August 17, 2014

Turkish gov't attempt to sink bank betrays markets

An alleged government plan to force the closure of a Turkish participation bank as part of ongoing political pressure against the Hizmet movement is tantamount to betraying the country and, thus, jeopardizes overall economic stability, market experts argue.

It appeared that the government tried to sink Bank Asya earlier this year, when state-owned companies and firms close to the government initiated a mass withdrawal of cash from the lender. Earlier this month, Bank Asya's tax collection and social security payment deals were canceled, but the lender said it would not be severely impacted.

Speaking to Sunday's Zaman concerning the issue, Bahçeşehir University's Seyfettin Gürsel says the government pressure on Bank Asya contradicts a rational political reaction in the modern world, in which governments work to save banks, not sink them. “If the allegations are true, the attempt to sink a bank on the prime minister's orders is madness. The state cannot treat a private company as its enemy; such action would be harming the national economic interest intentionally,” Gürsel notes.

Tens of thousands of new customers opened bank accounts with Bank Asya and deposited large sums into their accounts following this maneuver, to help avoid possible bankruptcy due to low capital adequacy ratios. Bank Asya General Manager Ahmet Beyaz said in January that the lender had weathered the mass deposit withdrawals and was not at risk.

Deputy Prime Minister Ali Babacan said last week that the public Ziraat Bankası is considering purchasing Turkey's 10th-largest private bank. The statement overlaps with recent plans by three state-run Turkish banks, including Ziraat, who said they are working on setting up Islamic banks. Adding to the confusion, top government officials appeared to be at odds over a possible state purchase of the bank. "This buyout is not on the agenda under current financial criteria… If TL 2.8 billion of a bank's receivables are non-performing loans, it is out of the question to buy it in cash… There is no such initiative," Prime Minister Recep Tayyip Erdoğan's adviser Yiğit Bulut said last week. Babacan, in reaction, stood by his comments, saying that he had clearly explained developments regarding Bank Asya a day earlier and there was no new information.

According to Gürsel, Babacan's statements may have helped relieve market concerns regarding the future of Bank Asya; however, a transparent roadmap is required to finalize a possible merger or acquisition process for the Islamic bank. Gürsel says Bulut's comments regarding Bank Asya reveal a crack within the government regarding long-term economic decisions and management of finance markets. “We are facing the threat of some sensible and balanced economic advisers being purged once the new Cabinet is set up,” Gürsel asserts.

Concerning Erdoğan's repetitive calls to his supporters to boycott Hizmet-affiliated companies, media and even individuals, Gürsel is certain that this will have an impact on the economy, and the country alike, in the long run. “The market economy cannot stand alienation from the rule of law,” the economist argued, adding that treating the markets with partisan considerations causes serious problems that will deteriorate the entire economic order. The government seems to be willing to take the Turkish economy back to the Feb. 28 postmodern coup, he said.

Uncertainty in economic policies a concern

The government reshuffle is just around the corner now, with Erdoğan poised to take over the presidency after winning the election last Sunday. Rumors have it that the new Cabinet will not include Deputy Prime Minister Ali Babacan, who has been one of the longest serving ministers in Erdoğan's government for the last 12 years and is credited as a source of confidence in the markets with his rational and prudent approaches to economic administration. Finance Minister Mehmet Şimşek is another figure trusted by the agents of the economy but who will not make it into the next government, according to unverified speculation in political circles. Gürsel believes Babacan is also getting ready to end his career as a minister, and he will not be occupying a seat in the special lodge in Parliament for Cabinet members. Gürsel said there is a deep divergence of opinion between him and Erdoğan and that Babacan does not seem very enthusiastic to carry the responsibility any longer.

Babacan took sides with the central bank against Erdoğan, who harshly criticized the bank for its reluctance to slash interest rates. Turkish Central Bank Governor Erdem Başçı was under the protection of Babacan and his dismissal in the coming reshuffle will pave the way for Başçı to lose his post, Gürsel speculated. “The prime minister wants to see his own monetary policy carried out to reinvigorate domestic demand. He will try to do this and Başçı will not take responsibility for monetary policy which he thinks is wrong. So he will leave the post, which will lead to a serious crisis of confidence. The lira will depreciate as a consequence, and with great probability the foreign powerhouses, Turkey's enemies and the ‘parallel structure' [a term the prime minister uses to refer to the Hizmet movement] will be made to carry the can for this,” he said.

Asked what the main source of divergence is between the prime minister and Babacan and those who think like him in the bureaucracy, Gürsel pointed to the very basics of economic management. “Babacan's team, as well as [many] economists, believe that balanced growth will be healthier. This is the predicament for the prime minister. On the one hand he wants to keep growing by increasing spending, but on the other, there remains no possibility to increase spending without worsening fiscal discipline. Growth rates are low and tax revenues are not on the rise in real terms; they are even declining,” said Gürsel.

And this is exactly what Erdoğan refuses to admit, Gürsel asserted. He thinks the upcoming general elections in 2015 are of critical importance for Erdoğan, even though he was able to rise to the presidency in the election on Aug. 10. Erdoğan aims to garner a majority in Parliament, meaning at least 330 deputies, so that the Constitution can be changed to allow the establishment of a presidential system in Turkey. “He wants to change economic policy for the presidential system. There is no other way. He has to win more than 50 percent of the votes [in the general elections] for over 330 deputies. But if he has to cut down on public expenditures, and if the growth rate of per capita GDP falls from 4 percent to 1 percent, he can neither [finance investments to] develop public services, nor can he continue to bring down poverty rates. And this means losing votes,” Gürsel argued.

Published on Today's Zaman, 16 August 2014, Saturday

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