TURKEY - March 26 - High Interest Rates Hamper Industry.

Istanbul Chamber of Commerce Pres. Atalay Sahinoglu warns the manufacturing sector could collapse under the weight of stratospheric interest payments sparked by a month of economic turmoil. He adds: "If the interest rate issue isn't solved, a high number of companies will collapse, thousands of court cases will be opened, the courts will be jammed. Production will seriously drop, we won't be able to meet demand, and prices will quickly climb". Key interbank lending rates soared to 5,000% in late February, destroying an IMF-backed anti-inflation programme and stripping nearly a third off the value of the lira. Business leaders say banks are now passing those costs onto their corporate customers, demanding high interest rates on loans whose first-quarter payments fall due on March 31. He adds: "While normal interest rates would have been difficult to pay, some banks have raised rates ten-, twenty-, fifty-fold. This hike in interest rates will knock the entire manufacturing sector onto its back, from small and medium-sized businesses to giant enterprises".

He says manufacturers can only pay back their debt at the rates at which they borrowed. "These interest rate hikes were not taken into account, there were no plans in place for an additional increase. In other words, they do not have the means to pay interest rates". Manufacturers already burdened with tax and rising fuel costs under the low-defunct IMF standby agreement, have called on the government to negotiate new rates with banks to stop the crisis from spreading into other sectors. Sahinoglu says the government has focused its recovery efforts on the banking sector. Economy Minister Kemal Dervis has estimated fixing the banks' liquidity problem would cost $13 bn. A banking watchdog has taken 13 private banks into receivership, and their bad loans exceed $6 bn. "If the banks cause an atmosphere of chaos, the manufacturing sector will not pay the price alone. The banking sector will have to pay as well. In this situation, banks will have dealt a serious blow to Turkey's economy", Sahinoglu says. The head of the Association of Chambers of Commerce Fuat Miras says: "The conditions of the economic crisis have created serious payment difficulties".