THE ECONOMY – Light seen at the end of the tunnel

Economy Minister Kemal Dervis expects a totally different economy in Turkey by mid-2002 provided that some unexpected events concerning political stability or in foreign policy do not mess it all up. The economy is bottoming out for the last two months and debt servicing will not be too much of a problem in the following months due to the successful fiscal performance and $3 billion surplus in current accounts by the end of the year. This successful performance, however, is not devoid of threats and pitfalls, believe the economy rulers.   

Unbelievable for the Turkish economy: the dollar has been losing value in its parity with the TL for the last seven weeks. The process is slow, but reliable and steady. The main reason is what Pulse (Issue No: 55, page 2) first pointed out in the media, the commencement of de-dolarization of the Turkish economy, after a rapid dolarization process caused and encouraged by external forces after the TL was left to float as from February 21^st.

Impact of 21 February shock is disappearing

As a result of this dolarization fever triggered off by foreign banks, the dollar jumped from TL680,000 on February 19^th to over TL1 million within two days to start with and touched the TL1.7 million level at the beginning of October, constantly rising due to high demand. Business tycoon Sakip Sabanci’s Akbank, along with a few foreign banks such as Citibank, HSBC and some German banks made handsome profits by buying $5.2 billion from the Central Bank within two days at TL680,000. It was definitely a case of illegal inside trading and even worse than that because the IMF chief, Stanley Fischer, forced Turkey to float the TL. All the international finance quarters were naturally aware of what it meant, but only Akbank and a few foreign banks were lucky enough to make such enormous purchases of the dollar at fixed rates in such a short time as two days. Why did the Central Bank sell $5.2 billion in these critical two days is another story of treason that we bypass for now.

Treason, profiteering, stealing or whatever it may be called, the Turkish nation suffered bitterly in 2001 because of this IMF operation, but the sound principles of the free market economy, the supply-and-demand mechanism, have now begun to operate and the dollar parity has been going down for the last seven weeks with the commencement of de-dolarization. On October 19^th the dollar stood at TL1,644,000. By the end of last week, on December 7^th, after a steady drop it fell to TL1,451,000. The appreciation of the TL could be faster, but the Central Bank is going out of its way to slow it down and the Dervis team in charge of the economy, rightly or wrongly, says that it is better to be slow in making improvements in the economy.

According to this team, the world will see a totally different Turkey in the economy as from the second half of 2002 unless some unexpected developments, especially foreign policy developments or unfavourable political stability factors, forestall it. They also believe that the post-September 11^th period helped Turkey in transcending these economic problems, as Ankara promptly and energetically joined Washington in setting in motion Article 5 of the NATO Charter against international terrorism.

Dervis complains of lack of coordination in the economy

The economy rulers believe that the prerequisite for this prospective economic breakthrough in the New Year is political stability. Whether or not they do their part for this stability is, however, different.

Economy Minister Kemal Dervis said in Brussels last week (4^th) that the State Planning Organisation unilaterally prepared the Pre-accession Economic Program (PEP) of Turkey for the European Union. “The responsibility for drawing up this report was handed to the SPO in January 2001. It was prepared by the SPO without any consultations with the other economic units and handed to the EU with a 10-day delay. It caused a bit of a problem in Brussels. Turkey was the only candidate country that could not present its medium-term economic strategy to the Union,” said Dervis.

The SPO Chief, Akin Izmirlioglu, was prompt to answer the charges. On Thursday (6^th) he told a press conference in Ankara that he was given the duty of preparing PEP on January 15^th, that they sought the views of other economic units and held two meetings for coordination. Eleven departments and agencies, including the Treasury, attended the second meeting on September 27^th and the text finalised there was presented to the High Planning Council. The revisions made on the basis of the economic aggregates handed to the SPO by the HPC on October 11^th was signed by all the ministers present including Dervis himself, said Izmirlioglu. It covered the medium term projections and strategy for the 2001-2005 period and consequently Dervis’s charges were unfounded, he stressed. He also said that the report was presented to the EU through the Foreign Ministry in time and without any delay.  

Planning Undersecretary Izmirlioglu is attached to Deputy PM Devlet Bahceli (MHP-Osmaniye) and the press conference was held with Bahceli’s instructions. In other words, the whole affair was a fresh sign of strife between the MHP and Kemal Dervis, and PM Ecevit urged both sides to refrain from such arguments in public.

Whether or not such arguments in public, prejudicial to coalition solidarity, will recur in future despite the Prime Minister’s instructions is not so important as the two-and-a-half year old tripartite coalition is bent on not disrupting this government before general elections are held in April 2004. If Dervis continues with such unwise statements, which he mostly makes when he is abroad on duty, he will further lose his influence in the government and it may go as far as continuing the government without him. The coalition partners have come to believe that Washington or the IMF would not risk their relations with Turkey for the sake of Dervis who has hitherto proved to be inexperienced and clumsy in politics.

Secretary of State Colin Powell was urged in Ankara last week to write off Turkey’s military debts and to accord trade facilities to Turkey. Ambassador Pearson said on December 7^th that the United States would lift half of the textile quotas for Turkish exports on January 1^st, 2002 and these quotas would disappear for everyone at the end of 2004. Washington is also considering Turkey’s suggestion of free trade area rules between the two countries.

Ankara now believes that Turkey’s firm stance and fight against international terrorism is showing its effect on the American stance in favour of the Turkish economy.

Remarked that the concessions Turkey was giving on Cyprus and ESDI (European Security and Defence Identity) were being rewarded by the United States in the economy, PM Ecevit said last week, “It is obvious that we are giving no concessions on any question. These two (political issues and the economy) have to be separate. But I believe that the US suggestions play an important role in the World Bank and the IMF’s generous contributions to the Turkish economy.”

Fiscal discipline is in order, says the Finance Minister.

The second prerequisite of the economy rulers for the success in the economy by mid-2002 is achieving fiscal discipline. The Government has reluctantly accepted the IMF’s condition that there will be a 6.5% (of the GDP) surplus in the budget, excluding interest payments. This means TL7.1 quadrillion (TL7,157 trillion to be exact) cut in public spending and it will be achieved by TL3,584 trillion savings and TL3,573 trillion new revenue in the budget.

Finance Minister Sumer Oral (ANAP-Izmir) boasts that they more than achieved this 6.5% surplus target this year and promises to continue with the fiscal discipline in the New Year. By the end of next February, the government intends to pass the new Expenditure Bill, the Public Tenders Bill and new rules for foreign capital.

One of the main instruments for achieving these savings in the budget is pensioning off public sector workers and civil servants. The circular the government issued for public saving calls for pensioning off workers above 50 by giving them their severance pay. As against the uproar of the opposition and trade unions against this allegedly “forced retirement”, PM Ecevit announced last Friday (7) that no one would be forced to retire. The number of applicants for retirement had already surpassed the necessary number, he said. State Minister Mehmet Kececiler (ANAP-Konya) said that there were 26,500 workers above the age of 50 in the public sector and the applications for retirement had already reached 30,000. That was why there was no question of forced retirement.

Kececiler has also made a warning, which PM Ecevit shared. He said that there were one million vacant cadres in the public sector. Unless these cadres were abolished by law, a populist government could hastily fill them at election time and all the public saving efforts would then be wasted. Kececiler refrained from accusing his coalition partner, but it was clearly an expression of the anxiety felt against the MHP’s past practices under Alpaslan Turkes when he was the party chairman.

For instance, it was quite difficult to persuade the Agriculture Minister Husnu Yusuf Gokalp (MHP-Sivas) to discontinue subsidies to farm products as the IMF has been pressing for. It was only thanks to MHP Chairman Devlet Bahceli’s help that the other coalition partners finally talked Gokalp into reducing the agricultural subsidies to five oil seeds in 2002.

Another important economic measure for the success of the economic stability program is to take measures for the chronic failure in Turkey’s privatisation program and new incentives for foreign capital which remain below $1 billion a year, despite all efforts. Special emphasis will be paid to the continuation of the privatisation of POAS (the Petrol Office) and TUPRAS (oil refineries) in the first quarter of the year. It will also help the public saving program by reducing public sector employees by 61,000 within a two-echelon program that is being prepared by the Treasury.       

“Fine adjustment” in the banking sector

The main economic achievement of the outgoing year has been the painful, but quite successful reform in the banking sector. The BDDK (Banking Regulation and Supervision Agency) has been established and is settling down as a watchdog for Turkish banks and the banking system.

The number of distressed banks taken over by the Central Bank’s Fund rose to 19 last week with Toprakbank,  a medium-size bank, being put under State receivership.

The “fine adjustment” in the pipeline for the banking system concerns gaining these 19 banks to the Turkish economy by restoring or liquidating them. While Yurtbank, Sumerbank, Esbank, Iktisat, Kent and Bayindir banks are more difficult and costly to liquidate, Demirbank, Yasarbank, Ulusal Bank, Sitebank and Tarisbank are more promising as they were put under receivership because their liabilities were temporarily above their assets during the November 2000 and February 2001 financial crises, while the first group is more seriously in default. With the addition of Toprakbank’s 8000 depositors and shareholders, the number of victims has approached 45,000, including some Germans in the Munich Stock Exchange.

Now that BDDK has settled down and is fully authorised to regulate these distressed banks the system is being carefully scrutinised to recover the losses of innocent shareholders who have had no fault in the failings of the bank managements concerned.

The productive manufacturing industry that suffered bitterly from the hardships of the outgoing year is showing signs of recovery. The Government reduced the VAT (Value Added Tax) rates for white products and it made a very healthy impact on the manufacturing industry in melting down its inventory. Now the entire industrial sector is following suit and reducing their prices in order to get rid of their high inventories.

The 4.2% inflation rate in November was below estimates and all these have spurred the Istanbul Stock Exchange in recent weeks, while the interest rates and the dollar parity went down. With the prospective arrival of foreign investments this trend may gain momentum. In short, light is seen at the end of the tunnel for the Turkish economy. uras@ada.net.tr - December 10^th, 2001