[Marxism] Turkey’s strongman rule imperils gains from economic boom
lnp3 at panix.com
Wed Sep 26 07:03:04 MDT 2018
(Interesting article that explains Erdogan's continuing popularity that
might evaporate after the economic crisis deepens.)
Washington Post, Sept. 26, 2018
Turkey’s strongman rule imperils gains from economic boom
By David J. Lynch
ISTANBUL — Inside the Ozdilek Park mall, Dogukan Altin arrives for his
shift at a men’s clothing store. Today is a national holiday and almost
everyone has the day off. But almost no one has come to Ozdilek.
“It’s generally just empty. There’s too many malls,” says Altin, 34,
sporting a close-cropped beard along with a dark tie and white shirt.
“Because there’s three malls right next to each other, none of them make
Next door, a pair of empty storefronts frame the entrance to the Metro
City mall. The stale air inside bears the scent of retail death. Only
the Kanyon mall, where leafy green vines line an open-air courtyard and
affluent shoppers throng upscale cafes, seems alive.
The redundant shopping centers, on a main street in the Levent business
district, symbolize Turkey’s deeply unbalanced economy.
Under President Recep Tayyip Erdogan, this country embarked on a
building spree that remade its urban skylines and public infrastructure,
often making life easier for average Turks. The booming economy, which
relied heavily on borrowing from foreign banks, grew last year by a
robust 7 percent, according to the International Monetary Fund.
Now the frenzy is crashing to a halt as Turkish companies’ heavy foreign
debts come due and the boom’s excesses surface. Erdogan’s increasingly
authoritarian turn, which has led him to consolidate power on a
nationalist platform and left him slow to take the measures needed to
rein in a runaway economy, has investors on edge.
After months of delay and a 40 percent drop in the value of the Turkish
lira, Erdogan two weeks ago finally permitted the central bank to raise
interest rates. But he did so only after giving a public speech
castigating the move, enveloping Turkey’s path out of the crisis in a
fog of contradiction.
The belated rate increase virtually guarantees a recession — with
unpredictable political fallout, economists say. In the months ahead,
the president will face more tough decisions, including over a potential
IMF bailout, that will test his ability to balance crowd-pleasing
rhetoric and the economy’s need for bitter medicine.
The danger is that Erdogan’s slow-motion pragmatism may not move fast
enough to prevent a Turkish meltdown.
“Authoritarian regimes run into trouble when the economy runs into
trouble,” said Harvard University government professor Jeffry Frieden,
author of “Global Capitalism.”
Like the Ottoman sultans he admires, Erdogan has made building on a
grandiose scale a signature trait. Istanbul’s airport eventually will be
the world’s largest, and the city’s gargantuan new mosque will hold more
than 37,000 worshipers.
In recent years, $1 million condos sprouted in 19th-century buildings
along the cobblestone streets of the Galata neighborhood, famed for its
medieval tower. A new bridge spanned the Bosporus. And just down the
road from Levent’s trio of shopping malls, a luxury skyscraper called
Sapphire became until recently the country’s tallest building.
In a waterside park in the working-class neighborhood of Eyup, Saban
Denizhan, 40, an interior designer, marveled at the transformation.
“Living standards have greatly improved. Used to be a time, we couldn’t
even sit here because of the smell from the water,” he said, gesturing
toward pleasure boats bobbing along the embankment. “Now, look, people
Nearby, a construction crew was laying the groundwork for a new metro
stop that will allow residents to reach the state hospital without
enduring the city’s notorious traffic.
Health-care services are another area where Erdogan has left his mark.
Before he took office, Turks could fill prescriptions only at hospitals.
Now, they take their state medical cards to any pharmacy. No longer must
they line up at medical centers at 4 or 5 a.m. in hopes of eventually
receiving care several hours later. Instead, they schedule appointments
online or by phone.
“I’m pleased with the service they give me,” said Ahmet Colak, 69,
taking a break from physical therapy for a bad shoulder. “It’s 100
percent better than it used to be.”
Unending building boom
In the Erdogan era, millions of people have escaped poverty and economic
output per person has nearly doubled, according to the IMF. But as the
quality of life improved, Erdogan also planted the seeds of the current
Rather than invest in factories — the conventional way for an emerging
economy to prosper — Turkey emphasized construction.
Since the late 1990s, manufacturing has shrunk from more than 22 percent
of the economy to about 16 percent, according to government statistics.
Construction and real estate over the same period have grown swiftly and
now account for about as large a share of national output as manufacturing.
All that building required a steady flow of foreign borrowing. Major
contractors owe about $56 billion in foreign currency loans. Much of
that money is tied up in Erdogan’s megaprojects, which enjoy government
Analysts say Erdogan and builders — one prominent contractor is a friend
from high school — developed a dangerous symbiosis. “Property developers
and construction companies have been with him since day one. His inner
circle largely consists of large contractors. Whatever he does, he has
to keep them happy,” said one financial analyst, who spoke on the
condition of anonymity to avoid angering the government.
The problem now is that Turkish companies have a mismatch between their
debts and their revenue, having borrowed in dollars while their
customers pay them in lira. To obtain the dollars needed to repay their
lenders, they must earn ever greater amounts of lira.
About $25 billion of debt will soon require refinancing — a huge amount
given the industry’s thin financial reserves, said economist Atilla
Yesilada of Global Source Partners.
“This is the root of the problem we’re going through now,” said Durmus
Yilmaz, the former central bank chief. “The situation is degenerating
day by day.”
On the streets of Istanbul, the industry’s excesses are evident. Office
rents in Istanbul are in free fall, yet three Pentagons’ worth of new
commercial space is under construction, according to Jones Lang Lasalle,
a real estate services firm.
Even as cranes loom above streets lining both shores of the Bosporus,
the number of new building permits is collapsing. Many Turkish
construction companies are headed for bankruptcy, Yesilada said.
“The political economy of the regime relies heavily on patronage and
cronyism,” said Soli Ozel, an international relations professor at Kadir
Has University. “To save [the contractors] is important both politically
and economically. The construction industry has been the true engine of
growth and employment.”
Erdogan tightens grip
On downtown buildings, campaign posters featuring Erdogan’s unsmiling
visage proclaim: “A large Turkey deserves a strong leader.”
Since the outbreak in 2013 of large-scale anti-government protests,
Erdogan has moved to gather more power into his own hands through
constitutional changes that created a powerful presidency. He also
replaced independent economic officials with loyalists such as his
son-in-law Berat Albayrak, the finance minister.
Erdogan won election in June to a five-year term as Turkey’s first
executive president, replacing a nearly century-old parliamentary system
with the firm hand of an empowered decision-maker.
The president’s strongman style has crippled the political opposition,
undermined independent institutions and chilled public dissent. For the
past two years, Turkey has been the world’s leading jailer of journalists.
Authoritarianism is also hamstringing the response to the financial
crisis, experts said. Independent power centers, including financial
regulatory agencies, have been neutered. Last month, the deputy governor
of the Central Bank, a frequent target of presidential bullying,
Erdogan in recent days named himself chairman of Turkey’s sovereign
wealth fund and dismissed the entire management board.
Some experts say government economic statistics, such as data on the
percentage of bank loans that have soured, no longer can be trusted. “We
don’t know what the real situation is,” Yilmaz said.
Erdogan has managed the economy in defiance of traditional economic
thinking, blaming foreign aggression for Turkey’s woes and insisting,
contrary to all evidence, that high interest rates cause rather than
cure inflation — akin to asserting that antibiotics cause infections. He
often accuses a shadowy “interest rate lobby” of seeking to undermine
the Turkish economy.
As foreign investors fled the sinking lira, Erdogan for months resisted
calls to raise interest rates or seek help from the IMF as Turkey did in
a 2001 crisis.
In August, the authorities tried to keep the boom going by adopting
short-term palliatives while encouraging businesses and consumers to
keep spending. To prop up the property market, the government ran
full-page newspaper ads touting half-price home mortgages in
state-backed developments. They read: “Time for Turkey to Win.”
Turkish authorities also have called in major contractors for pep talks,
urging them to put a brave face on public comments about the sinking
market, said one economist who spoke on the condition of anonymity for
fear of incurring the government’s wrath.
Such measures are not unique to Erdogan, experts say, but part of the
playbook for authoritarian leaders confronting troubled economies.
“I don’t think it is a one-off,” said Monica de Bolle, a senior fellow
at the Peterson Institute for International Economics. “Turkey is
emblematic of things — not just that we’re seeing elsewhere in the world
but that we’ve seen in the past.”
In the 1980s, Latin American countries such as Brazil and Argentina
experienced spurts of rapid growth followed by sudden reversals, a
common feature of populist or authoritarian governments. Today, the
right-wing nationalist governments of Hungary and Poland may be poised
to weather the same violent roller coaster, she said.
Still, there is no iron link between authoritarianism and poor economic
outcomes, according to economist Uri Dadush of the Brussels-based think
tank Bruegel. Countries such as Singapore and China notably prospered
under undemocratic governments.
“The problem is when you have authoritarianism and bad economic policy
and a bad grasp of the fundamentals, especially when colored by
nationalism,” he said, which leaves rulers such as Erdogan “extremely
resistant to seeking help from the IMF.”
Trump's tariffs descend
The lira’s deterioration began this spring but was exacerbated in August
when President Trump doubled tariffs on U.S. imports of Turkish steel
and aluminum. That move came after talks broke down to secure the
release of American pastor Andrew Brunson, jailed by Turkish authorities.
“Our relations with Turkey are not good at this time!” Trump tweeted.
The American president’s intervention has played into Erdogan’s claim
that foreign powers are engineering Turkey’s financial ills. Erdogan’s
appeals to nationalism and warnings that the United States wants Turkey
“to kneel” find a receptive audience among many of Turkey’s 81 million
Though Erdogan’s conspiracy assertions are unproved, outside powers did
inadvertently set the stage for Turkey’s political and economic
By keeping interest rates near zero for almost a decade after the global
financial crisis, the Federal Reserve made it easy for companies all
over the world to incur enormous debts. As of May, Turkish nonfinancial
companies owed $336 billion in foreign currency debts, most of it in
dollars, according to the Central Bank.
“Investors became completely numb to excesses,” said Yesilada, the
economist. “We’ve gotten away with a lot.”
The European Union also played a part, by turning its back on Turkey’s
aspirations to become a member, removing a prod for democratic
“Without the E.U., the country started to slide — first politically, now
economically,” said one management consultant, who spoke on the
condition of anonymity to avoid provoking the government. “It’s a system
with no checks and balances now. At some point, it will hit its head
against the wall.”
As Erdogan plows ahead, signs of economic damage are mounting. Store
rents in Istanbul’s malls have jumped 31 percent since the start of last
year, according to BMD, the retailers’ association. Retailers in three
malls opened two hours late on Sept. 10 to protest the soaring costs.
Meanwhile, consumer confidence has dropped, and Amazon.com is delaying
its long-expected entry into the Turkish market, according to local
press reports. Some Turkish corporations are paying 39 percent interest
on short-term loans.
Several factors in August — including government bonuses to 12 million
retirees and veterans, more than 1 in every 5 Turkish adults — shielded
citizens from the most punishing blows.
Now those temporary stimulants have lapsed, meaning life will probably
become more difficult.
Inflation is at 18 percent and headed higher, according to government
statistics. The BIM discount supermarket chain last month raised prices
by an average of about 25 percent on 350 items, including bottled water,
cheese and chocolate. Ulker Saklikoy, the maker of a popular vanilla
sandwich cookie, raised the price and shrank its size, resulting in an
effective cost increase of 65 percent.
“I’ve noticed an increase everywhere, not just at BIM,” said Gunaydin
Yarimla, 54, a retiree. “I used to take 50 lira with me when I went
shopping. Now, I have to take 80 or 90 lira with me. I expect it to
increase even more. Of course, it’s difficult.”
Some Turks are looking past the current peril.
Ahmet Asci, 38, who started a jewelry design business three years ago,
said he’s been able to upgrade from his small Spanish sedan to a $30,000
BMW 320 thanks to Turkey’s recent boom.
“I think the government has made some correct decisions,” he said.
“Foreign powers are creating obstacles for us. But I think the
government will take the correct decisions from now on. I’m absolutely
Mustafa Unlu isn’t as sanguine.
It’s the middle of a workday, but the real estate developer has plenty
of time to chat. His phone, which once rang with customers shopping for
apartments or offices, is silent. Business is so bad that his two
partners quit three months ago.
“It’s not good at all,” he said. “It’s getting worse and worse.”
Seated behind a black desk, Unlu, 40, said his income has fallen by
half. With his wife, a former health-care executive who stays home with
the couple’s 6-year-old son, he’s reined in family spending and fears
more belt-tightening lies ahead.
Turks joke that they are good at surviving crises because they’ve had so
many of them. Unlu’s father was a contractor who lost “half of
everything” in the 2001 crisis, and the younger Unlu several years later
saw the global financial crisis coming and shut his motorcycle shop in
time to cash out his profits.
Today, he anticipates a tough year or two before the situation improves.
He is clear about who is to blame for Turkey’s misfortune.
“Since 2002, this country has been managed by the same political party
and the same people,” Unlu said. “The country is being run in a very
amateur way. You don’t know what will happen from one day to another.”
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