Ali Rıza Güngen
A ridiculous situation occurred when Turkey’s first party-affiliated president, Recep Tayyip Erdoğan of the Justice and Development Party (AKP) targeted his former partners. The same ridicule applied when conservative figures formed new parties to respond to him.
Former FM and PM Ahmet Davutoğlu, who used to support those who turned in their colleagues and lynched the academia, can now become an advocate of freedom of expression. Former Economy Minister Ali Babacan, who is the inceptor of Turkey’s interest rate system, is now able to deliver political messages decrying that “interest rate payments have become exceedingly high.”
Due to international tensions and the domestic situation – where old partners blame each other for their post-2002 sins – 2020 will be an interesting year. One of the most hotly debated topics is the interest payments that are estimated to reach 139 billion Turkish Liras in 2020 and the state’s ever-increasing debt burden.
In the first 11 months of 2019, we paid 206 billion Turkish Lira worth of domestic and foreign debts. We paid an average of 289 million liras a day in interest payments. The budget’s interest payments exceed 12 million liras by the hour. Budget forecasts for the new year predict 15 million liras per hour. These mind-blowing figures are the highest interest payments in the history of the country. These funds will have to be collected through taxes and fines. In short, millions of us are being caught in the cogwheels of the state’s interest payments.
The first to throw the stone
Interest payments in Turkey will continue to cause problems. Our economic performance is dependent on the financial flows and political reactions of central countries. During the Justice and Development Party’s (AKP) reign, the amount of hot money brought into Turkey and the profits gained there and directly brought back to their countries by owners of foreign investors exceeded 210 billion dollars.
The total in interests for foreign, public sector, banks and real sector debt total close to 168 billion dollars. In the 10-year chart below, one can notice interest payments have sharply risen in 2018, and the 2019 figure will exceed that amount once the last month’s data is processed. The increase is expected to continue in 2020.
One can argue the transfer in question applies to all peripheral countries. Still, foreign debt interests during the AKP era were generally higher than the average interest rates of global South countries. Because of this difference, the cost of borrowing for financial actors in Turkey (in this context, the state, banks and real sector) were higher than that of their international counterparts.
In other words, due to the position Turkey has been subjected to in the international “division of labor,” the country needs to pay high interest rates like other peripheral countries, though it has higher payments compared to several countries in this category.
One sees a similar a fiasco upon looking into the interest payments made by the central budget. The sum of interest payments for domestic loans during the AKP era exceeds 740 billion liras. (If we include 2002 which is often included by conservative politicians, then this figure becomes 787 billion liras.)
During the same period of time, some 927 billion liras went to interest payments from the central administration’s budget. This is a figure that almost comes equal to Turkey’s annual budget. In the table below, the leaps in 2018 and 2019 are seen. However, in the years when Ali Babacan was actively a part of the economy management, an average of around 50 billion liras were paid in interests.
Ali Babacan was the state minister in charge of the economy in the 58th and 59th governments. Between 2009 and 2015, he continued to be at the top of the economy management as a cabinet minister and deputy Prime Minister. I’m providing these reminders because an outside observer might assume Babacan was working for the World Bank or as a supervisor in an international organization during that time.
I’m also recapping because conservative politicians have the audacity to claim Turkey’s unjust income distribution, its widespread depression and social violence have no connection with the governments they served and the political line they represent.
Representatives of the “National Front” have prepared the ground for a restoration administration from an economic perspective. With such figures as Babacan, the newly formed camp may assume it can prove its capacity to manage the country in the eyes of international capital.
Yet they should know the economic approach they have forged and are attempting to establish as a national consensus are actually making them weaker. It is precisely these names that are responsible for the country’s economic wreckage. And beyond that, this discourse based on building confidence towards international capital does not appeal to the masses breaking away from the AKP.
Turkey’s economic woes originated prior to the past four or five years. They are not merely due to a failure in providing confidence in the market.