Turkish Forum

Tag: Financial Crisis

  • Turkeys targeted as next crisis brews

    Turkeys targeted as next crisis brews

    Australia, as a large borrower will not be immune to another financial crisis.

    Fancy a trip to Turkey? It’s nice at this time of year and you too could marvel at what could be the next financial crisis unravelling.

    What’s more, the lira is as cheap as chips, although that’s part of the problem. Currencies in many emerging markets are being battered, with the Argentine peso plunging 16 per cent so far this year.

    So what’s that got to do with us? Nothing and everything, as the 1997 Asian or the 2007 global financial crisis showed. We know it’s always something from left field that triggers a financial run from which Australia, as a large borrower, is not immune.

    Maybe it won’t be Turkey, which last week had to double its key interest rate, but there are enough vulnerable countries for the problems each one has to come together in another global exodus of capital.

    All have some political problem, invariably with corruption at its root, along with an economic one such as too much debt, high inflation or a dangerous current account deficit, and often all three. They include Brazil, Russia, South Africa, India and Indonesia, which Abbott would do well to note.

    The rug is being pulled from under them by the United States Federal Reserve. It has been pumping extra dollars into the US economy, funding the world’s biggest carry trade. This is banks borrowing at a low interest rate in the US – in fact, at almost none at all – and investing it in bonds, stocks or commodity futures that earn much more.

    This carry trade is also why the dollar hasn’t dropped further.

    But the Fed confirmed last week that it would continue what it calls tapering this down. The T-word is making Wall Street inordinately jittery, even though it’s a plus that the US economy has recovered enough to come off life support. Still, it doesn’t want to lose its sugar hit of near zero official interest rates and increasing amounts of easy money looking for a home.

    The key difference between 2013 and 2014 is that the US will be driving world growth again. Better still, the Fed has told the market it’s not about to raise interest rates, either. In fact, they’re falling as money flees emerging markets for the safe haven of US bonds. Their yields are the benchmark for setting mortgages.

    Yet falling yields aren’t what you’d expect from tapering, considering it’s achieved by the Fed buying back fewer government bonds. You’d think less demand would lower bond prices, which increases their yield.

    Either way, they’ll determine our sharemarket, currency and interest rates this year. While Wall Street is due for a correction anyway, expect tapering to lift the US dollar and pull our dollar down. Even our interest rates have been falling slightly, although the Reserve Bank hasn’t done anything, and won’t at Tuesday’s meeting. And, if US bond yields stay down, this will discourage money from fleeing the Turkeys of the world.

    via Turkeys targeted as next crisis brews.

  • Turkish Economic Stimulus Package Foresees Temporary Tax Cuts in Automotive and Other Sectors

    Turkish Economic Stimulus Package Foresees Temporary Tax Cuts in Automotive and Other Sectors

    Turkish Economic Stimulus Package Foresees Temporary Tax Cuts in Automotive and Other Sectors

    Publication: Eurasia Daily Monitor Volume: 6 Issue: 50
    March 16, 2009 12:49 PM
    By: Saban Kardas

    The Turkish government announced a comprehensive economic stimulus package on Friday. The decision comes against the background of deteriorating economic indicators that signal a serious recession and mounting pressure from market players for the government to act swiftly to alleviate the crisis. Industrial production showed a record decline in January, falling 21.3 percent from the previous year (www.tuik.gov.tr, March 9). Accompanying drops in capacity utilization and growth figures and the rapid devaluation of the Turkish lira further exacerbated concerns about the economy.

    The International Investors Association of Turkey (YASED) published the results of a recent survey conducted among its members. Investors shared pessimistic expectations for the Turkish economy in 2009 and anticipated a recovery only in 2010. Among the measures they expected to be taken were the introduction of an urgent economic package and the conclusion of a loan agreement with the IMF (www.yased.org.tr, March 11).

    The government previously had maintained that the Turkish economy was better equipped than that of other countries to deal with the global financial crisis and would be able to survive the storm. The government therefore adopted a reluctant attitude toward negotiations with the IMF and sought to address the crisis with its own methods. It previously introduced three smaller packages, which did not satisfy expectations. Until now the most serious measure adopted by Ankara to avoid a recession was the decision made by the Central Bank in February to lower its benchmark interest rates to a record low of 11.5 percent. This move, however, was not sufficient enough to address the mounting economic problems in Turkey (Hurriyet Daily News, March 12).

    The government appears to have acknowledged that irrespective of the Turkish economy’s strengths, shrinking world markets and the resulting contraction in foreign and domestic demand remain the main challenges and that more serious measures are needed to stimulate the economy. On March 13 the government announced a package of economic measures amounting to 5.5 billion Turkish liras ($3.2 billion). The package will introduce temporary tax cuts for three months in the housing, home appliances, and automotive sectors. The new regulations will lower the private consumption tax rates (OTV) on the automotive sector and remove the OTV completely on home appliances, while the value added tax (VAT) on apartments over 150 square meters (1,614 square feet) in size will be lowered from 18 to 8 percent. The package also foresees measures to boost exports by allocating an additional 500 million liras ($296 million) to Eximbank, a state-owned bank geared to supporting exporters (Anadolu Ajansi, March 13). Pending cabinet approval, the package is expected to be put into force within the week (Anadolu Ajansi, March 15).

    The new tax regulations seek to stimulate domestic demand in Turkey’s leading industries. Industry Minister Zafer Caglayan explained the details of the reduction of the OTV on motor vehicles and said that it might be implemented as early as Monday. For automobiles with engines of up to 1,600 cubic centimeters, OTV will be reduced from 37 percent to 18 percent, and for vehicles with engines of between 1,600 and 2,000 cubic centimeters, it will be reduced from 6o percent to 40 percent (Anadolu Ajansi, March 15).

    The representatives of major automobile producers had been expecting the government to make such a decision for some time, and overall they welcomed this development. They noted, however, that although the package might relieve the sector’s problems temporarily by helping reduce the current inventory, it would be insufficient alone to solve the structural demand-side problems of the sector. Representatives from other economic areas also pointed out that given the three-month time limit on the tax cuts, the package would fall short of expectations and fail to stimulate the economy in the long run. Representatives of the housing sector noted that since only 5 percent of Turkey’s total real estate consisted of homes of more than 150 square meters, reducing the VAT on property was not likely to have a major effect. The VAT on houses with fewer than 150 square meters is already 1 percent (www.ntvmsnbc.com, March 13).

    In a related development, Turkey held direct talks with the IMF after a long break. Although the market players believe that an agreement with the IMF is urgently needed to restore confidence in the Turkish economy and reduce the volatility in financial markets, the government balked at such an accord. Turkey maintained that the conditions set forth by the IMF were “unacceptable” and against the country’s national interests, and indefinitely suspended direct talks with the IMF (EDM, January 29; February 18).

    The IMF announced last week that it had forwarded new proposals to Turkey regarding three issues that had caused disagreements, and Economy Minister Mehmet Simsek said that the IMF had acted more flexibly toward Turkish sensitivities. The reports boosted the markets, helping the lira regain its strength after hitting an all-time low against the dollar (www.yurthaber.com, March 12). A Turkish delegation led by Simsek attended the G-20 Summit in London, where they met with IMF Managing Director Dominique Strauss-Kahn and First Deputy Managing Director John Lipsk. Upon his return to Turkey, Simsek told reporters that Turkey and the IMF had agreed on consultations and to exchange opinions on the new offer. Noting that Turkey and the IMF had an agreement of principle, Simsek stated that Turkey had taken the IMF’s benchmarks into account in introducing its own package and would be mindful of the medium-term financial implications of such short-term measures (Cihan Haber Ajansi, March 15).

    It remains unclear how Turkey will finance the stimulus package, especially with further tax cuts; and a growing budget deficit set to increase this year. Nor is it clear at this stage whether incentives on consumption alone can really boost the economy without complementary measures to improve consumers’ income or decrease unemployment. Following local elections at the end of March, Turkey might finally go ahead and conclude the IMF loan agreement. With the IMF concerned about maintaining budgetary discipline and business circles seeking a more comprehensive economic recovery package, it is difficult to see how the government will find a middle road that will satisfy both parties.

    https://jamestown.org/program/turkish-economic-stimulus-package-foresees-temporary-tax-cuts-in-automotive-and-other-sectors/

  • Turkish Government Under Fire

    Turkish Government Under Fire

    Turkish Government Under Fire for Delaying Response to the Global Financial Crisis

    Publication: Eurasia Daily Monitor Volume: 6 Issue: 32
    February 18, 2009
    By: Saban Kardas

    An announcement of recent economic indicators on Monday by the Turkish Statistical Institute (TUIK) has revealed that the number of unemployed people rose by 645,000 over the previous year, reaching 2.99 million in the period from September through November 2008. This represents an increase in the unemployment rate from 10.1 percent during the same period of 2007 to 12.3 percent in 2008. While the unemployment rate in rural areas was only 9.3 percent, it reached 14.2 percent in urban areas, and was 23.9 percent among the youth. The number of employed people reached 21,315,000, marking a 448,000 increase over the previous year. Of the entire pool of unemployed, around 72.6 percent were men, and about 59.4 percent did not have a high school diploma. Some 26.6 percent had been seeking employment for more than a year (Hurriyet Daily News, February 17, www.turksat.gov.tr).

    Rising unemployment, reaching the highest level since 2005, has brought attention to the Justice and Development Party’s (AKP) handling of the Turkish economy and whether it has taken the necessary precautions to weather the global financial crisis. Critics believe that unemployment figures are only one indication of how the government has failed to comprehend the depth of the crisis and formulate prompt responses. Indeed, earlier economic data released by the TUIK appear to lend support to the critics. At the end of last year TUIK announced that the economic growth rate had dropped to 0.5 percent in the third quarter of 2008 and would continue to decline in the last quarter (Sabah, December 16). Similarly, the country’s industrial production output declined in December by 17.6 percent on a year-to-year basis (Cihan Haber Ajansi, February 9). To make matters worse, the industrial capacity utilization rate dropped to 63.9 percent in January, marking its lowest level in the past 18 years (Radikal, February 11). Moreover, according to the Turkish Employment Organization (IS-KUR), the number of people looking for a job rose by 95 percent in January compared with the previous year, reaching 151,530 (Radikal, February 13).

    According to its critics, the government was slow to recognize that the global recession would inevitably result in the contraction of the Turkish industrial sector and result in unemployment. According to Mustafa Boydak, the head of Chamber of Industry in Kayseri, one of Turkey’s industrial centers in Anatolia, there were already signs of the crisis in the first half of 2008 and business circles had clearly explained the situation to the government, providing adequate warning. The lack of communication between Prime Minister Recep Tayyip Erdogan and economic managers, however, prevented a candid assessment of the crisis on the part of politicians, and Turkey fell behind other countries that have taken measures to assuage the economic calamity. Boydak cites three factors bedeviling the industrial sector: an inability to procure loans at reasonable conditions; difficulties with exports; and contraction of the domestic market (Referans, February 16; Hurriyet Daily News, February 17).

    On February 15 major Turkish unions and vocational organizations organized a joint meeting in Istanbul to protest economic policies. In a rally entitled “We Will Not Pay the Price of the Crisis,” workers and public employees called on the government to introduce policies to address the rising unemployment immediately (Anadolu Ajansi, February 15).

    Following the announcement of official unemployment rates, the Turkish Confederation of Employers’ Unions (TISK) issued a statement calling on the government to take preventive measures. TISK claimed that among developing countries Turkey ranked near the top in terms of decline in industrial production and growth rate and in increasing unemployment. Based on the recently released figures, TISK believes that Turkey is one of the hardest hit countries by the economic crisis and that unless the government acts quickly to introduce a package to stimulate demand and solve financing problems, the situation might become even worse (Anadolu Ajansi, February 16).

    For its part, the AKP government does not seem to be alarmed by the recent economic figures. Speaking to the NTV news station, Industry and Trade Minister Zafer Caglayan said that the rise in unemployment had been anticipated and that if the government had not taken precautions in 2008, the numbers would have been even higher. Noting that the government expected the crisis to influence the Turkish economy for the next six to seven months, Caglayan assured the market that the government had a plan of action. Despite the repercussions of the crisis in the real sector, the financial sector was not as badly hit as in other countries, and this was to Turkey’s advantage. He especially rejected calls to introduce an “economic package” simply because other countries were doing so, and added that Turkey would deal with the crisis by taking its own unique conditions into account, echoing Erdogan’s oft-repeated argument that Turkey will handle the crisis according to its national interests. Caglayan also announced forthcoming measures to stimulate the automotive and textile industries (www.ntvmsnbc.com.tr, February 16).

    Indeed, the government has already forwarded the first concrete package to the Turkish parliament. After approval by the Planning and Budgetary Commission, the parliament began debating the package on February 17. The main goal of the package, which includes short- and mid-term measures to address the economic crisis, is to stimulate employment (ANKA, February 17).

    The government is also under pressure for delaying the conclusion of a loan with the International Monetary Fund (IMF), and critics believe that this is mainly because of short-term political considerations in anticipation of forthcoming local elections. The government, on the other hand, argues that the IMF conditions would have limited Turkey’s flexibility in dealing with the crisis, perhaps even exacerbating the problems in unemployment and growth (www.ntvmsnbc.com.tr, February 16). In the meantime, Turkey and the IMF have taken a break from negotiations to clarify their positions on the remaining points of disagreement (EDM, January 29). Despite the Turkish side’s assertion that there has been progress in negotiations, it is still unclear when an agreement might be reached (www.cnnturk.com, February 17).

    Although the AKP government believes that it is doing everything to manage the global crisis on the basis of Turkey’s national interests, the market has grown increasingly anxious about the government’s delay in implementing efficient measures. It is hoped that the economic stimulus package and a deal with the IMF, should there be one, will not be too little, too late.

    https://jamestown.org/program/turkish-government-under-fire-for-delaying-response-to-the-global-financial-crisis/