Urgent measures required for real sector
It has become clear that it will be impossible to reach the targets set with the New Economic Program (YEP) without solving the fundamental problem.
Looking at recent debates surrounding banking credits, I have recalled the discussions of 2000-2001.
I will try to summarize it as a journalist who covered the developments at the time intensely.
The 1994 crisis was followed by a crisis in Asia, leading to the rise of populist methods, which meant that dirt was swept under the carpet.
Public banks could no longer function due to their accumulated losses, and the risks of the banking system grew because of high domestic debts.
The economy was at a standstill and there was a need for a comprehensive stability program.
It became difficult for then minister Hikmet Uluğbay to convince the IMF because promises made to the IMF in 1994 were not kept under the three-party coalition.
In order to give confidence and in parallel to the IMF’s demands, radical steps were taken in certain sectors, like social security and banking, before the program started. That was followed by the start of the program.
Together with Kemal Derviş, some resources were secured and the program was renewed.
It was during that time the banking sector consolidated by endorsing a strong capital framework and went through a structural transformation against political influences.
If we say today that the banking system is strong and it has financed high growth it is because of the measures taken at that time.
I had asked an official, who at the time was responsible of the banks, a question. “The banking sector is now consolidated and the people have paid the high cost. Don’t you think a consolidation for the real sector should be initiated as well? Otherwise aren’t we set for similar troubles?”
The answer I got at that time was: “These are national assets we cannot let melt away. We can improve their situation in time.”
That official was right. The global climate since 2002 was appropriate to make that correction. The stability measures bear fruit; banks secured smoothly resources from outside due to their strong structures and started to implement credit mechanisms in a healthy way.
We reached high growth levels and the economy went well until 2008 thanks also to the situation of the global climate.
But while measures to solve the structural problems of the real sector should have been taken, the opposite happened. Backpedaling started on principles like the independence of institutions, like the Central Bank. The Public Procurement Authority was set up in 2001. With the end of the IMF program, institutional backpedaling gained further momentum.
The hot money in the post-crisis period was used in the construction sector instead of structural transformations.
Currently there is no longer ample global liquidity and there won’t be the ability to make the real sector navigate. The crisis in the real sector is getting deeper and there is need for urgent and rational steps. Measures not limited to the real sector but to save everybody will spiral problems into the banking sector and that will mean that the whole nation will pay the cost.