LESSONS FROM GLOBAL CRISIS GO INTO EFFECT

IMF finds the 1999 Budget too optimistic and expects problems in the Turkish banking system. First signs of these problems have been overcome successfully without any scars. The privatization drive was delivered a blow during the fight against this crisis and the Mafia. Speculative foreign portfolio investments are discouraged with new rules. George Soros leaves Turkey with not much notice or regret, but Shell’s similar move is regrettable. Why is Washington, the champion of privatization and globalization, not objecting to certain recent de-privatization cases in Turkey?

The IMF team under Martin Hardy has completed two weeks of consultations in Ankara and returned to the United States. It was noteworthy that during these consultations on the economic performance and especially the 1999 Budget, Martin Hardy sought detailed information about the banking system, much more so than the previous years. He also warned Turkish bureaucrats that there may be problems about the widening foreign trade gap due to the global crisis and declining external financing next year. The banking sector may also face unexpected difficulties with matured syndicated loans not being renewed or refinanced in the new year, according to the Fund’s estimates.

First signs of problems in the banking system eliminated swiftly

The first signs of the accuracy of this pessimistic expectation for the Turkish banking system were seen last week, but countered by the Government remarkably swiftly, silently and successfully.

It concerned a businessman, Korkmaz Yiğit, whose telephone conversations with Mafia godfather Alaattin Çakıcı were recently revealed, They proved that Yiğit had made arrangements with Çakıcı to threaten and scare away other bidders at the privatization of Türk Ticaret Bank, briefly “Türkbank”. Korkmaz Yiğit bought Türkbank for $600 million after the alleged withdrawal of more than half of the 13 bidders from the tenders because of Çakıcı’s threats to kill them. The privatization was then cancelled after the broadcast of the tape recordings.

Furthermore, Korkmaz Yiğit had bought another bank a year before, Bank Ekspres, for $85 million from Doğuş Group which is also the owner of one of the strongest banks of Turkey, Garanti Bank.

Following the scandal of Yiğit’s mafia involvement, there were panic withdrawals ($136 million in a week) from Bank Ekspres. The Bank was unable to fulfil its commitments and foreign financiers were refusing to renew $80-90 million short-term debts. Yiğit made contacts with the Treasury bureaucrats and their boss, State Minister Güneş Taner, in Ankara, urging them to apply Article 64 of the Banks Act concerning an extension of financial support in exchange for taking a bank under surveillance. The Treasury got in touch with the owner of Garanti Bank, Ayhan Şahenk, who had sold Bank Ekspres to Korkmaz Yiğit, but he declined to buy it back. Then the Treasury decided to transfer 98.38% of Bank Ekspres shares from Yiğit to TMSF (the Saving Deposits Insurance Fund) of the Central Bank.

As there has been a 100% government guarantee in the banking system in Turkey since the 1994 economic crisis, no one can object to these moves by the Treasury even though they were totally against the Government’s commitments for privatization and world trends today.

“De-privatization” as a remedy to Mafia infiltration

Thus both Türkbank and Bank Ekspres were silently de-privatized to prevent a crisis in the banking system in Turkey. According to official figures, Bank Ekspres had profitted TL3.9 trillion in 1997 and was not in distress in any way until the latest scandal.

The transfers of these two banks to the public sector, plus the change made in the privatization of POAŞ, (Issue No:33, Biggest Privatization Achievement Turns Out to Be Biggest Headache) were not “nationalization” in the proper sense. That is why Pulse is using a word that does not exist in the dictionary, “de-privatizaton”, for these transactions which are probably unique in the world.

Now that the $1,160 million privatization of POAŞ (the Petrol Office Anonim Şirketi) may finally fall through and Shell has decided to sell its gas stations in Turkey, along with the return of the above two banks to the public sector, there is a trend in the economy totally against the Government’s liberal, free market economy policy. Yet no one is criticizing it, because they are shrewd steps to eliminate the abuses of the free market economy, rather than doctrinary socialist-minded State ownership.

One would have expected that the United States, the champion of privatization and global economy in the world, would raise its voice against this trend of "de-privatization"”in Turkey in certain cases, but not a single word has been spoken from Washington directly or indirectly.

In a speech on September 14^th on the international financial crisis, President Clinton said in New York, “For half a century now in our national economy, we have learned not to eliminate but to tame and limit the swings of boom and bust. In the 21^st century, we have to find a way to do that for the global economy as well.”

No doubt, the Americans are aware that what the Turkish Government is currently doing is exactly what President Clinton has advised the world at the Council on Foreign Relations in New York. They are probably learning lessons about the measures to be taken in the global economy from the above practices of the Turkish economy. Of course, the precondition of the validity of this presumptive remark is that Turkey should be successful in its fight against the global financial crisis and there is a determination about it in Ankara. In other words, in “taming and limiting the swings of boom and bust” in the free market finances, the trend should not go as far as “elimination”, elimination of the honest and useful foreign capital along with the speculators. There was a disturbing development in Turkey recently in this regard.

Foreign capital is welcome, but not for speculation

Last June Shell announced that it would withdraw from the fuel distribution business in Turkey. It has 608 gas stations throughout Turkey and they are mostly very well located and of a high standard.

Preliminary contacts proved that in addition to Turkey’s main holdings, banks and certain consortiums are also keenly interested in the tenders invited by Shell, though some of them withdrew when the price went as high as $550 million. But because there is a very fast liquidity flow in this $15 billion/year turnover capacity business, the interest in buying them is still very high.

As of the end of August, Shell had a 10.5% share in the fuel market. This rate rises to 15% in petrol (gasoline), 12.3% in kerosene and diesel and drops to 4.92% in fuel oil.

Whether or not this is a simple business deal seen in western capitalism all the time, the fact remains that it goes diametrically opposite the principles of the Turkish Government’s economic and financial policy. The backbone of these principles is to accelerate privatization and attract foreign capital and financing.

Far from attracting a reputable multinational like Shell that has been in Turkey since the foundation of the Republic, the Government is kind of “nationalizing” it, at least partially. That it is being done voluntarily and within totally free market rules is certainly important. But still the Turkish Government should exert more effort to explain to the world that it is trying to find ways like the Americans found in their national economy over the last half a century. That is the way to prevent losing Shell and other useful foreign capital and that is also the way of winning over the multinationals to the Baku-Ceyhan project.

While such a development, that is Shell’s revising its decision to quit the oil distribution market in Turkey would be welcome by all in this country, it is not the case with speculative portfolio investments like those of George Soros. Far from regretting the exodus of such foreign capital, no matter how painful it may be for some innocent middle class people, measures should be taken to ”tame and limit them” and Turkey is doing just that.

SPK imposes conditions for foreign portfolio investments

With a circular issued by the SPK (Capital Market Board), foreign mutual funds (unit trusts) are subjected to new rules about registration of transactions and marketing. According to this circular, these funds shall have at least 80% foreign equities. Also, the rules for their investments and borrowings will be parallel to their Turkish counterparts’ rules. There will also be new rules about transparency of these fortfolio investments. These foreign mutual funds shall hand in a pledge to the SPK that they can be inspected by the Board whenever it wants.

In other words, George Soros who fled Turkey like a rabbit during the current global crisis, will not be able to return here with the same conditions if he changes his mind in future. Instead, he will have to observe the above rules.

It concerns Soros’s “Quantum Emerging Growth Fund” (QEG) which has been causing big fluctuations in both IMKB (the Istanbul Stock Exchange) and the Istanbul bond market with his massive purchases and sales of shares and bonds in Turkey since 1997. QEG is now leaving Turkey along with other emerging markets.

Privatization program suffers from political upheavals as well as crisis 

All these developments, causing a serious bleeding of foreign currency in Turkey’s economic stability program, are naturally causing great difficulties in the implemention of this program. The privatization targets have already suffered greatly from both this exodus of foreign exchange and the above de- privatizations. It is still not known if POAŞ has been privatized or not, as there have been several contradictory court rulings and the Competition Board’s interventions on this matter. The first instalment of $580 million for the privatization of POAŞ will be paid by November 3^rd. It will then be understood for sure if this privatization, the biggest so far, has been carried out or not. As the latest trend stands, this payment will not be carried out because the court suspended that privatization upon the application of Petrol-İş Union.

Whatever the outcome of the POAŞ privatization, it should be admitted that this year’s privatization performance will fall greatly behind its initial target of $12 billion which was later updated to $10 billion. Big holdings for privatization such as Telekom, TÜPRAŞ (the refineries), Ereğli (steel plant), the Iskenderun steel plant, THY (Turkish Airlines), and Petkim (Petrochemicals) have all been left until 1999.

Even so the Privatization Chief, Uğur Bayar, says that they may attain a record level of $6.4 billion privatization this year, if they can privatize certain energy projects now that Danıştay (The Administrative Court) has completed its scrutiny and approved of six electricity distribution licences. There are 13 other energy licences under review in Danıştay, “The average privatization in the last 10 years was $400 million a year. We have already reached the $2.3 billion level so far this year despite all adverse contitions,” stresses Bayar. He expects that in addition to this $2.3 billion, $1 billion will come from GSM, $1 billion from several ongoing privatization cases and this $4,3 billion may well rise to $6.4 billion with the energy ones.

In addition to official tenders for privatization, the block sales of several companies have also been harmed by the crisis, not only in Turkey, but the world over. Certain privatization plans may turn into block sales and this is envisaged for THY.

There are also some contradictory developmenets for privatization. For instance, Ereğli, which has been on the privatization market for the last 10 years or so with several ups and downs, is now planning to buy a steel plant in Bulgaria.

Before Martin Hardy left Turkey he urged the Government to carry on with privatization for the success of the economic program, but conditions are forcing the Government to postpone the main privatization projects of the fourth quarter to the first quarter of 1999, says Uğur Bayar.

Meanwhile, a much more important economic trend is visible in Turkey. In the business world, businesses are shrinking within their own shells, rather than expanding. They have been strongly advised to religiously hold on to their liquidity and refrain from making investments with credit as Turkey is expecting a bigger storm in the world economy in 1999 than there has been this year.

To avoid the current financial crisis from turning into an economic crisis, investments will be curbed, the economic growth rate will be lowered and the storm will be avoided for Turkey as much as possible, if these preparations are carried out successfully. Economy bureaucrats of Turkey are already preoccupied with these preparations for the last year of the century. uras@ada.net.tr, October 31^st, 1998