Fears over Turkey’s G-20 leadership spurred by Bank Asya raid, pressure on central bank

Turkey has struggled to leave a mark during its first few months of leadership of the Group of 20 (G-20), the world's most economically developed countries, amid midnight police raids on the country's largest Islamic bank, administrative pressure on the central bank and the continuing failure to address concerns of growing authoritarianism and widespread corruption.

For the first time in its history Turkey finds itself at the helm of the G-20, a group of the richest 19 nations plus the European Union that serves as a forum for the most economically advanced nations to debate important global economic issues, but seems determined to squander this golden chance to prove itself worthy of global governance due primarily to the actions of President Recep Tayyip Erdoğan and his loyalists within the ruling Justice and Development Party (AK Party).

Ali Babacan, the deputy prime minister in charge of the economy, made a speech on Dec. 1 for the G-20 handover ceremony, where he presented “Inclusiveness, Implementation and Investment” as the “three Is” that will summarize Turkey's presidency. However, how foreign investors will feel about investing in a country where on Feb. 4 the country's banking watchdog, the Banking Regulation and Supervision Agency (BDDK), handed over control of 63 percent of the privileged shares of Turkey's Bank Asya to the Savings Deposit Insurance Fund of Turkey (TMSF), citing a lack of transparency and proper regulation, remains to be seen.

Mehmet Altan, a Turkish academic, economist and author, told Sunday's Zaman: “Investment will not come to a country where there is no rule of law. And, as can be seen, foreign investment is fleeing.”

The administration and shareholders of Bank Asya have denied claims of transparency flaws and said the decision was a politically motivated bid to sink one of the three strongest banks in Turkey. Bank Asya has a capital adequacy ratio of about 20 percent, compared to the nation average of about 14-15 percent.

The handover did not come as a surprise to those who know of Erdoğan's personal desire to destroy the bank, as he is reported to have personally encouraged private and state-owned firms and institutions to withdraw their cash from Bank Asya earlier in 2014. “This bank has already failed," Erdoğan said at a conference in İstanbul in September.

"It is being said that there are efforts being made to sink a bank. There is no work being done to sink a bank. This bank has already failed," Erdoğan told the Turkish Industrialists and Businessmen's Association (TÜSİAD) at a conference in İstanbul in September, declining to mention Bank Asya by name and blatantly violating regulations protecting finance institutions from arbitrary defamation.

Also in September, Erdoğan publicly threatened the BDDK over its alleged inaction regarding Bank Asya, saying the agency must make a decision on the bank and follow through with it. Erdoğan went so far as to warn the BDDK, which is a violation of the Constitution since the BDDK is an independent regulatory agency, that it would be "held responsible” if it failed to act against the bank.

Back in October, Reuters cited an unnamed source with knowledge of the situation as saying that Erdoğan, who was traveling to Central Asia at the time, “wanted Bank Asya's keys on his table when he came back.” The government-led quarantine of one of Turkey's most stable lenders manifested itself in August of last year when the government canceled tax collection and social security payment contracts with Bank Asya.

Economy journalist Süleyman Yaşar replied to questions regarding what the operation against Bank Asya and the political pressure against the central bank meant for Turkey's G-20 leadership, saying, “If the current situation continues, Turkey cannot complete its G-20 presidency in a positive way.”

Stating that Turkey fell from 17th to 19th in the World Bank's league of the world's largest economies, Yaşar, an economist and former bureaucrat, said: “If this continues, Turkey's per capita GDP [gross domestic product] will start to fall below TL 10,000. Also, Turkey' total GDP may start to fall in the near future. Therefore, Turkey must immediately revert to being a state governed by the rule of law.”

Yaşar also stated that, according to figures released by the Central Bank of Turkey in 2014, citizens living in Turkey have invested $7.7 billion abroad. “This is unprecedented in the history of Turkey. These people are investing abroad because the investment environment has soured.”

The deputy chair of the Republican People's Party (CHP), Selin Sayek Böke, said in a statement on Wednesday that the raid on Bank Asya was a "scandal." Böke, who is also in charge of the main opposition party's economic agenda, said, "The destruction of hard-won institutional respectability and credibility for political goals is wrecking the reputation, power and future of Turkey's economy."

Altan said that in light of recent events Turkey's G-20 leadership has become ceremonial.

He painted a stark picture, saying: “Turkey is not in a position to head the G-20. Turkey, in its current position, has no place in the G-20, NATO or the EU accession process.”

“The mentality [in Turkey], in which the rule of law was undermined following the Dec. 17 graft investigations, has no place in the international forum. This [Turkey's G-20 leadership] is all for show,” he said.

Babacan fails to protect CB head from Erdoğan's pressure

One of perhaps the biggest losers in Turkey's temporary accession to the throne of the group of the world's largest economies is Ali Babacan, the deputy prime minister in charge of the economy and Turkey's G-20 presidency.

Babacan, and more recently Finance Minister Mehmet Şimşek, have been part of a team of well-respected economists that have helped steer Turkey through a decade of growth and stability and have, accordingly, been very well respected in international finance forums. However, his name even being whispered as a contender for the position of prime minister after Erdoğan's election to the presidency as well as his recent reluctance to speak out against blatant violations of banking regulations regarding the takeover of Bank Asya will have been duly noted by international observers.

Additionally, Babacan's inability to defend Erdem Başçı, the governor of the central bank and a childhood friend, has resounded in finance circles as a sign of Babacan's obedience to Erdoğan. Başçı -- who was awarded the title of Central Bank Governor of the Year 2013 by The Banker, a monthly financial affairs publication founded in 1926 by the Financial Times -- has recently been under a volley of fire from Erdoğan, a long-time advocate of loose monetary policy, for not cutting interest rates more sharply and quickly.

"It is called an independent board, but this is where we end up. … We have to be in a better place, we have to succeed in this," Erdoğan said in a speech earlier this month in which he also reiterated his view that inflation would fall when rates are cut. "Interest rates are what shape inflation. If you keep the rates high, inflation will also be high; but if you cut them, inflation will also fall. There are still people who don't understand this," he said.

There have been reports that Başçı has moved out of the government-provided apartment where he had been living, fueling speculation that he is under pressure from government officials to resign. Media outlets quoted central bank sources as saying that Başçı wanted his new house to be “closer to my kids' school."

Commenting on the recent activities of Babacan, Yaşar said, “It's as if he [Babacan] is being bypassed. He is trying to defend the actions of the institutions [the BDDK and the central bank]. For example, he says, ‘The central bank is doing its job well,' while other members of the government are saying the exact opposite.”

Altan also took a position regarding Babacan, saying the operations carried out against Bank Asya will undermine Babacan's reputation.

The central bank has already cut its main rate by 50 basis points in January, and bank officials said that if January inflation fell more than 1 percentage point, it could hold an interim policy meeting to assess a further rate reduction.

The lira has hit a series of all-time lows in recent weeks. Expectations that the US Federal Reserve (Fed) will raise interest rates this year have bolstered the US dollar and reduced the appetite for emerging market assets. Government officials, and Erdoğan, have made repeated calls for interest rate cuts.

Babacan has said that urging members of the G-20 to meet reform commitments undertaken at previous meetings would be vital, a strategy he called "Keep your word, or explain." During the G-20 meetings in İstanbul this week France asked to discuss the fight against terrorist financing, an important topic for Turkey given the fight with Islamic State in Iraq and the Levant (ISIL) militants taking place just over its southern borders in Syria and Iraq.

Turkey vows to combat corruption abroad, fails to address problem at home

When Turkey assumed the presidency of the G-20 group of major economies on Dec. 1 it vowed to combat global inequality and corruption during its term. Hopes were dashed, however, as the country sank 11 places in Transparency International's (TI) 2014 Corruption Perception Index, an annual report measuring perceptions of graft, showing Turkey was the year's worst performer.

Opposition parties have also made reference to Turkey's contradiction of pledging to combat global corruption but failing to address the problem at home. CHP İstanbul deputy Umut Oran issued a statement a day before Turkey assumed the presidency, saying that the government should first deal with the bad loan of over $300 million that the Sabah daily and the ATV station failed to repay to the state-run Halkbank. They also say former Prime Minister and current President Erdoğan and his associates are responsible for this burden on public funds, since ATV and Sabah were acquired to support government activities.

When Turkey assumed leadership of the G-20 on Dec. 1 many perceived a stark contrast between the country's G-20 mission and the government-led obstruction of a high-profile graft probe that became public on Dec. 17, 2013.

The scandal was seen as one of the biggest challenges to Erdoğan's 11-year rule as prime minister, leading to the resignation of four members of his Cabinet and drawing international criticism for his response, which included tightening Internet controls and reallocating members of the police and judiciary. The sons of three former ministers, Erdoğan's son Bilal as well as several businessmen and bureaucrats were implicated in the investigations.

Published on Today's Zaman, 14 February 2015, Saturday