Why Turkey's Erdoy-an hates the IMF.
Speaking at the Peru-Turkey Business Council meeting hosted by Peruvian President Ollanta Humala in Lima on Feb. 3, Erdoy-an said: "The IMF is not just managing loans and money. It gives you the loan and then it tries to govern your politics. What kind of an IMF is that?" Erdoy-an then went on to say that he has already talked about this to the IMF head, recalling that he warned the managing director not to interfere in his country's politics. More likely Erdoy-an was referring to Dominique Strauss-Kahn, the former managing director, when Turkey refused to renew its standby agreement in 2009.
Perhaps the Turkish president wanted to strike a chord with the Latin American audience, whose view of the IMF is not very positive, hoping that he would win a few friends there, or maybe he wanted to brag about how his government has handled economic difficulties without IMF help since 2008, when the last deal expired. However, my take is that Erdoy-an developed rather a dislike for the IMF a long time ago, starting when his Justice and Development Party (AKP) won the November 2002 election in a landslide victory that placed him in charge of the country's affairs for the first time. His resentment was not of past governments that had mismanaged the country's finances and had to appeal to the IMF to keep the economy afloat, but rather the restrictions the IMF imposed on the Turkish economy that prevented Erdoy-an from quickly establishing his patronage system that would perpetuate his rule.
The major corruption scandals of December 2013 lifted the curtain on the real motives that have been driving Erdoy-an's policies vis-a-vis the IMF or any other international or regional organizations such as the Organization for Economic Co-operation and Development (OECD) and the European Union, respectively, that were tasked with monitoring Turkey's finances and economic policies as part of the Turkish state's contractual obligations. Erdoy-an simply did not want anyone overseeing how he spends taxpayers' money and has rather acted with impunity in massive corruption and kickback schemes to enrich himself and his associates. He was able to halt graft probes in the judiciary and buried the Court of Accounts' annual auditing reports on government expenditures from ever becoming public during budget deliberations in Parliament.
The renewal of the IMF deal in 2008 would have meant that Erdoy-an would not have been able to squander public resources as if they were his own personal expense account and that he would have had difficulty moving billions of dollars in cash coming into the country unscreened. He would have had to think twice when his government unlawfully took over the largest Islamic lender, Bank Asya, one of the healthiest banks in terms of capital adequacy ratio in Turkey, due to a political vendetta. Perhaps he would not have been able to engineer the unlawful seizure of the third largest media group in Turkey, Koza ypek. The largest publishing house, Kaynak Holding, was also taken over by the government as part of Erdoy-an's relentless witch-hunt campaign against opponents and critics.
The Turkish president simply wanted to free himself from all these constraints imposed by the IMF and other watchdog organizations rather than manage the economy better on sound and reasonable policy decisions. There is certainly no shortage of reasons to criticize the IMF given that the organization has dropped the ball in many crises, including in the latest 2008 global financial crisis. But none of them mattered in Erdoy-an's case as he wanted to rule the country like his inherited family business empire without any transparency or accountability. Who knows what would have happened to Erdoy-an's newly built lavish palace that is certainly not needed and cost taxpayers some $10 billion so far, according to some estimates. (Some say it may total as high as $20 billion once all the additional projects for the mega palace are completed.) Perhaps the IMF would have objected to that extravaganza if there was a deal.
This is the reason why Erdoy-an loves bashing the IMF in many of his public speeches and cannot get enough of portraying the organization as a villain to both the Turkish and foreign audience. He feels betrayed because the project of "new Turkey" that is being constructed according to his political Islamist vision was unnecessarily delayed due to agreements already made with the IMF. Taking a cue from his boss, Erdoy-an's chief economic aide Yiy-it Bulut, who is known as an arch-enemy of the IMF and refers to it as "financial shackles," is now advocating the idea that Turkey should do away with the IMF altogether.
Even without a standby agreement, Turkey, a G-20 member nation, still maintains ties with the IMF. Just last week the IMF posted conclusions of the annual evaluation of the Turkish economy as part of the regular consultations under Article IV that came on the heels of a visit by an IMF team to Ankara between Jan. 20 and Feb. 1. The IMF, though it praised the economy for growth on the back of domestic demand, warned about risks such as high external financing, weak capital inflows, increasing inflation and declining exports. It also said the financing of the deficit remains a concern, with net errors and omissions playing an increasing role in the balance of payments.
The real trouble for Erdoy-an is the IMF warning Turkey about monetary and fiscal policies when it comes to the public--private partnership (PPPs) where the government heavily subsidizes or otherwise offers credit and other guarantees for businesses that are close to Erdoy-an. "The increasing use of guarantees and PPPs to finance investment entails contingent liabilities that may materialize during a downturn," the IMF statement said, urging Turkey to adopt stronger central supervision, approval and disclosure, including revealing PPP liabilities, and publishing a fiscal risk statement. The IMF expressed concern over the government's populist policy of raising the minimum wage by 30 percent in rigid labor market conditions, saying that it will have consequences for labor markets, competitiveness and the fiscal balance.
Widely recognized as an authoritarian leader, Erdoy-an is disturbed by any interference, perceived or real, into the decision-making process that he leads and has the final say on all matters. He quickly grows frustrated when somebody in Turkey or abroad points out the apparent shortcomings in his policies or jeopardizes his indispensable patronage system that keeps enriching his family members, political allies and business associates. An honest review of what he has been doing with the money infuriates him. This is also related to the reason why so many journalists are languishing in Turkish prisons on trumped up charges that he has brought forward. The unprecedented spike in criminal defamation cases that the Turkish president has introduced against critics and opponents already tells the tale of Erdoy-an's mood.
In short, what the IMF says about the Turkish economy clearly disturbs Erdoy-an, who considers any such criticism as contesting his leadership credentials. He does not care about stalled quota and governance reforms at the World Bank and the IMF or whether Turkey has more say in the governance of the IMF with the pledge of an additional $5 billion in cash to IMF coffers for a stronger firewall against crises. Unless the IMF changes its views of Erdoy-an's policies by sugar-coating references in clear contradiction of current macroeconomic indicators, it will continue to be slammed by Erdoy-an in public speeches. On a side note, Erdoy-an, considered by many leaders a pariah on the global stage, may also believe that the IMF-bashing would win him a few friends in world politics.
He will always see the IMF as a threat and would not even mind expelling the resident IMF representative on trumped-up charges that his propagandist media will surely engineer. So far, past and current IMF representatives have acted prudently and played a very careful role in navigating the turbulent waters in Turkey, especially during election campaign periods. They deliberately adopted a low-key profile in order to not antagonize what has grown to be a belligerent host. That may not be enough, though, if Erdoy-an keeps consolidating more power at the expense of others in the government. He may be tempted to show the IMF the door as part of his increasingly vitriolic anti-Western posturing.
In any case if Erdoy-an continues acting the way he has by blatantly interfering in each and every economic, political and judicial decision, the Turkish economy is set to suffer a great deal in the future. It would bolster the view that Erdoy-an's governance is not committed to pursuing meaningful structural reforms to create a better climate for Turkish and foreign investors. Turkey has already faced higher risk premiums because of Erdoy-an's relentless pursuit of an executive style presidency, his meddlesome policies in Turkey's neighborhoods and the widening crackdown on media and the right to dissent. Warnings such as the sudden halt in foreign cash and a radical divestment campaign may happen amid increased political uncertainty, the unresolved Kurdish conflict and a polarized nation. In the end Erdoy-an may have to strike a deal with the "devil" IMF to gain access to a low-interest credit line and keep the Turkish economy afloat, provided that he is still in power then.
ABDULLAH BOZKURT [Cihan/Today's Zaman] CyHAN
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|Publication:||Cihan News Agency (CNA)|
|Date:||Feb 9, 2016|
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