The Chairman's Speech at the Assembly / 22 April 2009

Mr. Chairman,Distinguished members of the Assembly and of the Press:

On behalf of the Board of Directors, I would like to welcome all of you to our April meeting. I would also like to welcome our distinguished guest, Dr. Ercan Kumcu, economist, columnist for the daily Habertürk and former Deputy Chairman of the Central Bank. We thank you for accepting our invitation to join us today. We are going to follow with interest the comments you make, as we do your columns.

Esteemed members of the assembly:

We are holding our April assembly meeting at our new Professional Training Complex. The reason for this is that it gives us an opportunity to acquaint you more closely with this important project, which was realized by our Chamber's Foundation (YSOV).

Our assembly members who took the promotional tour have already been briefed, but I would like to take this opportunity to share with you a few points regarding the complex. The first step in the construction of our complex, which started out as a dream, was taken back in October of 2004 when our Prime Minister, Recep Tayyip Erdoğan, laid a symbolic brick. With the support and contributions of our valuable industrialists who believed in that dream of ours, we succeeded in transforming that brick into a model "Professional Training Project' in just five years - an accomplishment of which we are very proud.

Covering a total area of 13,000 square meters, our complex consists of four units: the YSOV-Dinçkök Anadolu Technical High School, the YSOV-Vehbi Koç Training Center, the YSOV-Sabri Ülker Sports Salon and the YSOV-Sabancy Lecture Hall.

At this point, as I thank our major donors once again, I would also like to remember once more those distinguished past members who have passed away: Vehbi Koç, Raif Dinçkök and Sakyp Sabancy.

Esteemed members of the assembly:

Our Professional Training Complex went into operation in the 2006-2007 academic year. The official opening however was held in November 2007 with the participation of our distinguished Minister of Education.

We believe that our complex, where the teachers in our professional training program were also trained, is going to constitute an important step towards eliminating the need for qualified intermediate personnel, which is one of the biggest problems of Turkish industry today. I believe we are very fortunate in that regard.

We have a truly outstanding teaching staff from our school principal right on down. I would like to thank once again our Minister of Education, the Governor of Istanbul province, our director of education, and all the donors who lent us their unstinting financial and moral support in bringing this project to fruition.

We also owe a special debt of gratitude to Mr Engin Koyuncu, who first had this dream and who succeeded in convincing all of us that it could come true, and to our former board chairman Mr Hakky Kalkavan and his deputies as well as the members of the board and their colleagues who toiled at great self-sacrifice to complete the construction project.

Esteemed members of the assembly:

Having spoken about such a wonderful, meaningful project which gives us so much hope and happiness, it is difficult now to turn around and look at the latest developments in our economy and our industry.

For, unfortunately, the economic indicators continue to hover in negative, indeed we might say, very negative territory. Industrial production has fallen steadily since August and is contracting ever more sharply. The situation unfortunately remains unchanged in the seventh month. The rate of contraction, which started at 3.6% in August, rose to 21.3% in January, hitting a record 23.7% in February. To tell the truth, this fall came as no surprise, because capacity utilization in the month was as low as 63.8%, and this, together with a steep decline in exports, was the harbinger of a serious drop in production.

Among the sub sectors, the biggest fall was in transport vehicles at 58.7%. Radio and TV production came in second at 41.6%, followed by office machines in third and metal furniture in fourth. The only sector that boosted production in February was tobacco products, which were up by 14.2%. All the other sectors posted declines. As for March, while the capacity utilization rate rose slightly on February's figures, it nevertheless remained at the low level of 64.7%.

According to the figures of the Association of Turkish Exporters, exports in the same month fell by 35%. These data indicate a decline of around 20-30% in industrial production for the month. And this in turn, together with a probable fall in March, means that we are facing a contraction of 20-30% on average in industrial production in the first quarter of 2009.

Turkey's 27 quarters of uninterrupted growth came to an abrupt end in the final quarter of 2008 with a contraction of 6.2%. Unfortunately, we were faced with an even more bleak picture in the first quarter of 2009. A look at industrial production in the first three months shows that we stand a good chance of suffering a double-digit decline in GDP as well in the first quarter of this year. At the same time, the drop in production continues to impact negatively on jobs as it did in the previous months.

Jobless figures, like those for industrial production, are worsening by the month. Most recently, unemployment hit an all-time low of 15.5% in January of this year. Not only our jobless rate but our employment rate is also alarming. Turkey's rate of employment, which was around 53% at the start of the 1990's, had fallen by January 2009 to 38.7%. While growth and employment should go hand in hand under normal conditions, the exact opposite occurred in Turkey where jobs were consistently lost during all those years.

Another reality that the latest jobless figures point up is that the number of people employed in the industrial sector has fallen by 316,000 in the last year, a figure that represents the biggest collapse ever suffered by Turkish industry. These are the most salient points in the economy as we see it.

In order to make a sound assessment of the existing situation and of probable developments in the period ahead one naturally has to look at other indicators besides industrial production, employment and growth. I believe that Mr. Kumcu in his talk is going to take up those indicators in detail and fill in where I have left blanks.

Esteemed members of the assembly:

As we have said so frequently since the start of the crisis, Turkey has been very slow to take measures in the face of a clearly worsening situation. Even in March, six months after the crisis deepened, we nevertheless had hopes for the fourth and fifth economic packages that were announced in rapid succession.

Now, however, we are astonished and distressed at the slowdown again in our government's readiness to take the measures that we initially greeted with such pleasure. The fifth package was announced on 25 March, the same day as our March assembly meeting. As we said that day, it was our expectation that the fifth package would be oriented more towards production than trade. We expressed the view that while stimulating demand on the domestic market was an important aspect of the job, at the same time measures aimed at reviving production also had to be brought into play. In that context, we pointed out in particular that we considered the credit guarantee fund very important. And we expected that work on the fund would be completed as soon as possible. As far as we know, however, there is still no concrete development concerning the credit guarantee fund even though a month has passed.

Nevertheless, in our contacts with our industrialists, and particularly with our small and medium-sized enterprises, we continually hear the refrain, "Financing is crucial for us. What couldn't we do if we only had financing? We would continue to produce and salvage jobs under any conditions." Yes, it's clear what is needed. But in a period when sustaining production and employment is of critical importance, we simply don't seem able to deliver the goods.

When the crisis erupted, the question was one of resources. Today however the banking sector appears to have sufficient funds to offer credit. The data also back up this view of ours. While GDP grew by only 1.1% in all of 2008, financial institutions grew at the rate of 9.1%. Even in the last quarter, when GDP contracted by 6.2%, the growth rate among financial institutions was 9.5%. Manufacturing expanded by only 0.8% in the same year. I say this only to underscore the striking difference in the growth rates. Given the existing situation, the credit mechanism is failing to work not due to a lack of funds but to a crisis in confidence. The problem is how to overcome that crisis.

The Central Bank is lowering interest rates. The new rates however have not been reflected in interest on loans, again due to the crisis in confidence. If the credit guarantee fund came into effect, it would reduce the banks' fear of risk and make an important contribution towards making the credit mechanism functional again. I should also point out that our purpose here is not to question the banks. Viewed from the standpoint of the banks, it is only natural that they, as commercial institutions, would prefer to avoid risk in a period when uncertainty in the real sector is on the rise. Our purpose here is to contribute to outlining what needs to be done to make the banking system functional again and to producing solutions.

Countless times we have voiced our demand that the cost of state-produced inputs be lowered, payment of taxes and premiums deferred, and incentives introduced to protect jobs in order stimulate production and afford enterprises some breathing space. We hope that the sixth and seventh packages will respond to those demands and be production-oriented.

Another area these packages need to address is exports. Our industrialists' efforts to diversity their markets definitely need to be supported. In demanding such support, we are aware, as we have always said, of the need for fiscal discipline. At the end of the first quarter of 2009, the central government had a budget deficit of 19.1 billion TL. Viewed solely in terms of fiscal discipline, this is an extremely distressing development.

When we look at the economy as a whole, however, creating a way out for production, employment and exports is of the essence in the current situation. Furthermore, we should not forget that as long as the economy is contracting, state revenues are going to contract as well. To put it another way, there are no tax revenues without production and consumption. Nevertheless, over-relaxation in fiscal discipline could clearly entail serious costs in the future. At this point the target should be to establish a sound balance between the two. I am sure that Mr. Kumcu is going say something to broaden our horizons on that score.

Esteemed members of the assembly:

Viewed from the inside, the picture in the economy looks partly cloudy, almost completely overcast even. But, in one encouraging development, some more positive signs are beginning to appear in the global economy. The appearance of these relatively positive signs undoubtedly had an effect on the agreement on a 1.1 trillion dollar aid package to bolster the world economy that was pledged by world leaders at the G-20 summit on 2nd April.

The IMF's agreement to support the developing countries in particular is welcome news. But can the crisis be said to have bottomed out based on these relatively encouraging signs? To quote a metaphor used in the western press, is the war over, is it time to emerge from the shelters? There is still no answer to this question. The fact is that the OECD Chairman is saying, "The stimulus packages are starting to produce results. There are encouraging signs, but uncertainty in the global economy continues and 2009 is going to be a very difficult year." Yes, 2009 is certainly a difficult year for Turkey, especially in terms of production and employment. But, as I have always said, we will weather these difficult days, as we always do.

In addition to the encouraging signs abroad, at home too a slight upward trend in the consumer and real sector confidence indexes shows that our people also have hope. Yes, we are in a period of rampant anxiety, but we know that Turkey is not just any country. We are one of the countries with the highest volume of production and foreign trade in our region. We have a high economic and commercial potential, a deeply rooted past and special ties with the countries around us.

So much so that President Obama's visit reminded the world once again of Turkey's special status in that regard. If we can make good use of all these advantages, it may be possible to weather the crisis with as little damage as possible from here on out. As long as our government demonstrates the requisite will when it comes to taking measures, this potential could, and will, be transformed into reality.

A probable correction abroad will certainly impact positively on Turkey. But what is really important is that we put our own house in order and eliminate our shortcomings.

On 8th April our President announced that there is no new package in the offing. In the days that followed, the macro economic targets for the next three years were revised downwards within the framework of the pre-accession economic program. This revision is a long-overdue step. In our view, the new targets are more realistic than the old ones and more sound in terms of the future.

While the revision was being bandied about in public opinion, the possibility of a new package was broached again. As we see it, this is no time for hesitation! Packages aimed at stemming the crisis must continue without interruption. We have always defended this view and we are doing so again today. Every cloud has a silver lining and we must not forget that.

This dire crisis could and should be a stimulus for eliminating the obstacles that hamper our competitiveness as well as for solving our problems, not only the urgent ones brought about by the crisis but the long-standing ones that have been accumulating for years to the point that they have become fossilized. If this can be done, then the crisis can be turned into an opportunity! We at the Istanbul Chamber of Industry are continuing, and will continue, to combat the crisis with all the means at our disposal. We expect our government to support us in that effort. The experience of the fourth and fifth packages has shown that that support is not in vain, indeed that its impact is positive and immediate.

I would like to underscore once again that the economic stimulus packages must definitely continue! It is our hope that with these measures the unfavorable trend in the economy can be stemmed in the second quarter and a recovery, albeit a slow one, get under way in the second half of the year.

It is with this hope that I would like to conclude my talk and salute you all once again on behalf of the board of directors.

C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors