01.12.2016

Economics of the madhouse

Despite the construction boom, things are not boding well for Erdoğan, writes Esen Uslu

The Oxford Dictionary has declared ‘post-truth’ to be the word of the year. We find this very apt, because Turkey has been the ‘post-truth’ land since the Justice and Development Party (AKP) took office in late 2002.

Let me try to demonstrate post-truth conceptions in economics, for today managing public perceptions is more important than the truth. The AKP government and its international backers have created the myth of Turkey’s miraculous economic performance under Recep Tayyip Erdogan.

Construction spree

The government tried to take advantage of the international economic situation by launching a public works and construction spree. The results have been presented as proof of the success of the never-seen-before development programme ushered in by the great leader of the AKP. However, the truth is a little different. Let us take a closer look.

A third bridge over the Bosphorus was opened in August 2016 to great acclaim. However, the junctions and approach roads, together with the motorway leading up to the bridge, were not completed. So all it has done is create more traffic jams within the old road system of Istanbul. All heavy-goods vehicles, which were legally obliged to drive over the new bridge, have to pay such a hefty fee for the privilege that the fine for using the old bridge became a cheaper option. A solution was found Turkish style: the government raised those fines to prohibitive levels.

Similarly a new bridge crossing the Bay of Izmit (ancient Nicomedia) was opened to great fanfare in June 2016. This was supposed to be part of the new motorway linking Istanbul and Izmir, but once again the motorway is yet to be built. The project is one of the so-called ‘build-operate-transfer’ projects - a much favoured financial device in recent years for infrastructure construction, utilising private investment.

However, there was a slight catch: the treasury guaranteed a certain number of vehicles would annually cross the bridge for the next 22 years. If insufficient vehicles paid the toll, the treasury would contribute. As a result, each and every Turkish taxpayer is paying the toll without setting foot on the bridge.

The toll was fixed at US $30, which is no small sum. Adding VAT and other taxes, the Turkish lira equivalent is far more expensive than the old alternative: crossing by ferry. As a result most drivers use the ferry and, of course, each user is still paying for the bridge through taxation.

The situation is reminiscent of an ancient Turkic folk tale, ‘Deli Dumrul’s bridge’. In that story, a dark-eyed, black-haired, burly Turkish warrior with long moustaches laid a bridge over a dried stream, and stood guard over it. He exacted money from those who wanted to cross over, and beat up anyone who tried to do so without paying, charging him double.

Then there is the rail tunnel under the Bosphorus, which was supposed to link up the old suburban railways stretching east on the Asian side to those on the Anatolian side. The tunnel would replace the ferryboats linking the two railheads, but, while it was being built, the old railway lines were closed down to be modernised, ready to operate as part of a single line in 2012. However, since then no train, suburban or national, has arrived in Istanbul by this route, as the new railroad and stations were not built. The tunnel, together with a short section of the railway (three miles out of a total of 50), was opened in 2013. But the new trains intended for the whole route have been standing in a siding, without shelter from the elements, since 2011.

The new railroad is expected to be completed in 2018, if the economy does not sink in the meantime, and will be part of the fast line between Istanbul and Ankara, which was actually opened in 2009. However, it operates only from the easternmost end of Istanbul, since the suburban line is yet to be completed.

Turkey has undergone an airport building spree as well. Thanks to the deregulation of European airspace, private aviation was permitted in domestic airspace and the state decided to create a network of modern airports. The existing military airfields were opened up to civilian use - but without installing the landing systems needed by civilian planes, and those military airports have been the scene of several avoidable crashes.

Then some older civilian airports were enlarged and modernised, and several new ones were built. Along the Black Sea, where there are mountains very close to the coast, the airport spending spree continued by reclaiming land from the sea.

Turkish Airlines created a cheaper subsidiary, and domestic flights centred on Ankara and Istanbul were developed rapidly in competition with coach services, many of which have been forced out of business. Turkish Airlines also began operating new routes in Europe, America, Asia and Africa in line with the export-oriented and expansionist dreams of the Turkish bourgeoisie. It bought and leased new planes, and began sponsoring famous football clubs, such as Barcelona and Manchester United.

The second airport in Istanbul has been quite successful. However, as it is owned by the state, while being managed by a private company, the problems are never-ending. For example, its much needed second runway and associated taxi routes have not been built, creating awkward delays in operations. So, the AKP government initiated another grandiose building project: a third airport, which it claimed would be the largest in the world. The new, six-runway airport on he Black Sea shores would be linked to the city thanks to the third Bosphorus bridge, together with the new metro lines and motorways.

Since Turkish Airlines is a state company, nobody questioned its profitability. But, with the collapse of tourism and export trade in the aftermath of domestic and international political developments, air traffic has plummeted. New managers were appointed to both Turkish Airlines and the Turkish Airports Authority, while several airports were closed.

However, the construction of Istanbul’s third airport is still going ahead full steam - at least according to the speeches of government ministers.

unk status

The Financial Times ran a special report on November 29, entitled ‘Investing in Turkey’, which provides insights into how the above projects were financed, and the state of play today. One of the articles, entitled ‘Turkish companies loaded with foreign debt fear rate rises’, contains useful facts and very blunt assessments:

The lira plunged, losing 7% of its value against the dollar in the space of 10 days … Over the past decade, Turkish companies have run up foreign currency debt at a pace second only to that of their peers in China. Turkish companies had foreign currency liabilities of about $210 billion at the end of September ...

The ‘rollover ratio’ for Turkey’s corporate sector was more than 160% in the first nine months of this year, according to central bank data. In other words, for every $100 due, companies borrowed those $100 again and added another $60 …

The challenge for Turkish companies is how to generate enough foreign currency to meet their repayments. There are three ways of doing that: as exporters, as members of the tourism industry, or as participants in the domestic economy who can make enough lira to buy the foreign exchange they need …

Exports, which were growing at 10 to 15% a year for most of this century, have collapsed over the past two years … Revenues from tourism have also collapsed. As Moody’s Investors Service noted when it downgraded the country to junk in September, income from tourism fell by nearly 30% while …

… the money borrowed overseas by Turkish companies has not been put to the best use. Had enough of it gone into investment to boost productivity, things would be different. But too much, critics say, has gone into Turkey’s money markets ...

We can see why Erdogan and his government is wriggling nowadays - one day they blame and insult the European Union; the next they attack unspecified foreigners for attempting to instigate a financial crisis via interest rates.

The looming financial crisis is setting ministers against each other, with the president of the central bank - a docile political appointee - stuck in between. The organisations traditionally representing local and national finance capital have stepped up their criticism of the government’s handling of the economy. Things do not bode well for Erdogan.

Meanwhile, the Turkish regime seems to have forgotten what it originally claimed a few weeks ago when it sent troops into Syrian territory. Then it was stated that the limited number of troops would assist the Free Syrian Army by providing support on the ground and air cover in order to clear the border area of Islamic State.

However, a few days ago Erdogan revealed the actual intent. He clearly stated: “We went into Syria to topple the criminal regime of Assad.” As the Russian and Syrian offensive to retake Aleppo gained pace, it was only a matter of time before Turkish aims in Syria were reconsidered.

This policy switch could have repercussions for domestic politics. Just as Erdogan and the Islamists he represents attempt to rebuild bridges with both the military top brass, and nationalists in general on the basis of an anti-Kurdish agenda, developments in Syrian Kurdistan could have serious consequences.

The repression of Kurdish and other opposition forces, plus collaboration with the MHP and CHP parliamentary opposition parties, could sustain the government for a while. But prolonged repression, combined with further moves towards a one-leader state, might well backfire. Sections of the AKP, as well as the bourgeoisie as a whole, are well aware of that.

However, the clash of ‘post-truth’ economics with the hard facts of the real world will not be so easy to overcome.