Does the Turkish economy need a backup plan?

There is a distinction between a bank bailout plan and an economic stimulus package. Banks such as RBS used to be very successful, conservative High Street banks. I remember when enquiring about a student bank account in 1987, you had to make a formal appointment first, and arranging for an overdraft was more complicated than obtaining tickets for a sold-out West End show! RBS in trouble? Never!

You actually said to yourself that once its income and status were adequate it would probably be the best bank in the world. There was one more bank that at the time was independently owned and even more "conservative": Coutts & Co, bankers to the royal family and wealthy individuals. Banks were trusted institutions, and while a regular bank clerk did not make a lot of money, jobs were safe. If you wanted to play in the big leagues, you became a trader instead, probably not working for a bank but for a financial services company. Something went wrong in the UK, the US and elsewhere. Why not it Turkey? Is Turkey immune to the global financial meltdown?

Banks work with cash deposited by their clients as well as with interest earned from their own investments. A key income factor for our banks is lending money against strict credit referencing criteria -- a system where, theoretically speaking, not too much can go wrong. While individual mavericks are bound to fail sooner rather than later (think Bernie Madoff, R. Allen Stanford), now our "trusted bankers" have become the focus of attention.

I suspect that many banks ventured into unknown territory and more or less gambled with their depositors' monies. It is furthermore an open secret that individuals were trusted with far too much leeway and far too high "gambling limits" (Societe Generale is an example from France). All of this must have happened with either the authorization or at least the tolerance of their bosses.

Turkey had its fair share of banking scandals in the past but entered a period of remarkable economic stability early in the new millennium.

Yes, banks are bought and sold, and the İstanbul Stock Exchange has experienced its ups and downs, but in general, the banking crisis has bypassed Turkey. By chance or by volition? For now or for always? Can newspapers and their columnists forecast the (financial) future? Of course not. What we can do, however, is to comment on trends and developments, and there are many to comment upon.

Moody's economic forecast for Turkey (as available online on Feb. 26) explains that economic growth in 2009 and 2010 will be below the expected average. It goes on to say that higher government spending will stimulate the economy the most. It finally explains that decreasing foreign direct investment (FDI) will create domestic shortcomings. So has Turkey joined the bandwagon of the unfortunate?

Not necessarily, in particular if the government's approach towards reforming the economy and decreasing polarization in society continues.

Turkey's bankers seem to have learned their lessons much sooner than their international counterparts by sticking to what they do best -- running a bank. Turkey has understood that the flow of FDI indeed depends on and interacts with global markets and available spare cash but that most of all it is linked with a stable domestic political environment. Then take Migros Türk as indicator -- planning to create 12,000 new jobs by the end of 2010. Rising unemployment is not only linked with layoffs but to the fact that Turkey's economy is undergoing a rapid transformation from agriculture and manufacturing to a more inclusive, service-based economy on its way to becoming a European economic tiger. There are potential pitfalls that the government should address, though.

According to the Economist online of Feb. 26 "six years of strong growth have made the economy, the sixth-biggest in Europe, far healthier." One reason could be that Turkish banks accrued few non-performing loans (only 3.6 percent, as was announced in İstanbul yesterday by the Banking Regulation and Supervision Agency [BDDK]). However, further taking the Economist into account and as half of Turkey's exports are to the European Union, which is facing recession, trouble may lie ahead. The Economist mentions rising inflation, structural economic problems and that Turkey needs a "strong external anchor."

As long as Turkey stays away from the "financial antibiotics" cabinet and pursues proactive economic policies, including increasing vocational training facilities below university level, the crisis may very well be overcome. This does not imply creating an artificial fortress Turkey -- trade is borderless, and Turkey has enormous growth potential in the next decade. How much "stimulus" is needed?