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TURKEY: Haluk Tukel, The Cause and Effect of the latest Economic Crisis

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Haluk Tukel at TUSIAD

Q: Is the present crisis in Turkey a financial, an economical or a political crisis?

Haluk Tukel: A combination of the three... One must put events in perspective. Turkey has been living for several dozen years with large budget deficits which have various causes:

The cost of the war against PKK

- The ongoing cost of the war in the south east against PKK runs to an estimated  2 billion dollars per year;  therefore, during the 15 years from 1984 to 1998, the PKK war has cost Turkey around 30 billion dollars.

- Financial support to North Cyprus accounts for between 500 million and 1 billion dollars per year.

- We must also add subventions to agriculture, to small and medium size enterprises and to social security... All this contributed to heavy state spending over a long period of time.

Unfortunately, the State was unable to widen the basis of taxation: seven million people live from agriculture; two million workers are not registered, therefore, 9 million people are not taxpayers. Out of a total number of 30 million voters, there are only 18 million taxpayers, about 60 per cent of the voters.

Problems were fairly compounded by a fairly high rate of inflation during the last 10 to 15 years. Finally, the State did not modernise: transport systems are inadequate, power is expensive, the justice system does not work. All this has an impact on the competitiveness of our private sector.

We had two previous financial disasters in 1988 and in 1994. The third one, in 2001, is a modern crisis.

The confrontation between Sezer and Ecevit

Q: Did the confrontation between President Ahmet Sezer and Prime Minister Bulent Ecevit during a closed meeting of the “national security council” provoke this latest crisis?

Portrait of Haluk TukelHalut Tukel: The environment was favourable: the climate of corruption has eroded confidence in the government. We had a first crisis in November which led to a flight of capital,  and a second upheaval after the infight at the national security council. President Sezer was not satisfied by the subventions’ procedure in public banks and  asked for an audit which was turned down by the government. This was the final straw which ignited the crisis. Turkey had been living through a long-running and ongoing political crisis. There have been many changes of government. Opening to the outside world, with the Customs Union, and the development of the private sector, required the passage of many new laws, but the parliament never did never work correctly to pass the legislation required.

After the political crisis we had a financial crisis. With our opening up to the outside world the financial system could not go on working as it used to.  But banks are still managed and controlled as if the economy was not liberalised. The very bad management of state banks ignited the crisis. And the government also delayed the implementation of the program agreed last year with IMF.

Finally, with the financial markets closed, nobody knows what the change rates or the interest rates are. It is impossible to export, impossible to invoice and impossible to pay bills.

Q: Who are the main victims of the crisis?

Haluk Tukel: Everybody was hit. Because nobody is sure of being paid, people have reduced spending on everything except essentials such as food. People are not using their cars or going to restaurants.

We have about five hundred members in TUSIAD. Each one pays an annual fee of 7000 dollars. Following  the latest crisis our members started telling us: “Instead of paying you in February, we shall pay you in July”... It is possible that at the end of June I will have to tell TUSIAD employees (30 in Istanbul, 15 elsewhere) I can pay them only half their salaries. We asked our members not to dismiss their workers, or to do so only for 10 days, at half-salary... but we reached the limit. If I were a wholesaler in materials or an industrialist, I would face big problems.

Q: What are the causes of the bankruptcies?

Haluk Tukel: If an enterprise borrowed dollars outside or even on the local market, it cost it less money. Now, with a Turkish lira which has lost 80 per cent of its value to the dollar, the enterprise is finished. If it borrowed Turkish lira on the internal market, banks say that they will not renew the credit. They “call back” the capital and the interest. If one cannot repay the capital, one is made bankrupt. Even the banks cannot use the collateral, they cannot buy back the mortgage. A large cause of bankruptcy is that there are a lot of sales with three month credit: and people are finding they cannot pay, there is no cash. We don’t see it too much amongst our members at TUSIAD, but among small and medium size enterprises it is rife.

Q: The Turkish press published a poll saying that 70 per cent of Turkish businessmen do not understand the new minister of economy Kemal Dervis’ plan. Can you explain it?

Haluk Tukel: There is no macro-economic plan. His program is to promulgate legislative measures on a number of structural reforms; but in fact there is no plan. At the most there are fifteen urgent laws dealing with the reform of state banks, a number of privatisations, and the formation of a supervising body for banks.

Q: Why did the Military interfere in the debate on the privatization of Turk Telekom?

Haluk Tukel: The military consider it as a part of the country’s national defense sector. We told them: “This is done in Europe and in emerging countries”. But these sectors generate a lot of cash and many public jobs: the number of employees is 15000 to 20000 over actual needs.  So the interests of the military and of the political parties are converging. The military interfere in a number of matters which do not concern them. The national security council has an extended concept of security. It does not only deal with defence against the outside, but also against internal ennemies. This is where the problem becomes insoluble: such internal problems should not be the concern of the military.

Q: Finally, Turkey will get  20 billion dollars from the World Bank and the International Monetary Fund, while the “hole” (deficit) is estimated to amount to 30 or, more likely, 40 billion dollars. How are you to fill the gap?

Haluk Tukel: The deficit of the state banks reached 20 billion; the deficit of the private banks 15 billion, and we have only 15 billions. So we are left with a shortfall of 20 billion dollars. However, we believe that if growth resumes we will be able to generate this amount of money; but to succeed we must stop the cause of losses, and two conditions must be fulfilled: exchange rates must stabilised, and there must be a decrease in interest rates. A financial market reacts to rumours. During the last few days we have had good news: one can see a tendency to a stabilisation of the rates and a slow restart.

Q: Can you assess the cost of this crisis?

Haluk Tukel: It is too early to estimate the damages. But those who are still alive are restarting... However one can make a few assessments: half a million people lost their job. We probably will have negative growth of 6 per cent, with an annual inflation rate of 75 per cent, a dollar stabilising at the end of the year at 1.300.000 Turkish Lira, and 10 to 12 per cent of job losses.

Note on TUSIAD: the Turkish Industrialists’ and Businessmen’s Association regroups enterprises with an annual turnover of 25 million dollars/year for the smallest, with 100 to 150 employees;  Most members range between 100 to 200million dollars/year; About 20 reach 2 billion dollars/year, 10 reach 4 billion dollars/year, and two (Sabanci and Koc) between 8 and 12 billion annually.

(The Middle East magazine, July 2001)

 

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