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Zülfikar Doğan
Dec 17 2018

AKP frantically seeking funds ahead of local elections

As March local elections draw near, opposition parties are negotiating for an electoral alliance, while the ruling Justice and Development Party (AKP) is looking for ways to hang on to the municipalities it controls in the face of the country’s impending financial collapse.

For the leaders of both the main opposition Republican People’s Party (CHP), Kemal Kılıçdaroğlu, and the nationalist opposition Good Party, Meral Akşener, a poor performance in the elections would likely lose them their positions, so each is looking for candidates and strategies to bring them maximum success.

Kılıçdaroğlu has already faced down calls to resign after a disappointing showing at this year’s June 24 elections, so the March vote could be the final nail in his coffin unless he turns around a long succession of mediocre and poor performances.

Akşener was also on the verge of stepping down following criticism of her performance on June 24, calling an extraordinary congress to select a new leader. Yet when the congress came, the Good Party administration affirmed its trust in Akşener by re-electing her.

The March 31 elections, however, will be of crucial importance not just for Akşener’s political future but for the continued existence of the Good Party, which cannot afford to fail the test posed by the second elections since its founding.

Thus, as both leaders insist on terms that will best strengthen their own party’s interests, they are struggling to reach the compromise necessary for an alliance. This has amplified the discomfort felt by members of both parties at the long and exhausting process the alliance negotiations have become.

Kılıçdaroğlu and Akşener are expected to hold a final meeting on the matter, and if they can come to an agreement this will doubtless improve their performance at the ballot box. A failure to agree terms, however, would amount to a psychological victory for the AKP and its election partners, the far-right Nationalist Movement Party (MHP) as well as inevitably decreasing the opposition’s chances in the elections.

On the other hand, if the CHP and Good Party can present a suitable alliance model and the right candidates, they may be joined in a broader opposition alliance by the Islamist Felicity Party and pro-Kurdish Peoples’ Democratic Party.

At the same time, the ruling party has been frantically searching for funding sources for the local administrations under its control in a severely restricted financial climate as many slip closer to bankruptcy.

Turkey’s growth targets for its 2019 budget have been revised down to 2.3 percent, and the AKP government has also signalled its intention to cut public spending and investment by 36.5 percent. Spending in areas including health, education, transport and infrastructure will therefore fall below their 2017 and 2018 levels.

Debt and interest payments have skyrocketed this year thanks to the lira’s fall in value and high inflation, and the funds cut from the above areas are set to go towards repayments.

The 2019 budget foresees expenditure of 961 billion lira against revenues of 880.4 billion lira, leaving a deficit of 80.6 billion.

This year’s budget aimed for a 65 billion-lira deficit, but after the last revision, the year-end budget deficit is expected to reach 72 billion lira.

While the amount set aside for investment in 2018 was 68.8 billion lira, in 2019, despite inflation at over 20 percent, the amount has fallen by 3.6 billion to 65.2 billion lira.

Meanwhile interest payments have risen from 72 billion lira to 117.3 billion lira in the 2019 budget.

Naturally, these amounts are highly likely to deviate from projections, just as they did in the previous two budgets.

Thus in the run-up to the March 31 elections, President Recep Tayyip Erdoğan’s government is on the lookout for funding sources outside the budget to drum up support for the AKP’s municipal candidates and to extend a lifeline to government friendly contractors who have fallen on hard times after payments for local government projects dried up.

From this angle it appears clear some of the articles presented in an omnibus bill to parliament this month were added with this search for funds in mind.

Turkey’s Treasury and Finance Minister Berat Albayrak announced months ago plans to reopen Turkey’s Emlak Bank, which specialised in real estate until it went bankrupt in a corruption scandal in 2001, and use it to support the housing sector, though no steps have been taken in this direction so far.

Rather, the omnibus bill promises to completely change the remit of İlbank, which has until now been tasked with financing local administrations’ small-scale housing and infrastructure projects.

The change will now see the bank extending funds to municipalities for housing, shopping malls, urban renewal, and the kind of public-private partnerships that the government has used to run its massive “mega projects”. The bill will also extend İlbank’s investments to overseas projects.

The Treasury’s latest data on debtors shows that the greatest portion of debt owed it – 11.4 billion lira – is owed by local municipalities, and the most significant portion of that is owed by those controlled by the AKP.

The largest debt to the Treasury, at 6 billion lira, is owed by the AKP’s Kocaeli municipality, while the MHP municipality in Adana owes more than 1 billion lira. These top two are followed by the AKP-controlled cities of Antalya, Sakarya, Bursa, Konya, Sivas, Yozgat, Samsun, Kayseri, Denizli and Gaziantep.

İlbank’s audit reports from 2015-2016 similarly show that the majority of the 15 billion lira debt owed to the bank by municipalities is from AKP municipalities, with Bursa again the largest debtor, followed by Gaziantep, Sakarya, Konya and Antalya.

In short, AKP local governments are responsible for the greatest part of the billions owed to the Treasury and İlbank, and the term for much of that debt has already long past. However, neither the Treasury nor İlbank is able to pursue its debtors legally, since they have political protection.

In other words, the AKP municipalities are drowning in debt with no way to pay it back.

This is where the omnibus bill comes in. According to the article related to İlbank, 51 percent of the bank’s funds will be used as “grants.”

Naturally the possibility of any of these grants going to opposition municipalities before the elections is not worth discussing. İlbank is most likely to be used as a source of funds to service the debts of municipalities and to finance or even become a partner in stalled and unfinished projects these municipalities have commissioned.

So, at the same time the bill will serve to get the cash flowing to the contractors with government ties who had been taken on for these projects. But if these firms collapse, they will take İlbank down with them.

İlbank’s 2017 reports show that the bank distributed credit and grants worth 11 billion lira to Turkish municipalities. By September 2018, the figure for credit alone had reached 5 billion lira.

Besides, İlbank had been taking a portion of taxes allocated to municipalities in each year’s budget, but this year former prime minister Binali Yıldırım postponed the delivery of the bank’s cut for six months before the June 24 elections. A ruling by the president is expected to extend the delay until after the local elections.

Thus İlbank will not receive any of the 47 billion lira share of the budget that will go to municipalities. Rather, the money will go straight to the coffers of AKP and MHP municipalities before the elections.

So, while the opposition is still arguing over the terms of its electoral alliance, Erdoğan’s government has already begun making every effort to secure funds for its municipalities and lay the groundwork for victory on March 31.