Turkish finance minister’s 7th economic package in 10 months fails to convince

Turkey’s Treasury and Finance Minister Berat Albayrak has managed to introduce seven economic packages since his father-in-law President Recep Tayyip Erdoğan appointed him to take charge of the country’s economy 10 months ago.

The latest package, announced on May 23, promises to provide 30 billion lira ($4.9 billion) through state banks Ziraat, Halkbank and Vakıfbank to crisis-hit industrial firms.

Having spent most of its 17 years in power promoting construction of housing, shopping malls and infrastructure by government-linked firms, the latest package promises investment in three different fields.

Albayrak has said funding will be made available to firms that are highly dependent on imports and contribute to the current account deficit, as well as to those sectors that contribute most to employment and have the potential to produce export goods.

But the track record of Albayrak’s previous initiatives casts doubt on whether this new package will boost Turkey’s stalling economy.

The minister announced his first round of reforms – the New Economic Model – shortly after taking the reins of Turkey’s economy in July last year. A cornerstone of that package was the appointment of U.S. consultancy firm McKinsey to advise on redesigning the economy.

The participation of the U.S. firm led to an uproar from the opposition, which voiced concerns that McKinsey would have access to sensitive data at a time when U.S.-Turkish relations were at a low.

When Erdoğan intervened to voice his own opposition to McKinsey, it spelt the end for Albayrak’s first stab at remodelling the economy.

He tried again with a New Economy Programme in August, when the economy had been hit hard by U.S. sanctions imposed in retaliation for Turkey’s imprisonment of an American pastor on terrorism charges.

The new programme dealt with the period up to 2021, but all its forecasts and targets were proven redundant by the end of 2018. Inflation and unemployment rates quickly went beyond the programme’s forecasts, while growth slowed dramatically and the lira continued to fall. With inflation surging to 25 percent in October, Albayrak launched a Total Struggle Against Inflation.

In January 2019, the minister announced a 20 billion lira ($3.7 billion at the time) credit package for small and medium enterprises, and followed this in the run-up to the March 31 local elections with an even more lavish promise to provide incentives to employers in a drive to create 2.5 million new jobs.

With the ruling Justice and Development Party (AKP) concerned that tough measures could deter voters, the structural reforms and economic precautions insisted on by all sectors were delayed until after the local elections. But in April, when Albayrak’s 2019 edition of the New Economic Programme was unveiled, it proved to be a huge disappointment.

The April 10 programme provided 28 billion lira of emergency credit from the Treasury for public banks whose coffers had been emptied in previous incentive campaigns before elections. Besides that, there was nothing concrete in the package.

The expectation had been for economic and financial reforms, and finance and currency market regulations to be swiftly implemented. These measures had been long awaited, but the government had put them off as it battled for votes in seven elections over the past five years.

With no elections now due until 2023, hopes were high that Albayrak would present the structural reform package needed to set Turkey’s economy back on course. But the April 10 plan fell far short of providing solutions for the country’s worsening economic problems.

Shortly after the package was announced, Albayrak performed abysmally at IMF-World Bank meetings, where investors were wholly unconvinced by the minister and his reforms.

So it would appear all but impossible, given current economic conditions, for the May 23 package to generate excitement and attract foreign and domestic investment.

The fact that, in contrast to previous financing packages, no private banks are participating in the May 23 package has strengthened suspicions that the three public banks involved are following the government’s orders ahead of the June 23 rerun of the Istanbul mayoral election.

It looks unlikely that Albayrak’s latest measures will reinvigorate the economy, and in fact they could have the opposite effect. The banking sector is being put at risk by giving credit that may turn bad.

Moreover, the fact that three public banks were enlisted a month ago to provide 28 billion lira of credit and are now to extend a further 30 billion lira makes it clear that the Treasury is lacking funds.

With the budget deficit ballooning by 125 percent in the last four months, the government has been looking for ways to obtain the central bank’s 40-billion-lira emergency fund. With the lira threatening to spiral out of control, the government has also reintroduced a tax on currency exchanges after 11 years, and imposed a one-day settlement delay on foreign currency purchases of about $100,000.

Just as Albayrak has been unable to prevent the central bank’s foreign currency reserves melting away, so have his statements about balancing the economy been contradicted by the government’s own data.

In spite of Albayrak’s employment mobilisation programme, and his assertion that the worst of the unemployment problem was over, government data released on May 15 showed that joblessness had risen to a record high of 14.7 percent, with 4.7 million people unemployed.

Meanwhile, the latest figures from the Real Sector Trust Index, which the central bank uses to gauge the pulse of the business world, showed that trust has regressed by 6.6 percent. This, the bank said, makes decreased sales, fixed capital investments and production likely over the next three months, as well as heightened inflation and rising sales prices.

The May figures from the Consumer Trust Index show a fall in one month of 13 percent to 55.3 percent, the lowest point since the index began disclosing its figures in 2004. Fears about the direction of Turkey’s economy that have already been expressed by businesses have reached a peak among Turkish families.

The government’s institutions are no longer able to hide figures showing the widespread expectation that the economy will continue to deteriorate over the next 12 months, unemployment will rise, purchasing power will fall and saving will be out of the question.

Albayrak’s frequent declarations that the economy had overcome the worst of its problems have proven false, his seven economic packages in 10 months have failed to convince investors and the public, and trust has fallen across all sectors. Expectations across the board are for the worst.

Rumours circulated among political circles that Albayrak would be removed from his position after the March 31 local elections. That appears to have been delayed until after the June 23 Istanbul rerun, at which point Erdoğan is said to be preparing a cabinet reshuffle. With Albayrak rumoured to be headed to the Foreign Ministry, the president is reportedly looking outside his close circle for an economic mastermind to replace his son-in-law.

 

 

© Ahval English

The views expressed in this column are the author’s and do not necessarily reflect those of Ahval.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.