Industry and the banking sector face a testing period at the end of June when second-quarter interest payments on commercial borrowing fall due to the banks, say bankers and business people. Interest rates of up to 250 per cent a year could lead to massive defaults, they say.

Other bankers are more optimistic. The banks and large corporations will get together to sort out payments, they say. Interest rates will come down if the government’s inflation and borrowing rate projections come true (see page 12). Many large industrial corporations also own banks, which should make finding solutions easier.

Burdened with high interest rates and falling demand, corporations have used their available funds to earn profits from the interbank markets rather than production. Many factories are shutting down or temporarily suspending output, and thousands of workers have been laid off.

One of the worst-hit sectors has been automotives. In May, output by the sector was down by 51 per cent compared with May 1993, and demand continues to shrink, according to the Automotive Manufacturer’s Association. In the first five months of the year, production of cars was down by 24 per cent to 106,993 units compared with January-May 1993. This compares with rapid growth in the early 1990s.

The leading car maker and Fiat licensee Tofas has recently laid off about 2,000 of its 8,000-strong workforce. Its plans to invest TL 14 million million ($440 million) in a new plant are now in doubt. The other leading car-maker, Oyak-Renault, has suspended production between 9-28 June. A company statement says it will take at least two months at the current rates of sales to sell off its stock.

Automotive industry representatives recently travelled to Ankara to press their cause at the government’s door. But Prime Minister Tansu Ciller has said the tremendous growth of automotives over the past year was artificial, and the sector has for too long enjoyed a captive market behind high tariff barriers. Manufacturers should offset their difficulties by exporting, she adds. Automotive executives say the industry is already contributing significantly to the country’s external sales.