Feb 25 2019

Turkey pledges more help for suffering businesses as election nears

Turkey’s government will increase support for industry and help the economy create 2.5 million new jobs this year, Treasury and Finance Minister Berat Albayrak said, as campaigning for March 31 local elections intensified.

Ankara will announce more measures to help small and medium-sized enterprises this week after organising 20.3 billion liras ($3.8 billion) in special lending for 67,348 firms, Albayrak said in televised comments on Monday.

The government is seeking to lift the economy out of a contraction as it prepares to contest the nationwide local elections. Many Turks, suffering from lower living standards, are undecided on which party they will vote for, opinion polls show.

Albayrak, the son-in-law of President Recep Tayyip Erdoğan, said tradesmen and shopkeepers had received 6.24 billion liras of loans under a recent government initiative. That figure will rise to 7.5 billion liras by the end of February and to 10 billion liras by the middle of March, he said.

The government has introduced a raft of tax cuts and loan incentives to boost economic activity in recent months, leading to concerns among some economists and businessmen, who say the banking industry is under stress and are calling on Ankara to enact deeper structural reforms and avoid populism.

Last week, ratings agency Standard & Poor’s warned about rising bad loans in Turkey’s financial sector. The Turkish authorities have yet to lay out concrete plans to deal with asset quality problems, it said, advising the government against further ad hoc measures.

S&P’s criticisms drew a rebuke from the country’s main banking association, whose leadership is now dominated by officials of state-run banks and former public servants. Turkish banks are taking the necessary precautions and the sector is strong, it said.

Banks in Turkey are facing mounting requests from companies to restructure loans that were approved prior to the currency crisis last year, which has led to a surge in inflation and interest rates as well as economic contraction. Some leading firms have reneged on their commitments to creditors, raising concern among analysts that banks may need recapitalising.

Albayrak said interest rates in Turkey are expected to continue their decline, helping the economy. He said rates had already fallen from levels seen in August and September, when the currency crisis peaked.

The Turkish lira fell by 28 percent against the dollar last year, reaching a record low of 7.22 per dollar in August. It has partially recovered to trade at around 5.3 per dollar, but is still almost a third weaker than it was in January 2018.

The government is seeking to lower interest rates by persuading state-run banks to reduce the cost of borrowing and by curbing the amount of local debt sold by the Treasury to financial institutions.

Erdoğan pressed on with a whirlwind pre-election tour of Turkish cities on Monday, arriving in the central Anatolian town of Yozgat. He has stepped up campaigning on behalf of his governing Justice and Development Party (AKP)’s mayoral candidates over the past week.

In Yozgat, Erdoğan promised to extend a high-speed rail link there and complete a new airport near the town by 2022.