January 2, 2016

2015 marks a bleak year for Turkish economy

Once the front-runner in the league of emerging markets, the Turkish economy finished 2015 with external pressures along with ever-growing internal woes, both of which have spooked foreign investors in the country.

Crackdowns on dissenting companies and pressure on businessmen perceived to be critical of the government became a common occurrence in 2015, with citizens' property rights coming under continuous threat. In an already fragile atmosphere in which investors have preferred the recently recovered US economy to those of emerging markets, the seizure of companies for what many call political purposes has been regarded as Turkey shooting itself in the foot.

In February, the Banking Regulation and Supervision Agency (BDDK) temporarily transferred the control of the majority of shares of Bank Asya to the state-run Savings Deposit Insurance Fund (TMSF) for an alleged lack of transparency. The lender, which had one of the highest capital adequacy ratios in the country and no financial problems, was already being targeted by pro-government dailies following allegations of government corruption in late 2013. Bowing to pressure from the political authority, however, the banking watchdog ruled for the transfer of management of Bank Asya to the TMSF. Even though shareholders submitted the required documents to the BDDK in time in order to brush off transparency concerns, the regulator disregarded the documents and assigned new board members in May, hinting at an entire seizure.

“We have been claiming in courts that this occupation needs to end. The rule of law is asleep; we are waiting for it to wake up,” Süleyman Taşbaş, one of the lawyers representing the shareholders, said.

Bank Asya was established by sympathizers of the faith-based Hizmet or Gülen movement, which the government has labeled a terrorist organization whose members it alleges were involved in an attempted coup through investigations into corruption. The movement has vehemently denied the claims on every occasion.

The next target of the government in its war against dissenting private companies was Koza İpek Holding, which was accused of financing terrorism due its ties to the Hizmet movement. In late October, the Ankara Chief Public Prosecutor's Office ordered the holding be placed under the management of a trustee panel. Active in several sectors, including media, energy and mining, Ankara-based Koza İpek's publicly traded subsidiaries had been audited by PricewaterhouseCoopers (PwC) since 2009.

Nearly a month after the raid on Koza, an İstanbul court ruled for the appointment of another trustee panel to manage companies under Kaynak Holding, which employs more than 8,000 people and owns the largest publishing house in Turkey, Kaynak Publishing House, along with nationwide bookstore chain NT Mağazaları.

Basic economic indicators not promising

The Turkish lira had already been in trouble throughout the year, stemming from prolonged pre-election instability, an infamous row between President Recep Tayyip Erdoğan and the central bank governor over monetary policy and expectations of an interest rate hike from the US Federal Reserve.

Starting the year at 2.295 to the dollar, the lira sustained a series of record lows, once dropping as low as 3.07 against the US dollar. As of the last day of 2015, the lira-dollar disparity hovered around 2.93, 25 percent lower than its level at the beginning of the year.

The weakening currency also resulted in a contraction in per capita gross domestic product (GDP). Even though the GDP, in lira terms, increased by a sluggish 3.4 percent in the first nine months of the year compared to the end of 2014, it slid by 9.3 percent in dollar terms, which equals a decrease of $723 in per capita GDP in the same period. Hailed for its flashy growth rates and becoming a shining star among emerging markets, as of late, the Turkish economy is now struggling to not shrink.

The unemployment rate, in the meantime, stubbornly remained at two-digits. Rising by some 39,000 in 2015, the jobless population grew to 3.1 million. The September unemployment rate, the latest record in this data, hit 10.3 percent. According to a different calculation by the Turkish Confederation of Employers' Unions (TİSK), however, the unemployment rate hit 18.1 percent, which accounts for 5.9 million jobless citizens.

The inflation rate, which the government estimated to be 5 percent at the year-end, reached 8.1 percent in November.

Even though the currency sustained great losses in 2015, the export volume, which is supposed to increase with cheapening Turkish goods abroad, recorded a freefall during the year since nearly half of Turkish exports go to European countries. Turkish exports shrank by 8.6 percent year-on-year in the first nine months of 2015 to stand at $131.9 billion, far behind the government's target of $201 billion.

Jolted by all this turmoil, foreign investors in the Turkish stock exchange, Borsa İstanbul (BİST), sold off $1.14 billion worth of stock in November, the highest amount since June 2013.

Foreign nationals made a net sale of $1.905 billion in the first 11 months of 2015 and sold off $5.9 billion worth of government bonds in the same period.

Published on Today's Zaman, 2 January 2016, Saturday