Turkish CB uses bullets against crisis, ball in gov’t’s court

The Turkish economy is increasingly feeling the severe impacts of the global financial crisis with production, growth and capacity utilization in free-fall, with the lira losing ground against foreign currencies.

According the latest official figures, industrial output fell 21.4 percent in January, while capacity usage hit the lowest level in nine years at 63.8 percent, prompting analysts and economists to cut their growth expectations for 2009. Jobless claims are on the rise and the unemployment rate has settled over 10 percent.

In the money markets the lira currency hit the all-time low against the dollar and the bond yields rose as foreign investors fled from risky markets to safe havens amid increased concerns over the fate of the global economy. The rising dollar is likely to deteriorate the economic outlook with the large foreign currency debt burden of manufacturers and the inflationary impacts.

NO STEPS TAKEN SO FAR
The most effective steps against the worsening expectations have so far been taken only by the central bank, although they are believed to be short-lived and will not be able to solve the real problems of the economy.

Seeking to avert recession, the central bank has cut its benchmark interest rate by a total of 5.25 percentage points in the last four months, taking it to a record low of 11.5 percent in February. The bank next meets to set rates on March 19 and are expected to lower rates further. It also started daily dollar selling auctions as of Tuesday to curb volatility in the lira and signaled the possibility of direct intervention in the markets if the local currency loses more ground.

Turkish business associations, market players and manufacturers have been increasing pressure on the government to take steps to increase domestic demand and sign a new deal with the International Monetary Fund that provide financial resources for the economy. The government, however, has failed to meet expectations.

The statements coming from the Justice and Development Party (AKP) government are akin to "making fun of the economic players", one business leader said. "The latest data shows how serious the situation is. But the statements made show we are too late in making the diagnosis and starting the treatment... When we see that, our concerns deepen," said Nurettin Ozdebir, the head of the Ankara Chamber of Industry (ASO), Hurriyet daily reported Tuesday.

Another business leader warned that as the measures continued to be delayed, the consequences become more severe and urged the government to take steps to support industry. "The downfall of industry will have negative impacts on the other areas of the economy... The government and economic officials should immediately see the seriousness of the situation and take policy steps accordingly," the head of Istanbul Chamber of Industry (ISO), Tanil Kucuk, was quoted as saying by the Anatolian Agency.

WORSE THAN 2001?
Although the Turkish economy has strengthened since the economic crisis in 2001, warnings are being increasingly made to suggest the existing financial depression might have more severe consequences. World Bank Turkey Director Ulrich Zachau warned in late February that growth will slow down, unemployment will increase and the country will go through an economic crisis worse than that of 2001, if no reforms are made.

Analysts and economists, on the other hand, have been revising down their growth expectations in light of the recent economic data. According to the latest survey issued by the Turkish Central Bank, economic contraction expectations for 2009 rose to 1 percent in the first half of March from 0.4 percent in the previous term.

Fortis Bank Turkey said it expects the economy to shrink 5 percent in 2009, its chief economist told broadcaster CNBC-e on Tuesday, while Is Investment said in a report that it suggests the contraction rate will be 3.5 percent. "We are working on a revision at the moment that could result in a contraction expectation of more than 5 percent," Inan Demir, the chief economist of Finansbank, told hurriyet.com.tr. The Turkish economy recorded a contraction of 5.7 percent in 2001.