A temporary sigh of relief for Turkey
Turkey breathed a temporary sigh of relief last week after US Vice President Dick Cheney gave assurances that an attack on Iraq was not imminent. So did Istanbul shares. After several weeks of a downward trend, Istanbul’s benchmark stock market index rose 9.47 percent following Cheney’s visit. Large commercial banks, often a market barometer, were among the busiest trades. Iraq worries shelved until later this year, are things coming up roses in the Turkish economy? Yes and no. According to Kemal Dervis, the economy minister, «the worst of our financial crisis is over and economic growth could surge in a few years if inflation is stamped out.» The optimistic Mr Dervis has a difficult task ahead. He must bring growth back up to 3 percent following last year’s shrinkage of the economy by 10 percent. He must also halve the inflation rate to 35 percent. And he must do both things together. Well, good luck, Mr Fix-It! Meanwhile, businesses are still closing down across the country. Nearly 2 million Turks, mostly blue-collar workers, have lost their jobs over the past year. In an economy where annual consumer price inflation runs at 73 percent and the Treasury must borrow at an annual compounded 78 percent, Sureyya Serdengecti, the central bank governor, believes «inflation is no different from corruption.» Turkey’s surviving banks (19 of them have collapsed over the past few years) still refuse to lend to corporate or individual borrowers, fearing a pileup of non-performing loans. All this has resulted in «poverty unseen before,» according to the Istanbul Chamber of Industry. The fragile but sticky coalition alliance, the longest surviving coalition government in Turkish history, must now choose between laying off thousands of public workers and foregoing new IMF loans. Reluctantly but wisely, the government has opted for the unpopular but necessary choice. It must soon complete plans to slash state-sector jobs – a precondition for a $1.1-billion loan tranche to be paid by the IMF as part of a $16-billion standby accord. A steering committee has been formed to guide the difficult work. Turkey’s – mostly loss-making – state enterprises employ around 500,000 people who cost taxpayers an annual $3.2 billion. If the plan works, the government says it will save up to $300 million a year. But it’s a challenge. In government services, five people do the work just one person could do, says the state minister for privatization, Yilmaz Karakoyunlu. In an economy going through its worst crisis since World War II, it is quite normal for people to be more concerned about their jobs than about the prices of goods and services. All the same, Mr Dervis insists that economic growth is important but must be sustainable. His «but» simply emphasizes that his priorities are different. Whatever the case, it is reassuring to note that economic fluctuations are often cyclical and that an economy is generally not capable of shrinking 10 percent a year for many years in a row. But where would a Turkish recovery come from? The technical answer is exports and tourism revenue. However, neither looks guaranteed to boost economic activity. Turkey’s exporters and hotel owners smirked when the country’s national currency lost half of its value against major Western currencies in the seven months to last October. But they started to complain when the lira regained some 20 percent of its value after October. Turkey floated the lira last year and saw it drop as low as 1.65 million to the dollar before it recovered to present levels of around 1.35 million. After a record rise of 12.3 percent in 2001, Turkish exports fell by 1.5 percent in January in line with the relatively stronger lira. But the central bank says it will not devalue the lira to help exporters. The tourist industry has other concerns too. A US military operation against Iraq, which is no longer a matter of «if» but of «when,» would inevitably hit Turkey’s hotels and other tourist-related businesses. If military action were to send oil prices higher, this would also translate into a surge in inflation for Turkey, which imports nearly all of its fuel. It is true that one cannot make an omelet without breaking eggs. But in the case of Turkey, so many eggs have already been broken and there is not an omelet in sight yet. The question is how many more eggs must be broken before the long-awaited omelet can finally be served up?
