Turkish Finance Minister Berat Albayrak said during a speech he gave in Ağrı that “we are leaving behind a period when those who cried out about the crisis were met with disappointment.” Does anyone disagree? According to the minister’s Samsun speech, “only 20 people disagree”: those who have nothing to do with Ankara, and those who are outside the circle of authority.
All that aside, we’re leaving behind an era where even those who questioned the economic status quo lost their jobs. Economic policy team, led by the minister, has been to ‘mow down’ anyone who speaks outside “official propaganda.” So that era is now over, and officially there is no “economic crisis.” Even though all the issues we’re sweeping under the rug will only deepen and will cost even more in the future.
Ankara, around which the entire media revolves, has not been pleased with any players who criticize the economy and who point out errors and wrongdoings. So much so that the idea of a new imprisonment law concerning this behavior was brought up by Minister Albayrak’s brother’s newspaper.
We have also seen, however, a most violent usage of the power of the public. Bankers and financial professionals have also been under great duress.
In the past two years, many high-level executives of banks were dismissed as pointed to the shareholders by Ankara. Those dismissed even include some board chairs. None of these dismissals were done in official correspondence. That is, the dismissals were not prompted due to any kind of illegal behavior.
A story from a month ago is that the executive vice president of a bank was called into the president’s office and was told that they’re being laid off. The excuse was that “Ankara wanted this.” The former EVP asked around about what happened, and it turns out the his meeting with IMF was involved in.
When the IMF staff team visited Turkey for the Article IV Mission in September, they had talks with a wide array of people from businessmen to bankers and professional associations to political party representatives. During these scheduled talks, the anonymous bank EVP met with the visiting representatives, and not even in secret.
Per the format of these meetings held by the IMF representatives, two representatives from the Turkish Treasury joined in and witnessed the talks.
As the issue of bad loans was the most critical for the economists and bankers, and of course the IMF, the representatives asked the former bank EVP about them. They asked about the Banking Supervision and Regulation Agency (BDDK) data about non-performing loans and what a possible solution would be. The former EVP predicted a rise in the percentage of non-performing loans to total loans, which was then at a 4.5 percent, due to “stage 2 accounts” that were also delinquent but were not being prosecuted.
It’s understood that the conversation and predictions made by the former EVP were noted by Treasury representatives in meeting, and were reported to his superiors.
The authorities in Ankara, who have no tolerance for any criticism beyond the story they tell, decided on the “professional execution” of this former EVP and notified the banks’ shareholders.
However, the biggest secret in town that even analysts cannot pinpoint is the percentage of bad loans beyond the official story.
In the last two years, the economic policy team governing in Ankara that has been intervening on prices, interest and exchange rates with an iron fist has cost banking executives their jobs for making their own trade decisions in an open market. The story of the former EVP that I talked about just adds another line to the list of “big brother” incidents that have been occuring.
Turkey is supposedly an open market economy, but Ankara has been nudging market players under the table to the point that the market is “open” only in theory.
Any angle other than the “official story” told by Ankara is unwelcome. No professional that in any way interacts with the official authorities can give talks or write pieces themed with a “What if?” theme. Furthermore, any opinions on loans or interest rates that reflect a personal stance on commercial choises are unwelcome.
This is why the research departments in banks never include any other points of view in their reports.
President Erdoğan said in a meeting the other day that they “offer all the support, both emotionally and materially, to increase investments in our country.”
He said this, but forgot the fact that his government was keeping repressive stance on free speech and access to information, which are crucial for investment, under lock and key.
This causes a quick decline in credibility for the data that Ankara has in their possession and shares with the public. The fact that some institutions have been keeping previously-released data secret only adds to this situation.
For a long time, Ankara had eroded foreign currency reserves worth near 100 billion to hold the rate. Now, it has come to the end of the road. It has spent its last penny and left the rate to the markets. Thus, the “unheard of” invented exchange rate regime has collapsed.
Can the forex loss in Turkey be recovered without sending the bill to the public? If first signs of the establishment of political normalization, democratization and rule of law emerge in a powerful way in Turkey, then the “shrunken” foreign currencies will come back to the system.
If the ruling Justice and Development Party (AKP) sees an increase in erosion of their votes and the increased possibility of losing power in a possible election then it would "use all the ammunition till it is finished" for their own political continuity. But this would indeed mean leaving a “gigantic wreckage” for the citizens of the country.
The trend in that started just before the presidential elections in 2018 and accelerated after the elections changed the chemistry of the economy in Turkey. Private sector in Turkey was restricted in every aspect. From pricing to sourcing, to investment licenses, all regulatory higher bodies worked to make the entrepreneurs feel that ‘the party state’ was watching them at every step.
A currency, that is losing value and is not the good money to its own citizens, cannot be the good money of another country. Most probably those who declared they have switched to the Turkish Lira in Syria will be doing their payments in Turkish Liras and - even if it may be only a few pennies - they will keep dollars to store the value of their accumulation.
No matter how long or short the COVID-19 crisis lasts, a broad range of working masses, but especially the unskilled labor force will be the ones exceedingly affected. They will lose income and their jobs. As a result, inequality will spread on a mass scale and poverty will soar.
Ankara thinks it can obtain stability through the sale of foreign currency from the “back door,” which erodes reserves. Ankara has also resorted to bans and restrictions on foreign currency, but these are actually very old tools from the 70s.
The economy management in Ankara may have this thought of stopping the devaluation of the Turkish Lira by wounding the lira’s convertibility but actually it also damages the debt capacity of the Treasury.
What would we have included if we wanted to write a guideline for those who have the wish to intervene in foreign exchange rates but who do not have the adequate experience, but at the same time want to do it right? Taking into consideration today’s circumstances in Turkey, here is a list.
In those countries where it is presented as they have a “floating exchange rate regime,” if their central banks are intervening at the exchange rate, the name of this in economy literature is “fear of floating.”
Since the COVID-19 crisis erupted, Turkish Central Bank’s reserves fell nearly 20 billion dollars. Now, the thought of “Can there be a swap line opened from the U.S. Central Bank Fedreserve ?” is in question.
Turkey was caught with the coronavirus outbreak at a time when it was weak structurally. Just like in the COVID-19 epidemic, the underlying disease story is the story of those problems in economy which were “swept under the carpet” for a long time. Turkish government's economy policies after 2018 were based on bans, limitations and covering up of the symptoms rather than resorting to necessary steps to solve the problems.
Ali Babacan's unfulfilled desire, the “fiscal rule” theme features in the program of the newly established Democracy and Progress Party’s (DEVA) . Babacan had made preparations to start the practice of fiscal rule in 2010, until Prime Minister Erdoğan shelved this.
Even though its name is “floating exchange rate regime,” the current one in Turkey can only be called “commanded foreign exchange regime.” Some may object to that and suggest “managed floating rate regime.” If it was the latter, then the Central Bank would have openly done it. Everybody would have been informed of a rate regime which has targets, a framework and a system. But we do not know anything about this “dystopian regime.”
Talking about Turkey’s economy is like a stand-up show. Turkey’s Central Bank is as independent as the Fed, says the Finance Minister. This comparison can be uttered because of the mood created in Ankara where the government commands the economy. But even in regimes of command economic, there is interdict and logic.
Politicians may have an inclination to regard the Central Bank as a “cow of the government to be milked.” But it is logic blowing that those who have undertaken CB jobs have rolled up their sleeves and personally worked for that.
Both the consumption and investment data in the third quarter show a tendency toward “exhausted growth” in the private sector. I wrote at the end of October that this is the picture of weak, anemic growth. The economy is out of energy. With the economy in this weak and feeble state, Ankara cannot carry the country politically to 2023.
The "orchestrated" issue on the agenda last week was an effort to form public opinion about punishing comments on economy by jail sentences and monetary fines. Stories in newspapers were followed by a speech by Economy Minister Berat Albayrak the next day, who wanted to lay "thought infrastructure" for this.
Russia's strategy is quite clever; it continues to accumulate reserves by using dollar and euro for its exports while using ruble for one third of imports. By receiving 7-8 percent of its net foreign trade in ruble, it creates demand for its currency at the same time.More so, Russia is trying to recruit Turkey as a customer for its Russian made SWIFT alternative SPFS and again homemade credit card system MIR.
The three-way wheel of the Turkish economy, which depended on the flow of foreign capital, domestic credit growth, and household consumption, has stopped. It seems like the politicians running the country in Ankara couldn't find the answer to "What awaits the Turkish economy in 2020?"—since they undertook a military operation in Syria to get back the votes they lost due to the economic crisis.