No chance to ease monetary policies
Güncelleme Tarihi:
by Demet Cengiz Bilgin - Hurriyet
OluÅŸturulma Tarihi: Ocak 22, 2009 00:00
ISTANBUL - Turkey was hit by the global economic crisis later than the rest of the world, but that does not secure an immunity, says Istanbul-born Harvard University Professor Dani Rodrik. Perceiving the effects of the global turmoil as just psychological translates into simply deceiving oneself, he adds.
Turkey is in a very fragile state, according to Dani Rodrik, professor of International Political Economy at the John F. Kennedy School of Government at America's Harvard University. Â
"Turkey’s external deficit is quite high and inflation has still not been reduced down to a desirable level. The country does not have the luxury to ease its monetary policies in order to revive domestic demand," Rodrik said in an interview with daily Hürriyet.
Evaluating the impact of the crisis in Turkey, "Banks had fortified their balance sheets after the 2001 economic crisis Turkey has been through. Therefore, the country was a little more prepared when hit by this global turmoil," said Rodrik, who was born in Istanbul in 1957.
"However, this time, the companies are suffering through the consequences of their short-term external borrowings, instead of the banks. Now the corporations are the cause of the fragility in the economy," Rodrik said. Meeting corporations’ financing needs and helping credit mechanism to remain active in the market should be among the government’s priorities, he said. "Guarantee fund type of collocations that would provide support for such mechanism should be considered.
"Unfortunately the discussions in Turkey related to its relation with the International Monetary Fund, or IMF, has always circulated around the axis of ’the stuff they demand from us’ and ’the least we can do to arrange a settlement.’ Whereas, under the current circumstances, Turkey could have easily made the IMF accept a much more realistic and internalized economic program. Instead, claiming that the global economic crisis would barely have an impact on the Turkish economy, the government delayed signing a new deal with the fund. As a result we the budget on display was perceived as Ğ rightly or wrongly Ğ an IMF budget."
Impact on Turkey
"Turkey felt the impact of the global turmoil later than others and it was late to take the necessary measures. This is the deepest crisis the global economy has felt since 1929. It is impossible for Turkey to not be affected. Perceiving these affects as psychological is nothing more than deceiving oneself," said Rodrik, who had once served as an adviser to the Turkish Central Bank.
Answering claims that Turkey had started to lose investment appeal long before the global turmoil, Rodrik said: "Turkey is a labor-intensive country. You are no longer a country that produces and exports low quality products. However, the interest rate policy causes a low exchange rate and overvalued lira during normal times. That is no good for a country that has adopted a production policy that substitutes imports with exports."
Responding to a question on the main triggers of economic turmoil, he said: "There are three factors on the basis of the crisis. The first is the housing bubble. Then, major mistakes were made related to risk management in the financial sector. That is the second factor Also, attempts to cushion the impact of the crisis were inadequate."
"The balance between financial freedom and financial regulation has been damaged, in favor of the former a long time ago," he continued. "Therefore, a crisis became inevitable. However, the magnitude of the crisis, as well as the horrible management skills elite finance institutions displayed, shocked me as much as it shocked many other economists."
"Turkey’s external deficit is quite high and inflation has still not been reduced down to a desirable level. The country does not have the luxury to ease its monetary policies in order to revive domestic demand," Rodrik said in an interview with daily Hürriyet.
Evaluating the impact of the crisis in Turkey, "Banks had fortified their balance sheets after the 2001 economic crisis Turkey has been through. Therefore, the country was a little more prepared when hit by this global turmoil," said Rodrik, who was born in Istanbul in 1957.
"However, this time, the companies are suffering through the consequences of their short-term external borrowings, instead of the banks. Now the corporations are the cause of the fragility in the economy," Rodrik said. Meeting corporations’ financing needs and helping credit mechanism to remain active in the market should be among the government’s priorities, he said. "Guarantee fund type of collocations that would provide support for such mechanism should be considered.
"Unfortunately the discussions in Turkey related to its relation with the International Monetary Fund, or IMF, has always circulated around the axis of ’the stuff they demand from us’ and ’the least we can do to arrange a settlement.’ Whereas, under the current circumstances, Turkey could have easily made the IMF accept a much more realistic and internalized economic program. Instead, claiming that the global economic crisis would barely have an impact on the Turkish economy, the government delayed signing a new deal with the fund. As a result we the budget on display was perceived as Ğ rightly or wrongly Ğ an IMF budget."
Impact on Turkey
"Turkey felt the impact of the global turmoil later than others and it was late to take the necessary measures. This is the deepest crisis the global economy has felt since 1929. It is impossible for Turkey to not be affected. Perceiving these affects as psychological is nothing more than deceiving oneself," said Rodrik, who had once served as an adviser to the Turkish Central Bank.
Answering claims that Turkey had started to lose investment appeal long before the global turmoil, Rodrik said: "Turkey is a labor-intensive country. You are no longer a country that produces and exports low quality products. However, the interest rate policy causes a low exchange rate and overvalued lira during normal times. That is no good for a country that has adopted a production policy that substitutes imports with exports."
Responding to a question on the main triggers of economic turmoil, he said: "There are three factors on the basis of the crisis. The first is the housing bubble. Then, major mistakes were made related to risk management in the financial sector. That is the second factor Also, attempts to cushion the impact of the crisis were inadequate."
"The balance between financial freedom and financial regulation has been damaged, in favor of the former a long time ago," he continued. "Therefore, a crisis became inevitable. However, the magnitude of the crisis, as well as the horrible management skills elite finance institutions displayed, shocked me as much as it shocked many other economists."