Dear Friends, in Turkey, a majority of industrialists face foreign currency indexed costs while using domestic inputs. This being the case, producers keep foreign currency aside in the face of rising costs indexed to foreign currency. However, even this foreign currency does not prevent producers from being crushed by the costs. It is necessary to admit that everyone has a FX open position in Turkey one way or another.
Given this obvious fact and firms are clearly succumbing to high costs when they put their earnings in TRY time deposits, forcing them to sell foreign currency would literally mean ordering them to bow down to raging costs. In one way or another, companies operating in export, import, and any commercial activity have to establish a credit relationship. I must say that it does not comply with economic rationale to force companies that lack working capital to sell their foreign currency assets, which they keep in the system as a precaution. For this reason, I see great benefit in reconsidering this decision.
Our biggest problem these days is the growing gap between cost increases and income. The inflation in Turkey is mostly caused by the supply side, which rises faster than the exchange rates. Firms incur losses when they make deposits before using their earnings to cover their expenses, which increases the tendency to stock up on raw materials.
But not every company operates in the industry. A considerable part of the service sector is either exposed to a price ceiling or sells at bottom prices due to the government’s pressure for selling at minimum price. Neither the price ceiling protects consumers, nor the minimum price helps the service providers make profit. Unfortunately, inflation and unprofitability are the result of regulations that ignore the market realities.
“Developments Must Be Interpreted Correctly.”
Each market has its own dynamics. Sectors with a price ceiling or minimum price try to make a profit by selling by-products, or sometime by shortening the collection times. I hear that some companies have stopped production and decided to keep the raw material in inventory until things calm down. It is impossible to do this if you’re exporting products to abroad, but those who supply goods or services to the domestic market tend to do so. There are those who are not sure at what price they will replenish the goods they sold, or even doubt whether they will actually be able to supply them or not. Wherever I go, I meet people from different lines of business who express the same concerns.
In the past, if operating profit was low, companies would be kept afloat by non-operating profits. Today, break-even or loss occurs despite the presence of both operating loss and non-operating income. All this will negatively affect the growth of the next year. On top of that, there is a risk of recession that will be set off by the Fed and ECB’s rate hikes. I would like to stress the importance of accurately monitoring and interpreting the fluctuations in global markets, which seem to be a major obstacle to the export of goods and services.
I say this especially to bureaucrats and economic administrators. Recently, they have been saying things like “We are very aware of what you are doing”. Some companies or people might not be doing the right thing, but it is not right to generalize these unfortunate events and judge other people who honestly work to make a living. Because it might lead to loss of trust.