ANKARA DRAWS LESSONS FROM ASIAN AND RUSSIAN CRISES
Turkey carefully studies Asian and Russian economic crises to avoid such occurrences at home. Finance Minister says hot money is a scourge; it is not possible to make reforms without profound measures and preparations. Treasury Chief says the only way out is current economic parcel for Turkey. Timely preparations in Ankara about the Russian crisis may have a reverse effect and boost the mutual cooperation of the two neighbours facing similar problems of different intensities. Turkey’s free market experience is an advantage in this respect.
The economic crisis in Russia that finally gave way to a sizable devaluation last week did not catch Turkey unawares. Prime Minister Mesut Yılmaz was prompt to stress the importance of the Russian Federation for the Turkish economy and offered any assistance to Moscow from Ankara. Because the Government took every precaution in time the negative impact of the Russian crisis would be minimal for Turkey, he assured. The Turkish economy was too strong an economy to be harmed greatly by this crisis. “We, the Turkish Government, are ready to extend to Russia any assistance that is needed for its rapid emergence from this crisis,” said Yılmaz. He pointed out that Russia was Turkey’s second biggest economic partner. He would not dwell on what assistance Turkey could extend to Russia. Negotiations would determine it. There was a $350 million credit arrangement between Turkey and Russia, he said.The Treasury Chief, Yener Dinçmen, said that the best way for Turkey to avoid the ill effects of the Russian crisis was to stick to its own economic program. “As long as we go on implementing our program we may even emerge gaining from the Russian or any other international economic crisis,” he said. The reason for Yener’s optimism was that international funds to leave Russia due to the crisis could well find their way to Turkey. “Of course what is important is to what dimensions the Russian crisis will grow. It may take a turn for the better or may deteriorate. We have to follow developments,” he said.
The most interesting comment about the Russian crisis came from Finance Minister Zekeriya Temizel. He said this crisis highlighted the importance of the monetary program and the tax reform which Turkey was implementing. “Hot money is a scourge for national economies. We’ve seen in Russia what happens when reforms, ie changes of systems, are carried out with surveys lacking depth. No distance can be covered with merely monetary programs or shallow measures. Hot money thinks daily. It never bothers about the future of the national economy. It never considers if what it is doing at that moment is for the good of the economy or not. It makes a profit and goes away. We are living through a quirk of fate in Russia. Lenin said that the capitalist system would collapse with a financial crisis. Now such a crisis is being lived through in Moscow, the former capital of communism,” said the Minister.
Blessing instead of scourge in foreign capital policy in Turkey
What Temizel and Dinçmen said about the Russian crisis is, in fact, indicative of what the Turkish Government is planning to overcome this crisis without any harm to the Turkish economy and to get benefit from it, if possible. How, especially considering that unhealthy developments are currently taking place in the Turkish economy, partially because of the crisis of Turkey’s big neighbour?
The answer rests in the diagnosis of the Asian and Russian crises: hot money is a scourge for smaller national economies.
At the moment the Turkish economy is suffering considerably with the fall in the value of shares in IMKB (Istanbul Stock Exchange), rising interest rates, devaluation of the TL and an exodus of foreign currency from the Turkish economy, mostly because George Soros and other multinational speculators are selling their shares and bonds in IMKB, changing their money into dollars and quitting Turkey.
At a very critical point of Turkey’s economic program, which was heading for a resounding success by curbing a chronic inflation, the Turkish Government and nation recently found themselves in the middle of a crisis similar to but smaller than the Russian one. How Moscow will emerge from this unwelcome burden remains to be seen. Ankara will certainly give it the necessary know-how with its enormous experience in free market economy tricks, as PM Yılmaz has promised on the first day of the Russian crisis. Will the Russians heed this advice? Are their conditions suitable to do so? Will they be able to cope with the crisis without much suffering? Time will tell.
Turkey, for its part, knows exactly what it will do about turning this scourge into a blessing, if possible. The key is to allow, even facilitate, the hot money to quit Turkey and make up for this loss (which is already rocking the State ship with its huge waves) with the arrival of healthy foreign capital, in the form of direct investments (instead of portfolio shares) and medium- or long-term loans from international markets (instead of daily bond purchases and sales in the Istanbul market by foreign capital).
The State Minister for the Economy, Güneş Taner, said that they had almost completed their preparations for this transition and they would soon announce the “good news” to the nation. Explaining the nature of these preparations he said that as from September they would emerge in the international credit markets for loans. He said, “Time is needed for the disappearance of the irritation in international credit markets. If the money quitting the markets at enormous amounts is to be replaced somewhere else Turkey will be the most reliable country to attract this capital among the emerging markets. In the last two weeks, nearly $2 billion was sold from the Central Bank. We see it as foreigners quitting the shares and bonds market in Turkey.” (Issue No: 41)
Turkey’s preparations about the Russian crisis
In expectation of the Russian devaluation and crisis, the High Planning Council (HPC) allotted $5.5 million from the Petroleum Prospecting Fund to finance exports. Also, the Government decided to settle an outstanding question with Russia by paying a $5 million fine given to Turkish TIR trailers for their illegally engaging in the transport business in Russia. It will eliminate one of the hurdles in the way of the expansion of frontier trade with that country.
The Under-Secretary of External Trade, Yavuz Ege, said that 10 million people in Russia were living off this frontier trade with Turkey and that Moscow’s efforts to take under registration the unregistered economy could encourage frontier trade. He stressed that frontier trade had emerged out of a need following the collapse of the communist regime in Russia. It was not a makeshift arrangement that would disappear. They were taking measures to enlarge this trade, he said.
Indeed, Yavuz Ege’s Office, in a report handed to the HPC, urged the Government to enforce a number of measures to encourage frontier and coastal trade with Russia. These measures included abolishing the $15 levy from the Russians upon their arrival, establishing free trade zones and allotting Çorlu Airport to this trade. According to this report, frontier trade followed an uptrend following the downfall of the Soviet Union and reached the peak with $8.8 billion in 1996. Last year it fell to $5.8 billion and in the first quarter of this year declined by a further 20% on a year before.
In addition to frontier trade, regular trade is also expanding with Russia. Turkey’s exports to that country were $441.9 million in 1992, $504.7 million in 1993, $820.2 million in 1994, $1.239.1 million in 1995, $1.482 million in 1996 and $2.1 billion in 1997. Imports from Russia were $1,040.8 million, $1,542.3 million, $1046 million, $2,082.4 million, $1.846 million and $4 billion, respectively, and all these figures are in addition to the frontier trade figures.
This $6 billion official trade volume in 1997, plus $5.8 billion frontier trade is enough to show the importance of Russia for the Turkish economy. Into the bargain, the biggest Turkish contracting companies and tens of thousands of Turkish workers and businessmen are running businesses in Russia to the tune of billions of dollars and Turkey meets a great part of its energy needs from that country. At the moment there are about 800 Turkish businessmen, over 500 Turkish companies and about 50 thousand Turkish workers in Russia. Russian tourists are also a great contribution to the Turkish economy.
All these facts and developments were reasons enough to spur Turkish economy rulers to tackle economic relations with Russia on the eve of the pending crisis in Moscow. All the ministers concerned say that Turkey was not caught unawares about this crisis. Temizel said, “The Russian moratorium (for three months) will not affect Turkish contractors. They owe us some money for contracting services. There will be no problem because it is based on the dollar.” State Minister Güneş Taner said, “The devaluation in Russia will not affect Turkey. It was no surprise for us. Russia has to expand its trade with us in order to keep on its feet.”
Taner, who has made arrangements with the Russian Federation about giving a boost to mutual economic relations, told business tycoon Şarık Tara, “Don’t be surprised if you see our mutual trade and economic relations with Russia reaching $100 billion before long.” He is expected to go to Moscow on August 24th to make fresh adjustments in mutual relations in the light of the recent crisis. His efforts will be especially focused on preventing frontier trade from being harmed by the latest developments.
Undeterred by crisis some expand their businesses in Russia
Business tycoon Ishak Alaton said that his company, Alarko, had invested $600 million in Russia and there was no danger for any Turkish companies there. The steps taken by the Russian Government were shrewd and they would overcome the current difficulties without much hardship, he forecast. Not all Turkish businessmen were as optimistic as Alaton, however. The General Manager of ENKA in Moscow, Murat Gülmezoğlu, said that it was impossible for Turkish companies not to be adversely affected by these “shock decisions.” He said, “Markets will become more stagnant. As a company heavily investing in Russia, we will find it difficult to find tenants for the offices we are building in that country. Precarious conditions should first be eliminated. But, all in all, this crisis is transitional.” Managers of Koç Holding’s Ramstores chain did not expect that retail trade would be harmed by these developments.
Contrary to the expectations of shrinking business with Russia, Alarko is going to enlarge its activities there by making joint investments with Shell. The Alarko Alsim Company and Shell Exploration BV signed a contract for joining forces in oil and natural gas imports into Turkey from Russia. Üzeyir Garih of Alarko said at the ceremony in Istanbul on August 20th that they were interested in the global energy projects in Russia. “In the following years Turkey will be an energy transit centre. Turkey produces 60% of the pipelines needed for this trade. Turkey will advance greatly in this sector. This cooperation is very important in this sector which will amount to hundreds of millions of dollars in 2010.”
Tuğrul Tosun of Shell said that they would try to handle concrete projects within their partnership with Alarko. “There are a number of projects in question. The Baku-Ceyhan pipeline is one of the most imminent ones. It is inevitable to have a natural gas pipeline parallel to it. That is why we are cooperating for this purpose and will act as a consortium in the tenders in future,” he said.
In fact, everything about the current crisis in Russia and
economic difficulties in Turkey are revolving around oil and natural gas supplies from the
former USSR to the rest of the world and that makes the issue global. It is not possible,
therefore, to make a comprehensive appraisal of these matters within Turkish-Russian
contexts. İmportant developments to be elaborated upon in the following article are
currently taking place also involving the United States and other international forces. uras@ada.net.tr
,August 21st,
1998