TURKPULSE No:43 JULY 16th, 2001
THIRD BLACK WEDNESDAY CLOSELY AVERTED
Last week Turkey overcame one more financial crisis and the lessons learnt from the previous two crises are working full speed ahead to stabilise the markets. Will the ailed Turkish economy be back on track now that the painful banking operation is nearing to an end with the help of the IMF? Whatever happens will not be carried out very quickly or easily as the Government is determined to fight to the end with the experience gained and so are its adversaries in the opposite direction. The pendulum is swinging in the right direction for the time being, but no one can predict for how long. The press conference by Treasury Chief Oztrak on Friday (13th) was a good eye opener for most people pestered by the disinformation campaigns of recent days. The French businessmen delegation’s visit to Turkey may mark a turning point in the crisis.
After the two Black Wednesdays on November 22nd, 2000 and February 21st, this year, the Turkish economy closely averted a third one, last Wednesday, July 11th, mostly thanks to the experience gained from the first two crises.
Following an intensive disinformation campaign against Turkey both at home and in the international media about the “confidence crisis” in this country, meaning the imminent downfall of the tripartite Ecevit coalition, Argentina was used as a pretext to trigger off a financial crisis in Turkey on July 11th, just when things were beginning to get back on track with the IMF and World Bank decisions to disburse $3.2 billion to Ankara this week.
If nothing else the other side of the world is used for a crisis in Turkey
Claims of a debt consolidation in Argentina, coupled with a heavy demand for US dollars by foreign banks and companies that massively sold their shares in ISE (Istanbul Stock Exchange) and Turkish treasury bonds in the interbank market, have caused shares to fall sharply in ISE and interest rates to soar in Turkey. While the National 100 index dropped by 7.8 percent in one day to 8730 from nearly 20,000 at the beginning of last year and over 13,000 a few weeks ago, the dollar went up to TL1,390,000 and touched the $1.4 million point overnight, despite the Central Bank’s foreign exchange auctions twice in one day.
The interest rates that had started at nearly 200% compound interest rate (197% to be exact) at the first tenders for loans by the Central Bank after launching the current Economic Program by the Economy Minister, Kemal Dervis, four months ago, had been brought down to below 80%. That rate also jumped back to three digits, 109%, on the third Black Wednesday last week and settled at between 90% and 100% the rest of the week. Meanwhile, all sorts of tricks of the disinformation tactics such as rumours of PM Ecevit’s death, the disintegration of the coalition government, the resignation of Dervis were used in the Turkish shares and interbank markets to trigger off the third and biggest finance crisis in Turkey, in accordance with the persistently propagated expectations of some foreign sources for the last few months. One of the main claims against Turkey is that there is no political stability and that a confidence crisis is rife.
Government uses its weapons against disinformation campaigns
PM Ecevit said on Thursday (12th) straight after his routine weekly audience with President Sezer that there was no divergence from the Government’s economic program and that they were confident of the future. He said the Government was working in harmony, but there were those at home and abroad who attempted to disrupt accord. They were aiming to stir a crisis with false accusations added to unfair criticism of the Government, he complained.
The Council of Ministers also discussed the falling share prices, against rising interest rates and value of the dollar. Deputy PM Mesut Yilmaz said at the Cabinet about the President’s veto of the tobacco bill that it was not possible to go along with the President’s knowledge of the economy based on his school days 50 years ago. At his suggestion, it was decided that Kemal Dervis and two other ministers brief him on the economy, if he accepted. The meeting will be held before long.
The Council of Ministers also decided to brief the people about the exact nature of economic developments against the rampant disinformation campaigns. In addition to PM Ecevit’s efforts to prove that he was not dead and there was no political instability, the Treasury Chief, Faik Oztrak, briefed the people about the performance of the Economic Program.
Doubling of domestic debts in the last seven months is artificial
One of the main claims against Turkey’s economic program was that the domestic debts had been almost doubled in the last seven months. Reputable international newspapers such as the Financial Times, has been using this argument and showing the Turkish economy in a bad light. Oztrak confirmed the claim by saying that at the end of the year 2000, the domestic debt stock of Turkey was TL51.6 quadrillion and as of July 12th, it reached TL92 quadrillion. However, TL62.2 quadrillion were the debts to the public sector. The Treasury or some government departments owed it to the Central Bank or one another. The public sector debts to the Central Bank amount to TL20 quadrillion. In other words, it is no serious problem for the Government, but a kind of transferring money from one pocket to another. The real problem is over the public sector debts to the interbank markets and they rose from TL25.4 quadrillion to TL29.9 quadrillion in this seven-month period, according to information given by Oztrak.
About the claim that the compound interest rates, which now stand at 90%-odd, are imposing too heavy interest burden on the Turkish economy, Oztrak said loans received at over 90% interest rates are a very small part within the debt stock. They planned to borrow $2.5 billion from abroad this year and $700 million had already been received in the early months of the year. They did not need this money now and would borrow the remaining $1.8 billion towards the end of the year. Meanwhile, the effect of the Argentina crisis would disappear and interest rates would be pulled down, he explained.
Indeed, the main task of the Government now is to lower the interest rates back to below 80%. The claim is not true that the Government is meeting with difficulty in the turnover of its debts, emphasises Oztrak. They had enough flexibility in servicing maturing debts, and given the sound balances of the economic program they would not meet with great difficulty in lowering the interest rates on the following days, he said.
According to the Treasury Chief, under the previous IMF program the Government had one arm tied, because it had to keep the exchange rates pegged to a certain anchored list. The Treasury is now free to use both its hands in fighting against economic difficulties, as neither interest rates, nor the dollar rates are anchored now. As for the over sensitivity of shares in ISE, Oztrak believes that it is the earthquake syndrome. After a major earthquake, people are sensitive to small tremours. It is the same in the Turkish stock and interbank markets today. That is why the shares fluctuate and lose value in ISE now.
Even though there is substantial truth in the Treasury Chief’s views in this regard, it does not explain why foreigners are massively selling off their Turkish shares and bonds, rocking the markets in Turkey. Neither did Oztrak comment on when and where this will stop. He only said that having successfully carried out a very courageous banking operation, they were now much stronger in fighting similar economic crises.
Will the French delegation be a turning point for Turkish markets?
An encouraging development last week was the arrival of a high-powered French businessmen’s delegation to Turkey. The MEDEF delegation, which is the French equivalent of TUSIAD (Turkish Businessmen and Industrialists Association), received red carpet treatment in Turkey, even though President Sezer declined to receive it presumably over the French Parliament’s vote about the alleged “Armenian genocide”.
The MEDEF delegation, which included 70 top French businessmen from very important European companies and banks under its President Ernest-Antoine Seilliere and the Renault CEO Louis Schweitzer, was a great morale booster for Turkish business quarters. They said that their presence in Ankara and Istanbul was proof of their full confidence in the Turkish economy and Turkey’s place in Europe. The current economic crisis was not a deterrent, but an incentive and opportunity for foreign investments in this country. Schweitzer said that when Renault decided to move into the Turkish market 30 years ago in cooperation with a very good holding like OYAK, they viewed Turkey apart from Europe. A few years ago they took a major policy decision and included Turkey into Europe in their plans. They were very pleased with their worldwide exports from Turkey, he said.
The French delegation also visited ISE`s headquarters over the Bosphorus and was impressed by the latest technologies available. The visit coincided with the massive drop to the tune of 14.14% in the value of Turkish shares in a week. It is hoped that this visit will be the beginning of a new good turn in the Turkish economy, though everyone agrees that everything will not be plainsailing in implementing the economic program. uras@ada.net.tr - July 16th, 2001