Import restrictions signal Turkey’s return to closed economy, says former economy minister

Turkey’s restrictions on imports, announced last week by Finance Minister Berat Albayrak, signal a return to a closed economy for the country, according to Kürşat Tüzmen, who served as economy minister and minister for foreign commerce in previous Justice and Development Party (AKP) governments.

On May 20, Albayrak said Turkey would make it harder to import goods except for strategic products and those that cannot be produced domestically, after Ankara imposed additional tariffs on hundreds of products.

The announcement arrives as a steep decline in Turkey's exports during the COVID-19 pandemic has lead to renewed concerns about the country's current account deficit.

“Turkey is a country that increases its exports through growing its imports,” Tüzmen said. 

“If you hold commerce too tight, it will run away. If you return to a closed economy, you would be stuck with outdated cars made of tin, like in the past,” he said.

Tüzmen told Ahval that Turkey quadrupled its exports during his seven years as the finance minister, an accomplishment that is owed to “allowing and facilitating imports geared towards exports.”

Turkey developed good relations with neighbours between 2002 and 2009, seeking to export goods and services and “not its regime” to the world, Tüzmen said.

At the time, the government insured that imports would reduce agricultural production or cause a regression in Turkish industries, he said.

In contrast, “today almost all doors in agriculture are swung open for imports,” Tüzmen said.

Increasing taxes on imports for raw materials, investment goods and manufacturing-oriented machinery and equipment, like Turkey is doing now with the new restrictions put in place, will shoot the country in the foot, and “step on the toes of exporters,” Tüzmen said.

Albayrak has defended the rise in customs taxes and the tariff wall, kicking off discussions on whether the country would abandon free trade for state-control, and an economy open to the outside world for a closed, protectionist one.

Restrictions on imports will increase costs for exporters, and constrict export markets, Tüzmen said, adding, “Look at years with the highest growth rates, they are all times of high imports.”

Economy management and the bureaucracy in Turkey no longer see consultations or competency, and decisions are made without thinking or discussing their results, Tüzmen said.

“You can’t run a country or an economy without consulting the industry, publishing decisions in the Official Gazette at midnight,” Tüzmen said.

The former economy minister maintains those dealing with Turkey’s economy management “do not understand what the sectors are saying, they don’t listen, and avoid the issues because they do not even know what they are.”

One man makes a decision at the very “and then that decision changes several times over,” he said. 

This is evidenced in discrepancies between presidential decrees and dates of publication on the Official Gazette, said, pointing to a decision by the president in February being published in the May gazette.

“Instead of looking at where they went wrong, they sing a song of foreign powers,” the former minister said. “We worked in the same government for years, where were these foreign powers back then?”

The Ankara government is struggling to contain a second downturn in the economy and the currency crisis in two years. President Recep Tayyip Erdoğan has repeatedly blamed foreign powers for the country's economic woes, a view that is parroted by pro-government media.

Turkey had record growth and exports, and the dollar remained stable at 1.20 to 1.50 against the lira.

Earlier this month, the lira fell to a record low of 7.27 per dollar and currently stands around 7.

Tüzmen also pointed to Turkey’s per capita income, which rose to $12,000 during his time in office, and now stands at around $6,000.

Turkey is in need of urgent structural reforms following detailed consultations with all parties involved and an overall agreement, Tüzmen said.

Kemal Derviş, the former World Bank vice president credited with bringing Turkey out of the 2001 crisis after his appointment as economy minister, implemented important structural reforms, Tüzmen said.

“Twenty banks were gone, but politics was removed from banking as well. Now politics is again elbow-deep in the banks,” he said.

Seventy percent of Turkey’s $436 billion foreign debt belongs to the private sector, Tüzmen said, adding that 66 billion out of this debt was due by the end of the year. Another 110 to 120 billion dollars of foreign debt is due until next March.

“The Central Bank has a gross reserve of $80 billion, 30 billion of which is in gold,” Tüzmen said. “The true reserve is in the negative. The short-term foreign currency debt that needs to be paid stands at 2.6 times the reserve. Where will (Turkey) find that money?”

Turkey is in the same category as Argentina and Venezuela in the global ranking for 66 developing nations, Tüzmen said.

“After the pandemic, many countries are expected to declare a moratorium. How will (Turkey) pay its debts without foreign currency?” he asked.

This shortage in foreign currency reserves is one reason for the restriction on imports, Tüzmen said, which makes a recovery afterwards that much harder.

Speaking on Turkey’s textile industry, Tüzmen said reduced subsidies for cotton production reduced Turkey’s annual output from 800,000 tonnes to 400,000, while the demand is some 1.6 million tonnes. Turkey currently imports cotton from Greece and Georgia. 

“If cotton producers, textile industrialists and clothing brands were brought together and consulted when cotton prices are determined,” Tüzmen said, “if the decisions for subsidy premiums, costs, production, sale and all the other matters are made together, the issue would be resolved. When it’s not, farmers don’t plant cotton and production falls.”

Giving half of the cost of imports to cotton farmers as subsidy premiums would cause production to double, Tüzmen said, removing a need for import restrictions. 

The increase in customs taxes will lead to increased costs for imported raw materials, intermediate goods and other inputs, as well as to an increased cost of exports and more difficulty in competition, President of the Istanbul Chamber of Industry (ISO) Tanıl Küçük told Ahval.

The 10 percent additional tax on the imports of companies operating under the Inward Processing Regime and import goods on condition of export is later returned, but still results in an increase in costs, Küçük said, while delays in the returns have put companies in a difficult position. 

“This is the calm before the storm,” Küçük said. “There are almost no small businesses or personal companies left around.”

Many companies in several industries will not be able to continue after the pandemic, Küçük said. “It will either take a really long time for them to get back on their feet, or they won’t be able to at all.”

Turkey’s Vice President Fuat Oktay had implied previously that economic support packages, and postponing of taxes and loan payments could not continue for much longer. 

Meanwhile, the government continues to hold onto the excuse of foreign powers attacking Turkey, instead of admitting the effects of mistaken policies on the country’s current situation, and attempts to find a solution through restrictive measures on the banking and finance sector.