Ankara, March 18, 2015/ Independent Balkan News Agency
By Manolis Kostidis
“How can we say that we are doing well financially, that our economic model is correct, when in Istanbul there are more shopping centers than they are in the whole of London, Paris and Berlin”, cried out last Tuesday the vice president of the Republican People’s Party, Faik Oztrak, on a television show about the possibility of an outbreak of financial crisis in Turkey.
The issue is being discussed intensely these days in Turkey, as the information announced on the developments of the country’s economy are worrying. The rising unemployment, the rapid devaluation of the Turkish lira, and the withdrawal of foreign banks from the Turkish market cause skepticism about the future.
“At a time when democracy and justice are evaporating it is meaningless to look for economic models. Because Turkey is moving away from democracy, the consolidation measures do not create a new development model. Besides, crisis means not being able to read correctly the signs life gives and to not do what you should”, says Professor of Economics at the University of Istanbul and columnist Mehmet Altan (photo).
The Statistical Service of the country announced that in December 2014 the unemployment rate reached 10.9%, which is the highest recorded in the last four years. In January 2011 the unemployment rate was recorded as 11.1%. The unemployment rate for the whole of 2014 reached 9.9%.
The Turkish Ministry of Finance announced that in February 2015 the central government budget deficit was 2.3 billion lira (800 million. Euro). In February 2014 the budget showed a surplus of 1.7 billion lira.
Finance Minister Mehmet Simsek appears reassuring and says that the deficit in February was presented because of some accumulated payments, such as some public investments, and said that signs of improvement will start to show in the coming months.
The devaluation of the lira is very concerning
The Turkish lira in the last six months has been devaluated about 20% against the dollar and is causing serious problems to the Turkish economy.
Theoretically, in a country like Turkey, the devaluation will help increase exports and tourism, but what causes concern to the economic team is the huge loans Turkish construction companies have taken in foreign currencies, the weight of which increases with the devaluation of Turkey’s currency.
Moreover, for imports of natural gas alone, each year Turkey spends USD 50 billion, so the decline of the Turkish currency causes creates inflationary pressures causing the trade deficit to grow.
“The turkish development model has come to an end”
“Essentially this is the end of the developmental model of the turkish economy that relied on loans from abroad which were invested in construction. The last five years there has been no increase to the income per capita. Unemployment is on the rise, the growth continues to decline, but also the attempt by the country’s president to impose economic claims to the president of the Central Bank cause fear to society”, says Mehmet Altan.
“Turkey’s currently has a trade deficit, high interest rates and inflation combined with low growth. There is a need for some way out. Of course this happens in conjunction with the economies of neighboring countries, since the conflicts in the Middle East reduce our export share. That is, there is a problem with the model of export growth. But we see that with the recent measures there are prospects for the development of industry and the reduction of unemployment. But soon we have elections, and I think the consolidation measures may be taken after June”, tells us the economist-columnist Zeliha Sarac (photo).
Foreign banks are leaving the country
Many heads were turned at the news that Citibank has decided to sell its share in the turkish bank Akbank and leaves the turkish market. According to Bloomberg, HSBC has also decided to abandon the Turkish market.
“Foreign capital leaves the Turkish market as there is fear that after the parliamentary elections in June, at the wheel of the economy will come the executive power that will be completely controlled by President Erdogan and the policies that will be implemented will have nothing to do with economic science”, said Mehmet Altan.
Zeliha Sarac disagrees, stating that “we have no crisis picture in the near future for the Turkish economy. We could say that because of the global recession and because of the dollar appreciation the sensitive period is passing”.
Leadership meeting to the Palace of Erdogan on Economy
Will the crisis “touch” Turkey?
However in 2008 when the economic crisis had struck the US, the Turkish economy was showing signs of recession and Erdogan had stated that “the crisis will touch us but it will not affect us”. The result vindicated him, since from 2009 to 2015 the turkish economy showed impressive growth rates that reached 9%.
Architects of this success are considered to be Finance Minister Mehmet Simsek and Deputy Prime Minister responsible for the economy Ali Babacan. The public debt of Turkey does not exceed 49% of GDP of Turkey, the Turkish government has organised cadastre and has privatised most companies. Computerisation has been completed and with the press of a button every curator can check banking transactions and the assets of each taxpayer, resulting in a large increase in tax revenues in recent years.
In January, Prime Minister Ahmet Davutoglu together with Simsek and Babacan announced measures to protect the Turkish economy and a change of the development model. Consumer loans have been limited, stricter checks have been imposed on mortgages have and incentives have been announced for the development of industry and exports.
A few days ago Erdogan in his speech said that “those who hope on a crisis in Turkey will be disappointed”. Time will tell if he will be contradicted or vindicated as 2008.