by in which representatives of the private sector did not send messages to the government, calling them to arms. In the meantime, these representatives already began taking their own measures.

A good example of this is when the İstanbul Chamber of Commerce (İTO) and the İstanbul Metropolitan Municipality urged close to 14,000 companies to offer discounts in an attempt to increase consumption, which had waned dramatically due to the crisis. The discounts will continue until the end of the year and participating companies will announce the discount with signs on store windows reading “Today is the best day for shopping.”

İTO Chairman Murat Yalçıntaş believes negativities in the Turkish economy did not stem from structural problems but from a decrease in consumption largely due to psychological motives. Domestic demand fell considerably in October and November, he underlined, identifying this situation as “very dangerous for the economy and for trade.”

Indeed, the government has already taken a number of small steps, though far from systematic. The latest was announced last week when Minister Çağlayan sent manufacturing SMEs news that the government would extend YTL 350 million in loans at zero interest. The loans are to be paid back in 12 months, with no payment for the first three months. Companies have been able to apply for these loans since Oct. 26, 2008. A company will be entitled to YTL 2,000 for every worker it employs. Speaking at a conference to announce the initiative, Çağlayan said the initial aim is to protect employment levels and prevent them from slipping further.

Similarly, the Turkish Union of Chambers and Commodity Exchanges (TOBB) also presented a YTL 1.5 billion loan package with low interest rates in cooperation with Halkbank. TOBB President Rifat Hisarcıklıoğlu announced the decision at a ceremony during which he and Halkbank representatives signed the deal. The move is expected to relieve SMEs. According to the deal, TOBB will deposit YTL 100 million, with Halkbank adding another YTL 1.4 billion. Small companies will be able to take out loans from the pool of money that TOBB and Halkbank will create. Some 240 Turkish trade and industry chambers have already agreed to have their member companies take out loans.

The most-often voiced demand by business circles from the government is a new stand-by deal with the International Monetary Fund (IMF). The government deliberately dragged its feet for a handshake with the IMF despite all pressure, citing significant differences between the government and the IMF as the basic reason for the reluctance. The fund was asking the government to adopt a more modest growth target for 2008 and 2009 and to curtail public spending accordingly. The government, on the other hand, claimed that the crisis would not be averted unless more state money was poured into the markets; the private sector in particular grew less willing to invest.

The IMF last week took one step toward Turkey, saying it had readied a loan package of up to $40 billion for Turkey if it chooses to ask for one. The government also moved closer to the IMF but without mentioning the exact amount of the loan to be drawn from IMF coffers.

Economy Minister Mehmet Şimşek on Friday said there is still disagreement with the IMF and the government should wait for a solution before signing a deal with the organization. “We need to protect our national interests. If the IMF takes our priorities into consideration, we can sign a precautionary or ordinary stand-by deal with them,” he noted.

Another major demand from businessmen is a reduction in costs. İstanbul Textile and Raw Materials Exporters’ Union (İTHİB) Chairman İsmail Gülle was one of the many businessmen who called on the government to stop increasing energy prices. At a press conference last week, he said he had started to use coal in his manufacturing plants after recent prices hikes in natural gas that rendered coal usage three times cheaper than using gas for the same purpose. He further wanted a discount of at least 25 percent in 2009 for all social insurance costs.

Sectors ready for appointment with crisis

Without waiting for a move from the government, companies from all sectors have started to take care of their own business themselves while developing strategies to survive before the approaching wave hits.

Automobile Distributors’ Union (ODD) General Manager Işık Dikmen said the Turkish automotive sector has made itself accepted in global markets and that it achieved this success with no risks that could increase the current account deficit. She emphasized that the auto sector had a key role in the Turkish economy.

Dikmen argued that the balance of the public finance was a top priority but that, in addition, the domestic market should also be revived. The state banks should take responsibility, and it is important that they introduce solutions for the benefit of the consumers. He noted that car dealers and distributors had made many sacrifices to help ease the concerns of their customers, recalling that the industry’s discount campaigns are ongoing.

Federation of Food and Drink Industry Associations of Turkey (TGDF) Chairman Şemsi Kopuz asserted that the current global financial turmoil would affect Turkish sectors one way or another, stressing that it was impossible not to be anxious about the negative effects of the crisis. Regarding the measures that the Turkish food sector had taken, he noted that food companies will try not to buy goods but to sell from stock. He added that the companies will endeavor to pay their debts as soon as possible or extend the terms of their loans. He said the crisis would lead to contraction in the domestic market and that demand will, therefore, decline. “As such, production will also fall and the companies will have no choice but to dismiss employees in the end,” he said. He stressed that it was more likely that the companies would choose to lay off employees than to lower production. He noted that customer behaviors have changed in accordance with the crisis, adding that customers now tend to only meet their essential needs, and delaying any extra expenditures.

Turkish Chamber of Shoe Manufacturers President Ali Murad Kızıltaş said the shoe trade sector was also uneasy with the current negative developments in the markets, stressing that the most critical problem was that the sector had been caught unprepared. Noting that many shoe companies have tried to increase their productivity, he said the companies would quickly end any operation that does not bring profits. Kızıltaş said they had started inspecting unprofitable operations, adding that they had detected all the stores in the market with relatively lower profits and that they were contemplating shutting those stores down. “We are not at the point of dismissing employees right now. However, we have to make some decisions in the short term, following the developments closely,” he explained, signaling that anything was possible in such uncertainty.

Turkish Clothing Industrialists Association (TGSD) President Ahmet Nakkaş said growth and development plans should be made rapidly, adding that it was of the utmost importance that the crisis be managed well. He noted that the non-financial sector, which is based on exports, production and employment, should be protected from the crisis. He asserted that they had contemplated taking advantage of the market, which they expect will recover in the near future, by getting rid of burdens causing them to lose ground. “Companies will endeavor to maintain their current position, since the crisis will have extensive effects. Thus, we are most likely to have a static economy with a very low growth rate in Turkey in 2009,” he noted.

Ekrem Akyiğit, chairman of the United Brands Association (BMD), said they had studied every crisis scenario in detail, developed strategy plans accordingly and endeavored to find a way out of the crisis, rather than saying “just leave well enough alone.” “When you have a look at the shrinking market and declining market shares, it is likely that the crisis will effect the retail sector, albeit indirectly,” he said, adding that they should follow a disciplined monetary policy, keeping expenditures balanced. “We will do market research and analyze the developments in the market more frequently than before. You should have alternative emergency plans for all contingencies,” he explained. He also noted that people should avoid sending messages that may drain public confidence, apparently in reference to some representatives of the Turkish business world.

Turkish Association of Capital Market Intermediary Institutions (TSPAKB) President Nevzat Öztangut said many leading banks in the US have changed their institutional structure and that some banks in Europe have been made public. “Many foreign intermediary institutions have participants in Turkey. Thus, some of our members are obliged to reorganize,” he said. Öztangut said the profits of intermediary institutions have declined, adding that the total revenue of these institutions decreased by 15 percent in the first six months of 2008 compared to the same period last year and that their operating costs had increased by 15 percent in the same period. “The number of people working in this business has also decreased by 250 since the beginning of the year,” he added, stressing that the institutions have already started taking precautionary measures. He also noted that since January 2008, the number of intermediary institution offices in the country had decreased to 250 from 280.

Mobile Communication Systems and Tools Businessmen’s Association (MOBİSAD) General Manager Murat Dursun said there were no problems, given that everybody in Turkey had done what it takes to withstand the crisis. “The sectors that will be affected by the crisis in the first place are those that sell imported goods,” he predicted. He noted that communication device sales have decreased 80 percent over the last 10 days. He stressed that all companies are being forced to take measures and reorganize to face the crisis. “Those companies that are well prepared and taking the necessary steps will, in the end, be the ones to overcome the financial turmoil safe and sound.”

D-8 Secretary General, Dipo Alam, said that Turkey has set itself as example for the other member countries in D-8 on how to handle the financial crisis. “These concrete steps are panacea to face the turmoil, and we hope that our other member countries will also formulate their steps too,” he said in his office yesterday.

Newssource: Today’sZaman Daily.

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