[Marxism] Turkey’s strongman rule imperils gains from economic boom

Louis Proyect 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 
any money.”

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 
are fishing.”

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 
crisis.

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 
financial guarantees.

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, 
unexpectedly resigned.

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 
people.

Though Erdogan’s conspiracy assertions are unproved, outside powers did 
inadvertently set the stage for Turkey’s political and economic 
deterioration.

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 
restructuring.

“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 
not worried.”

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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