11.04.2001

Turkey in crisis

In November 2000 the apparent stability on the surface of Turkey's economic and political climate suddenly revealed its volatile undercurrents.

Since Ecevit's so-called national unity coalition government, with the fascist party as a major partner, concluded a standby agreement with the IMF in 1998, the economy seemed to be making good progress. Despite a series of big earthquakes affecting the key industrial areas, the government seemed at long last to be tackling the thorny issue of hyperinflation. Turkey had no problem obtaining IMF credits as well as short to mid-term loans in the international financial markets.

The apparent calm and progress had begun to create many illusions, not only in the minds of ordinary working people but also in the left organisations. Some eyes were blinded by the bright lights emanating from the size of the Turkish economy - 16^th largest in the world - and its ability to exploit the new markets opened up after the collapse of the Soviet Union in central and eastern Europe, the Balkans, the Caucasus and central Asia - 'our backyard'. Many new theoretical positions were being developed about the changing hierarchy of the imperialist system and how Turkey has been climbing onto the higher rungs of the imperialist ladder, and so on.

Then suddenly in November last year the reality of the national economy came like a slap in the face to those subscribing to these ideas. Privatised banks, the backbone of the developing finance sector, started to go bankrupt one by one, amid financial scandal.

Private banks, public debt

These banking scandals had a very common scenario. A financial group which has good political connections buys a state bank up for privatisation - not with its own funds, but with money borrowed from other state banks. From this vantage point it is able to channel the bank's financial resources into its own subsidiary companies.

These companies are not normal industrial or service sector businesses. They usually operate in speculative sectors, and tender bids to buy further public economic assets which are being privatised. They are not screened for creditworthiness before being extended these credits by the bank. On the contrary, the bank management deliberately extends credit to these ventures, which would be unable to get it under normal circumstances.

These credits are supported by the bank through deposits attracted by high interest rates, and the bank management does not expect them to be paid back. One important aspect of this development has been the state guarantee for bank deposits. If a bank goes under, it is not the financial group that owns it, but the state, which foots the bill.

This kind of speculative development was of course doomed to failure. The Turkish people experienced the same rip-off in the late 70s during the independent bankers' scandal, and later as the fascist junta organised its rip-off bonds scheme. However, high inflation made people willing to try anything to retain the value of the money they had. Conditions were so bad that even ordinary workers, when they received their monthly pay, had to buy dollars and exchange them back into Turkish lira in weekly instalments in order to maintain the value of their wages until the end of the month. Under these conditions, high interest rate bank accounts were easy traps.

After the summer of 2000 the banks started to collapse one by one. When banking managers saw the end in sight, they often found it difficult to resist the temptation to defraud their own bank. A new term emerged - 'hosing out' - to denote this shameless act of stripping a bank's assets.

The government, facing an impending crisis, declared its commitment to maintain the state guarantee on deposits and was obliged to take the recently privatised banks back into state ownership. The bill for this operation, in November 1998, was 11 billion dollars. The IMF loaned this amount to the state, as the state 'nationalised' the debt of the bankrupt private banks.

The state was obliged to initiate criminal investigations against these celebrity businessmen and put many of the new bankers into jail, including the nephew of former president Demirel. One by one, their relationships with organised crime, anti-terrorist death squads, international money-laundering, etc, became the daily bread and butter of the newspapers and TV stations.

And immediately the spokesmen of the bourgeoisie started to complain that putting businessmen in handcuffs and parading them before the courts caused loss of confidence in the business community and was bad for the image of the country abroad.

Hot money flees

Yes, this crisis had an effect abroad, but for a different reason. It caused a crisis of confidence for the purveyors of international 'hot money' - i.e., among the speculative investors who buy high-interest-bearing short-term bonds under state guarantee in the so-called 'emerging market' countries like Turkey. They quickly withdrew their funds and adopted a lukewarm attitude to the new bond issues.

As a result, the second, equally lame, leg of the Turkish economy became visible to everybody - the shortfall of foreign currency reserves.

Turkey has a huge debt in foreign currency, mainly in US dollars. The estimated foreign debt stock reached 125 billion dollars at the end of the year 2000. Servicing this debt alone requires 20 billion US dollars per year. The short-term hot money loans constitute about 25% of this foreign debt stock. Unless these continue to flow in, foreign currency reserves - estimated to stand at about 30 billion dollars at the end of 2000 - are put under increasing pressure by the need to service debts.

The halting of the movement of hot money came in a period when the government was spending about 39 billion dollars a year on the state budget. This sum too had to be raised through bond issues on the international market. The state became desperate to attract hot money and offered higher interest rates and shorter terms. The result was an increase in foreign debt stock in 2000 by 11 billion dollars compared to the previous year.

In normal economic terms, if a country's interest expenditure is greater then its total tax intake it is considered bankrupt. Using this measure, Turkey was bankrupt, counting the foreign debt stock alone.

Domestic debt

However, the Turkish state had another debt problem. During the last 40 years, high inflation created huge domestic debt. At the start of this year it had already reached 61% of GNP. At the beginning of February, the assistant under secretary for the treasury said that "the losses of the banks transferred to the Savings Deposit Assurance Fund [i.e., the above-mentioned renationalised banks] will increase this figure to 74 % of GNP".

The interest to be paid for this domestic debt alone has nominally reached 25% of GNP. This is the result of financing the budget deficit through domestic loans. The budget deficit last year was 25% of GNP. The equivalent for servicing domestic debt is about 30-33 billion US dollars.

On the other hand the state has always felt obliged to provide huge subsidies to the bourgeoisie and to the rural economy. The most important subsidies provided to the bourgeoisie through the state budget were in the fuel (gas and electricity) sector. To increase electricity-generating capacity, Turkey has been investing heavily in dam building. The recent privatisation programmes produced a new approach: the so-called 'build-operate-transfer' model.

This innocent scheme very cleverly - at first glance - invites foreign and domestic capitalists to invest in power plants at their own cost, to operate and sell their electricity under a publicly controlled tariff to the interconnected grid for a fixed period in the expectation of a substantial profit, and then to transfer the plant to state ownership. A few gas-to-electricity conversion projects were started under this model. However, to get international and domestic investors interested, this programme had to be packed with lots of sweeteners in the form of state guarantees on profits.

Let us read the outcome of this practice from the World Bank's director for Turkey, Ajay Chibber: "The private sector must stop insisting on treasury guarantees for the build-operate-transfer projects ... Trying to finance the losses of energy companies through treasury guarantees will cause serious problems. Build-operate-transfer is found to be an expensive solution but the government is not willing to increase the cost of energy. We told them that meeting a one-billion-dollar annual shortfall through the budget cannot be sustained." These words were reported in the press in July last year. What was going on in the energy sector was also valid for the telecommunications sector and all other growth sectors over recent years.

State finances

The government has committed itself, on face value at least, to reduce the rate of inflation in preparation for joining the European Union. To do that, state revenue must be increased and state spending must be reduced.

But how can these requirements be balanced with the reality of Turkey? It has been maintaining the second largest army in Nato, and running a costly colonial war in Kurdistan, including a few excursions every year deep into Iraqi territory. It has to subsidise its quarter-century-old presence in Northern Cyprus, not only in military terms, but sustaining everything there through subsidies.

During the aftermath of the February crisis, an economic commentator complained: "Today the economy will be discussed at the National Security Council. Our friends from the EU cannot comprehend why the NSC discusses the economic strategy"(the NSC, grouping together the top brass of the armed forces, enjoys a privileged position in Turkey's constitution). However, those who really run the show must be sure to sustain the huge military spending throughout all twists and turns of the economic crisis. Reducing military spending is a no-no for Turkey.

Spending cuts?

Another way to reduce public spending is through cutting the number of people employed in state institutions and state economic enterprises, thus reducing their huge losses. The privatisation programme was seen as a godsend for these purposes.

However, the bureaucracy, which has been geared to maintaining a slow-moving state sector, is not capable of selling off enterprises quickly. State enterprises, institutions and municipalities are also the prime source of plum jobs for the politicians' chums, and consequently provide the politicians with much of their clout. So the political establishment was not geared to act quickly in this regard either.

As a result there were a few half-hearted attempts to privatise prize state economic enterprises such as Turk-Telecom and Turkish Airlines. When they were seen to be going nowhere, and under the pressure of the November crisis, new privatisation legislation was hurried through parliament. But they failed to get a single bid when they were opened to tender.

Even immediately after the February crisis, when some clever dicks raised the demand for compulsory retirement of civil servants and public employees who reach the statutory age, objections came from many quarters, not only from the trade unions. 'Such policies will bring social upheavals,' warned the Istanbul chamber of industry and many other bourgeois organisations.

Increased taxes?

As state expenditure cannot easily be reduced, an easy solution has been sought through increased taxation. Any further taxation would of course have adverse consequences. In Turkey 11% of all tax collected is deducted from wages and salaries. On the basis of the average annual exchange rate, this is equivalent to six billion dollars per year. This sum is almost one third of all the income tax collected in Turkey. If one bears in mind that in Turkey even the lowest wage-earners pay tax, the severity of direct taxation on the working class becomes apparent.

The other obvious targets for increased taxation were the medium and small businessmen and the petty bourgeoisie. Even talk of small increases in their taxation during the flat market conditions in the aftermath of the February crisis was sufficient to bring them onto the streets, demanding the resignation of the government and threatening to withdraw their support from the fascist party.

This state of affairs only reflects the age-old impasse in Turkey: you cannot spend less or collect more unless you are prepared for a social upheaval.

Value of the Turkish lira

Another attempt to escape from the impasse has been the policy of reducing the value of the Turkish lira in a continuous spiral. During the winter, the spectre of hyperinflation was looming.

The attempts of the government, under pressure from the IMF and EU to reduce the rate of inflation, had apparent success and monthly average annual inflation fell from 70% to 45% in nine months. But this was unsustainable. After the November crisis, the IMF, World Bank and all financial institutions were advising the Turkish government to float the Turkish lira on the international market.

The government declined to take this step, as it would obviously lead to hyperinflation. They tried to maintain a gradual devaluation, but in the 'globalist' phase of imperialism, this was in vain.

An internal conflict in the Turkish political establishment produced sufficient impetus to set off the avalanche of devaluation. In one month Turkey lost one third of its foreign currency reserves in the wake of escaping hot money and surrendered to the demands of the international money markets. The Turkish lira was left to float.

The dollar was exchanging at 800,000 lira before the February crisis. It peaked at 1.8 million lira and fell back to 1.2 million lira.

The coalition government was obliged to take a trusted man of international finance capital into the cabinet representing the fourth party of the coalition. He became minister with overall power in economic affairs. The director of the Central Bank and many other top-level finance bureaucrats were kicked out and replaced. A new stabilisation programme, with its so-called "structural reforms that make Turkey a modern capitalist country", is being devised.

Whose crisis?

The earnings of working people are being wiped out. A new minimum wage rate was introduced in January this year. The gross minimum was equivalent to 208 US dollars per month. After the February crisis it was reduced to 122 dollars. The net minimum wage, when introduced in January was 152 dollars. After the crisis it now stands at 90 dollars. At this rate a worker must work nine hours to earn enough to buy a kilogram of lamb. If you bear in mind that the average wage is very close to the minimum wage, the extent of the immediate effect of the crisis on the working class becomes very apparent

After the crisis, the managing director of Fortis Banque of Belgium called on his countrymen to invest in Turkey and said: "It is time to go to Turkey. The value of the Turkish lira is very low. The crisis is not bad for everybody. Exports are on the rise. The businessmen of the textile and tourism sectors are very happy with the competitive rate. The basic economy works fairly well as a market economy. Modern Turkish industry has been based on private family fortunes, and is not very dependant on the banking system."

This contrast - between the situation of the workers and that of international capital - reflects the class nature and consequences of the crisis. On April 13 the Turk-Is trade union confederation holds its 'Council of Presidents of the Unions' to discuss what course of action to adopt. On April 10 the Union of Chambers of Industry and Commerce held its meeting, adopting a resolution calling on the government to resign forthwith.

A last word

Since November important leaders of industry, commerce and finance are demanding that the National Security Council intervene in the economy. Their call for an "interim military regime with a government of technocrats" was the equivalent of demanding an end to democracy. However, in response to such accusations, each and every one of them replied in unison, "The NSC is a constitutional institution within the democracy of Turkey." The inactivity of the government is fuelling these demands.

The very cautious approach of the working class organisations, including the trade unions, cannot be faulted in this regard. However, this must be the subject of an another article.

Aziz Demir