On November 23, the Central Bank announced the restructured Investment Commitment Advance Loan framework.
Accordingly, a total of 300 billion liras of funds, 100 billion liras per year for the next three years, will be transferred to companies through banks as investment loans with long maturities and low interest rates. The maturity will be ten years and the interest rate will be between 15-30 percent depending on the conditions. It is not in the Central Bank’s announcement, but according to the details published in our newspaper EKONOMI daily on Monday by Ferda Besli, two years of the ten-year term is a grace period.
According to the Medium Term Program, the GDP deflator (approximately half CPI and half PPI) will increase by 55 percent in 2024, 23 percent in 2025 and 13 percent in 2026. Therefore, considering the grace period, it is a very advantageous loan. On the other hand, as of November 17, the net amount of new loans used by the corporate sector since the beginning of the year is TRY 1.2 trillion. A TRY 100 billion investment loan corresponds to 8.5 percent of this. Since the loan will be disbursed in 2024, if I multiply the net new loan utilization until November 17 by the 2024 deflator, it is TRY 1.8 trillion. In this case, if the total net loan utilization in 2024 had remained at the same level as in 2023, the TRY 100 billion investment loan would have been roughly 5.5 percent of the net loan amount. Therefore, the resource allocated is not small.
In a country where annual inflation is 61 percent, inflation is expected by the Central Bank to be around 70 percent in seven months, the inflation forecast for the end of 2024 is 36 percent, and the medium-term inflation target – whatever the medium term is – is announced as 5 percent, what is the point of the Central Bank giving loans to encourage investments? Moreover, Ferda Besli reports that the Ministry of Industry and Technology requires a ‘Technology/Strategy’ score for investment. Otherwise, the Central Bank will make such a score and evaluation. With which staff will the Central Bank do this? Is the Central Bank a development bank or an investment bank?
There are company bosses in this country who often complain about the high minimum wage, which is 25 percent of the poverty line. In the same country, the heads of some organizations representing companies want the minimum wage not to increase much in 2024. So, there is a huge productivity problem. A significant part of our companies are not efficient and are afraid of even a small wage increase. This is a topic for a separate article, but let me mention it briefly: This is also why it is difficult to fight inflation. Because inflation means lower real wages for the company, which means lower real costs.
However, there are companies in this country that produce with high technology and sell their products abroad without ever mentioning the level of the minimum wage. A significant number of companies in the defense industry are like this. How is it that some companies operate at a high level of productivity, while there are many companies in this country that would close down if the minimum wage were slightly increased? So the state has some work to do. What kind of industrial policy should we pursue? Within this framework, how can we change the way inefficient companies do business/work flow charts? How can we help them with inventory management? How can we train the employees in those companies?
The questions can be multiplied, but there is no need. What is important is that the answer to these questions does not require “low-interest loans from the Central Bank”. If it were possible to boost productivity with central bank loans alone, most countries would have done so already. However, an incentivized credit system can be considered within the framework of a well-designed industrial policy. Not on its own. If it is up to the loan interest rate alone, the productivity problem is a lost cause. Moreover inflation is just standing there, looking at us.
