One of the best ways to assess a government’s economic record is to give the most recent figures available. Numbers don’t lie, and for Turkey the markets are pointing to a robust economy.
As of Friday, five-year credit default swaps, or CDSs, for Turkey’s sovereign debt were trading at a record low of 1.17 percentage points. The lower the CDS figure, the better for an economy, as it shows the level of investor confidence. And Friday’s figures were below those of nine EU member countries and Russia. Meanwhile, the benchmark bonds traded at an all-time low of 7.62 percent, showing that it is much easier for the Treasury to borrow, thus rolling over external and domestic debt.
There is more. As most of the world grapples with sovereign debt issues, Turkey’s ratio of public sector debt to gross domestic product is around 45 percent, and on the decline. External debt to GDP stands at around 60 percent, again low compared to many other economies. GDP growth is expected to near 8 percent this year, a figure that, as Timothy Ash of the Royal Bank of Scotland noted, outpaces the likes of Russia and Poland, probably reaching the highest rate of both real and nominal GDP growth in Europe this year.
The “only” problems seem to be unemployment hovering above 10 percent, an inflation rate that is still over 8 percent and a growing current account deficit that is poised to reach as high as 5 percent of GDP this year – a gap that increasingly needs “hot money” to close, thus becoming a potential source of economic instability.
Still, when one remembers that inflation hovered at nearly 100 percent while interest rates climbed up 4,000 percent during the 2001 economic crisis, it seems that what the Justice and Development Party, or AKP, has done since its resounding election win Nov. 3, 2002 is formidable. From there to here, through eight years of AKP rule, there is no doubt this government deserves credit – at least from the “markets” perspective.
Indeed, AKP has proved to be the most “market-friendly” government in modern Turkish history. Various incentives, including tax breaks, toward businesses, privatization of over $30 billion-worth in state assets, liberalization of regulations including labor laws and an uncompromising stance against labor unions – banning strikes, for example – have been only a few of the “economic principles” that have made the AKP a favorite not only among the business establishment in Turkey, but also abroad.
Insisting on valuable lira
“I’d give the AKP 7.5 points out of 10 in overall economy,” said Ertuğ Yaşar, an economy columnist, speaking to the Hürriyet Daily News & Economic Review. “In inflation, they deserve an 8 out of 10. In job creation, 4 out of 10. In increasing the competitiveness of Turkish industry, only 5.5. My score for Turkey’s integration into the global markets would be a 9 out of 10.”
Yaşar said he sees AKP rule as “the most successful period after 1950,” but objects to the government’s development model, which is “keeping the Turkish Lira valuable, thus encouraging foreign currencies to enter into Turkey.”
As of Friday, the U.S. dollar traded at below 1.4 liras, and exporters were increasingly feeling the pressure. “There is not a single country in the world that has prospered only by holding its currency valuable,” Yaşar said. “They either had their own resources, such as Russia or Saudi Arabia, or exported their way to prosperity. An overvalued lira means everything is done by imports.”
The economy columnist also noted that the AKP has not been successful in creating jobs: Before 2002, unemployment was down to about 8 percent, while today it is nearing 12 percent.
The picture painted by Simon Quijano-Evans, an emerging markets economist at CA Chevreux, is much brighter. Speaking to the Daily News, Quijano-Evans said the AKP has “strengthened the economy further, providing the tools with which to exit the global crisis as one of the strongest and fastest growing countries among peers.”
“Looking ahead, there are clearly numerous challenges, with a need to invest more in infrastructure, including railways, roads and alternative energy sources, as well as promoting the less-developed regions of the country,” he said. “Another challenge is dealing with an ever-growing young and dynamic population, especially as youth unemployment remains at high levels. But Turkey has beneficial situations such as a growing working age population, while others are struggling with an increasing pension burden, and an important geo-strategic position. These are enough arguments to boost foreign direct investment that will help overcome the challenges that lie ahead as Turkey and the EU move closer together.”
But there is another, darker side to the coin that argues that none of the “economic success” belongs to the AKP; it can only take credit for “not interrupting” the domestic austerity program put in place before the Nov. 3, 2002 elections and for being “lucky” enough to “be there” when all developing economies enjoyed a huge global liquidity wave – a wave that came crashing down with the near-collapse of the global financial system in 2008.
Indeed, this journalist has heard more than once from domestic economists and bankers – all speaking on condition of anonymity! – that the country’s economic success belongs to nobody but Kemal Derviş, Turkey’s former economy minister.
Derviş was brought to Turkey from the World Bank in the aftermath of the 2001 crisis, and the policies he adopted during the late Bülent Ecevit’s premiership were so painful that Ecevit’s party declined to 1.2 percent of all votes from 22 percent in Nov. 3, 2002. As the government toppled, Derviş’s job was also “finished.”
But in a twist of fate, the spoils of the vicious program he implemented were collected by the AKP, as they brought highly sought stability into the country’s battered finances. In a July 11, 2007 interview, this journalist asked the question to Derviş himself: “One perspective is that the Derviş program came to be the success of the AKP government. What do you think of this?”
The former minister said this was a “hard-to-answer” question. “Turkey made crucial decisions and these decisions opened up the way,” he only said.
Rampant poverty
The “other side of the coin” also involves the situation of Turkey’s laborers, the poor and the jobless, which took home barely a sliver of the robust economic growth under the AKP. “The hunger line is 799 liras in Turkey, but the minimum wage is 600 liras,” said Süleyman Çelebi, president of DİSK, one of Turkey’s three big labor confederations. “More than 12.4 million people live below the poverty line. Workers work over 13 hours per day.”
Çelebi told the Daily News that 83 percent of Turkey’s top 500 companies increased their profits during the global crisis. “Before the crisis, Turkey had 13 billionaires. Now there are 28,” he said. “The rich became richer, while the laborers paid the price.”
Though the right to unionize is embedded in the Constitution, a quarter of a million workers were laid off during the past eight years just because they wanted to organize, Çelebi claimed. “The AKP rule has been one that persecutes labor,” the union leader said. “The social security system has been changed for the worse. Flexible work was pushed. They still want a regional minimum wage, which would cut the minimum wage further. This government has always decided against the workers.”
“The AKP inherited a rehabilitated legacy [from the Derviş period,]” said economist Mustafa Sönmez. “Plus, they had the global conjecture. But the AKP rule has been against the interests of the lower and middle classes. As financial sector profits surged, small companies have been striving to remain afoot with small profits.”
According to Sönmez, the AKP government have favored foreign capital the most. “The ‘hot money’ transferred [back to its owners] the profits that came with high interest rates,” he told the Daily News. “Those who invest in Istanbul real estate profited. Those who bought Tüpraş – Turkey’s sole refiner – and Erdemir – the giant iron and steel producer – profited. The rest of society was affected negatively.”
Another criticism leveled against the AKP came from Ege Cansen, a Hürriyet columnist. In an article published Feb. 17 this year, Cansen named the AKP’s economic outlook as “Özalism without Özal,” after the late president Turgut Özal, known as a champion of liberalism and regarded as the “projection” of Thatcher and Reagan in Turkey.
“The preference to pull down the ratio of public debt to GDP results in a decrease in public investments and selling off existing ones,” Cansen said. “The idea that the private sector should also realize infrastructure investments is coming to the fore. The only way to solve this economic dilemma is ‘bringing in money from abroad.’ This is the essence of the economic perspective of the AKP.”
The lack of public infrastructure investments that Cansen pointed out could also be regarded as a reason why Turkey suffered so much during the recent global crisis. Indeed, even though Prime Minister Recep Tayyip Erdoğan said the crisis “barely affected” the Turkish economy, the nation suffered the highest rate of contraction last year, as gross domestic product shrank a whopping 14.7 percent in one quarter alone. It took a long time for Turkey to emerge from the crisis, but as union leader Çelebi and Sönmez point out, Turkey’s biggest companies and the finance sector doubled, even tripled their profits in that very same period. Thus, one can argue that especially in the past few years, AKP rule has meant a massive transfer of wealth from the lower classes to those at the top.
A precious item in the propaganda arsenal of the late Adnan Menderes, the Turkish premier who was sent to the gallows in 1961, was that he would “create a millionaire” on every street in Turkey. With the number of billionaires reaching 28 during the crisis period, the AKP can be regarded as being pretty close to that decades-old goal. The rest of the street does not seem to be a concern for anybody.
Nurdan Bozkurt from Istanbul contributed to this report.
Source: Hurriyet
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