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2001 In Review: Patronage, Corruption Root Causes Of Turkey's Worst Economic Crisis Since WWII

  • Jean-Christophe Peuch

Most of Turkey's 65 million citizens will remember 2001 as the year in which they saw their country plunge into its worst economic crisis since World War II. Despite massive international aid and sustained efforts by Prime Minister Bulent Ecevit to stem the collapse, prospects for a quick recovery look dim. To add to Ecevit's troubles, the economic recession now affecting most of the world's developed countries is unlikely to ease things for his embattled coalition government.

Prague, 18 December 2001 (RFE/RL) -- In a report issued last month (20 November), the Organization for Economic Cooperation and Development (OECD) said Turkey's gross domestic product is likely to fall 7.3 percent this year.

Echoing earlier optimistic comments made by Turkish economic bureaucrats and political leaders, the Paris-based international agency also said it reckons on GDP growth of almost 3 percent next year and more than 5 percent in 2003.

Yet the government faces the tremendous challenge of convincing the estimated 1 million employees, workers, and businessmen who lost their jobs or went bankrupt this year that the crisis is almost over.

The circulation last month of a 20 million-lira banknote -- worth less than $12.50 -- will certainly not help soothe the population's fears.

"Turkey is on the threshold of a social explosion," warned the English-language "Turkish Daily News" last month, citing a recent State Planning Organization survey, which shows that some 15 percent of the population lives on a mere $1 daily food allowance.

The number of Turks living below the $200-per-month poverty line has doubled over the past 12 months to about 32 million.

In a sign of the times, one of Turkey's most popular television shows this year was a daily broadcast pitting middle-class couples struggling to make ends meet in real-life conditions. The couple who managed to spend the least money over a 30-day period without exceeding the $85 minimum monthly wage won a car and a trip to Europe.

But for the vast majority of Turks, there were no prizes this year, only the increasing difficulties of coping with almost daily price hikes. Some were simply unable to stand the pressure, like the infuriated shopkeeper who threw an empty cash register at Ecevit's feet as he was walking out of his office.

The economic turmoil started 10 months ago as the government was struggling to overcome an earlier crisis generated by tremors in the banking sector. Turkey's political climate being extremely volatile, a simple row between the prime minister and the president over issues of power sharing and corruption was enough to unleash panic in the markets and force the government to float the lira.

Since then, the national currency has lost more than half its value against the dollar, leaving many Turks unable to repay loans contracted in foreign currencies.

Analysts believe that, unlike previous crises, this year's unrest did not originate from mere unfavorable economic circumstances, but rather from a collusion of political and financial interests.

Deniz Akagul is a researcher at the Paris-based Institute of International and Strategic Relations (IRIS). He also teaches economics at Lille University. Akagul told RFE/RL that Ecevit's government is confronted with some of the most undesirable side effects of the economic liberalization undertaken in the 1980s.

"At the origin of the present crisis is a system of patronage under which political leaders could use banks for their own political purposes and which led to a financial crisis. [The government] is now restructuring the banking sector. Some banks have merged. But most importantly, ministers who could obtain personal loans from state-owned banks are no longer in a position to do so. [Turkey] voted legislation to that effect in April-May this year."

Consolidation of the country's overcrowded private banking sector and loss-making state banks was one of the key demands put forward by the International Monetary Fund and the World Bank when they agreed last summer to rescue the Turkish economy.

The government this year brought to 19 the number of private banks put under state receivership and promised to either sell them off or close them down. A number of banks were also put under criminal investigation for allegations of embezzlement, and some 380 people were jailed on corruption charges. In addition, two senior ministers were forced to resign amid bribery and graft scandals.

Experts agree that most credit for the ongoing reform should be given to State Minister Kemal Dervis. A former World Bank director, Dervis returned to his native land in March to take over the reins of the economy, with broad powers in banking and market regulation.

As a result of Dervis's efforts, the IMF has already made a firm pledge of $19 billion in loans to help Turkey recover from the crisis. Negotiations are under way on new loans that could bring total commitments to Ankara to some $30 billion, one of the biggest credit lines ever granted by the fund to a single client.

In return for this rescue package, the IMF expects the Turkish government to implement austerity measures aimed at putting the economy on track. Pressed by the fund to meet tight spending targets for next year, the government announced earlier this month (3 December) plans for mass job cuts among the public sector's 3 million employees.

Assurances that redundant workers will be granted enhanced social protection went largely unheeded among trade unions, which claim that Turkey has become the hostage of international lenders.

The IMF is also pressing Ankara to speed up privatization of the largest state monopolies and to approve new laws aimed at streamlining state tenders and reducing widespread corruption among bureaucrats.

Semih Idiz is a columnist at the Ankara-based "Star" daily newspaper and the editor in chief of the English-language "Turkish News." He told our correspondent that, although Ecevit's cabinet deserves credit for what it has already achieved, it has little room to maneuver.

"There is still quite a bit on the cards that has to be done. But I think that the government and the people who run the country are now more or less attuned to the fact that you cannot just [leave] the old system as it is. Dervis's advisers have, on the whole, been subscribed to. [Dervis] is trying to do a lot, but he is being prevented by the old school, which not only does not want some of the reforms to go through, but also does not like the idea that somebody can come in and fix things up. So it is a clash between the old tradition and the new tradition. But what [Dervis] will be able to do in the end is very limited."

Facing both international and domestic pressure, the government is walking on a razor's edge. Opinion polls indicate that, if elections were to be held tomorrow, Ecevit's Democratic Left Party and its two coalition partners -- Mesut Yilmaz's center-right Motherland Party and Devlet Bahceli's right-wing Nationalist Action Movement (MHP) -- would be literally wiped out. All three parties are the largest groups in parliament.

Idiz believes that most Turkish citizens no longer trust state or private institutions, whether economic, financial, or political. Should Ecevit's cabinet fail to restore confidence first, he says, the ongoing reforms would have only a limited effect.

"I think that one of the main problems is not so much that foreign investors lack confidence in this country. It is the lack of confidence [among] the Turkish public, [among] Turkish savers [who] do not trust banks and keep their money at home. So, really, charity begins at home, and [Dervis] has first to convince the Turkish public before he convinces the foreign audience."

Hamit Bozarslan is a Turkey expert at the Paris-based School of Higher Studies in the Social Sciences, better known under its French acronym of EHESS. In an interview with RFE/RL, Bozarslan said eradicating corruption is the only way for the government to breathe new life into the country's political establishment and help citizens regain confidence. But he says ongoing reforms are unlikely to achieve this goal.

"One has the impression that corruption has swallowed up the political system as a whole. There is not a single area, not a single party, that is not involved in corruption. Even if you arrest a particular individual or if you liquidate a particular bank, corruption will reproduce itself as a system anyway. So unless Turkey has a much more credible political system, I do not think that one can really combat corruption."

Among the leaders who have vowed to extricate the country from what Bozarslan describes as "political sclerosis" is Recep Tayyip Erdogan, the former mayor of Istanbul. Erdogan runs Justice and Progress (Adalet ve Kalkinma), a moderate Islamic party also known by its Turkish acronym of AK, which together spell the word for "white" or "clean."

AK and its main Islamic rival, the Felicity Party (Saadet Partisi), were both set up last summer after the Supreme Court outlawed the Virtue Party (Fazilet Partisi) for alleged antisecular activities. Virtue's most reform-minded members joined AK, while Virtue leader Recai Kutan and his "old guard" founded Felicity.

Bozarslan believes political Islam could benefit from the present economic situation. But he says time is on Ecevit's side.

"[Legislative] elections are not scheduled before the next two and a half years. If the government manages to remain in place until then, I think that the erosion of the political system is likely to affect Erdogan's party, as well. But if elections were to be held tomorrow, [both parties] would probably be the only ones to overcome the 10 percent threshold needed to be represented in [parliament]."

On the defensive since the 11 September terrorist attacks in the United States, AK and Felicity are being closely watched by Turkey's influential military, which sees itself as the main guarantor of Turkish secularism and has already obtained the closure of three moderate Islamic groups over the past four years.

Analysts also believe competition between the two parties might eventually prevent them from acting as a powerful opposition force.

Prospects of new groups emerging as significant political players -- such as the influential Istanbul-based Turkish Industrialists and Businessmen Association (TUSIAD) -- also remain pretty low at the moment.

It appears the main danger for the existing coalition might well come from its own ranks. Last July, a row between Dervis and one MHP cabinet member over planned reforms in the telecommunications sector almost derailed the IMF-backed emergency program.

Tensions between ANAP and MHP over reforms required by the European Union ahead of membership talks have significantly increased over the past few weeks, and further disagreement between Ecevit's two junior partners -- notably over Cyprus -- could threaten the coalition.

Although he admits the situation might deteriorate out of control, IRIS's Akagul believes a split among coalition partners is unlikely at the present stage.

"All coalition members are perfectly aware that, given the present economic difficulties, to have legislative elections now would mean their ruin. They cannot afford to untie the coalition until they reach the first year of economic recovery."

Whether Prime Minister Ecevit will be able to maintain unity within his cabinet remains unclear. In the meantime, the 76-year-old prime minister can rely on unfailing support from international financial institutions and the U.S. administration. Washington would not like to see Turkey collapse while it needs the backing of Muslim countries in its war against terrorism.

In Idiz's opinion: "If the government survives, it will be by default rather than on merit. There is no other viable option at the moment."

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