As the international finance crisis intensifies

Turkish economy falters

Turkish prime minister and leader of the Islamist Justice and Development Party (AKP) Recep Tayyip Erdogan made a televised address to the nation on Sunday to inspire confidence in the markets and proclaim the resiliency of the country’s economy in the face of the ongoing global economic crisis. 

Erdogan said, “As a rapidly developing country, Turkey is being affected and will be affected from this global wave. But here I want to underline one very important point: Turkey is no longer weak in the face of this sort of crisis and waves, but is a country that is enforcing the macroeconomic infrastructure of its economy.” 

In his speech, Erdogan referred to the “successful” past record of the AKP government on the economic front, maintaining that his government had concentrated on strengthening and transforming the Turkish economy over the last six years in order to be prepared for such unexpected developments. “We have not shown any hesitancy in taking initiatives for the sake of our economy, country and people over the last six years,” he asserted, boasting of his government’s pro-business and pro-investor policies.  

In response to criticisms of inaction and lack of focus on economic issues coming from the so-called “secular” media outlets, he responded, “All the institutions and actors in our economy will not give up in taking necessary measures when needed.” 

To firm up his message of confidence, Erdogan also noted, “We have overcome similar turbulence in the past. All such crises helped us to prove ourselves.” 

In fact, the past “turbulences” to afflict the Turkish economy are in no way “similar” to the rapidly deepening and expanding world crisis of capitalism. Moreover, the Turkish economy was amongst one of the worst-affected economies during the May-June 2006 global turbulence evidently referred to by Erdogan. In some respects, the turmoil of 2006 was a pale dress rehearsal for the current crisis. In 2006, the Turkish central bank was forced to announce sharp interest rate hikes to encourage “investors”--i.e., speculative fund owners--to remain and invest in the country. 

Denial syndrome 

After a relatively long period of denial, Erdogan and leading members of the AKP government are now acknowledging that the Turkish economy will be affected by the global crisis. For instance, on March 11, Deputy Prime Minister and Minister of State for the Coordination of the Economy Nazim Ekren, Finance Minister Kemal Unakitan and State Minister Mehmet Simsek held a unique joint press conference called for by Erdogan, who wanted to “calm” the markets following mounting criticism from big business circles as well as the bourgeois media over the government's slow pace in conducting economic reforms. 

At this meeting, the three top ministers painted a very rosy picture of the Turkish economy, which only served to increase the frustration of the government’s critics. After the meeting concluded, Inan Demir, an economist at Finansbank, told the Turkish Daily News, “The government kept silent recently despite the global turmoil and nervousness, and this meeting is positive [as the government broke its silence]. But would it satisfy the expectations of the business world? I doubt it.”

Just a week before his televised address on September 22, Erdogan held a press conference together with Ekren, Unakitan and Foreign Trade Minister Kursat Tuzmen to explain the government's stance on major economic developments and issues. Erdogan made a very long speech at this meeting, and his televised address on Sunday was largely a summary of his press conference remarks. 

However, there was a slight difference between two speeches. One week ago, Erdogan employed a much more optimistic tone and even underscored his government’s determination to “transform this thorny process into an opportunity.” He continued, “Our economy is strong enough to overcome the current global economic crisis with minimum damage. I believe that Turkey will turn it into an opportunity.” 

On Sunday, however, he chose a more restrained style and refrained from any emphasis on exploiting opportunities. 

A very difficult period for Turkish capitalism 

The World Socialist Web Site recently analysed the factors that make Turkish capitalism extremely vulnerable to economic crisis of the world capitalist system (see Turkey’s economic indicators worsen). Without any exception, all the recent economic data issued since then only confirm this analysis. 

Economic figures issued throughout last September show that Turkey's economic growth has dramatically slowed and that there has been a sharp decline in the inflow of foreign direct investment (FDI) to the country. 

According to the data issued by the Turkish Statistics Institute (TUIK), the growth rate of the Turkish economy suffered a significant blow in the second quarter of the year. Gross domestic product (GDP) increased just 1.9 percent in the second quarter of 2008 compared to the same period a year ago--marking a clear slowdown in the country's economic performance and the lowest quarterly figure since the first quarter of 2002. 

Here it is important to emphasise that the economic growth rate has come to a halt mainly due to a series of “internal” weaknesses of Turkish capitalism, and this decline now overlaps with the world economic crisis. Large foreign capital inflows have not been enough to overcome these contradictions in order to increase capital accumulation and the potential for growth. 

Like a drug addict, Turkish capitalism requires capital inflows at an increasing tempo, and even a slowdown in the growth rate of capital inflows brings economic stagnation. In other words, Turkish capitalism was destined to enter a period of weak economic growth even without the global financial and economic crisis. 

Further bad news regarding economic growth came on September 12 with the announcement that Turkish manufacturing capacity utilisation--a leading indicator of manufacturing industry and economic growth--fell 4.1 percentage points year-on-year in August to 76.2 percent. Capacity utilisation was 80 percent in July. 

Prospects regarding FDI, the most vital component of foreign capital inflows and the most favourable way of financing Turkey’s massive current account deficit, are also grim. UNCTAD (the United Nations Conference on Trade and Development) recently published its “World Investment Report 2008,” showing that Turkey’s ranking among those countries attracting the largest volumes of FDI dropped from 17th in 2006 to 23rd in 2007. Turkey's proportion of the total FDI inflow in the world dropped from 1.4 percent in 2006 to 1.2 percent in 2007. It is clear that for the last year the slowdown in FDI inflows was restricted to Turkey, and this contraction cannot be attributed solely to global recession or rising energy and commodity prices. 

In Turkey, UNCTAD’s report was made public at a press conference organised by the International Investors Association (YASED) in Istanbul on September 24. While presenting the report, YASED Chairman Tahir Uysal said he didn’t agree with claims that Turkey has the potential to transform the ongoing global crisis into an opportunity. Needless to say, this was a direct rebuff to Erdogan’s press conference speech. 

Uysal told reporters that it will be very difficult to attain the levels of FDI inflow seen in 2006 and 2007 this year and next year. Instead, at least a 10 percent decrease will be seen in 2008, he added. 

According to a survey conducted by the YASED issued on September 16, some 62 percent of foreign investors think political instability is on the rise in Turkey, and 55 percent think the economic outlook will worsen in the next six months. The survey finds that foreign investors urge the government to focus on structural reforms, to cure the current account deficit and to hasten the process toward full membership in the European Union. 

All these data mean that in the light of Turkey’s ever-growing current account deficit, funding of the deficit will increasingly depend on private corporate sector borrowing and speculative portfolio investments, popularly termed “hot money.” As the current credit crunch intensifies, such funds are disappearing, and even renewal of existing loans becomes problematic or at least much more expensive. 

In August, Turkey's foreign trade deficit widened to a record for a single month to US$8.1 billion from US$5.9 billion in the same period a year earlier. As a result, Turkey's foreign trade deficit climbed to a record high US$53.88 billion. 

On the other hand, the current account deficit reached the level of US$47.1 billion in the 12 months through July. At the end of this year, the current account deficit is expected to exceed US$50 billion. Last year, it was US$38 billion. Based on an optimistic calculation, this corresponds to an increase of 25 percent at a time when economic growth is predicted to be between 3 and 4 percent. According to the Central Bank's latest survey of businessmen and economists, expectation for economic growth in 2008 is 3.9 percent. 

Certainly, the current account deficit is the most significant factor that will designate the extent of the damage to the Turkish capitalism as the world economic crisis hits. 

Illusions about the country’s immunity to the world crisis or even proposals to benefit from it are not peculiar to the AKP government. It is possible to cite many other similar examples from countries on a similar footing to Turkey. However, over the space of a year, these countries went through an Indian summer created by the time lag for the crisis to spread into developing countries, and this cultivated such illusions. 

The crisis has been spreading into developing countries through two main channels. The first one has already started to work out its implications. Economic decline in rich and industrialised countries has already led to a cut in exports from the developing world. However, its results haven’t fully manifested themselves yet. 

For example, Tofas, the Turkish manufacturer of cars for Fiat, on September 24, declared it would be stopping production at its car plant for six days between September 24 and October 7, citing a “slowdown” in European demand and export orders. Such news is just the first alarm signal, and other consequences of the crisis will be felt much more explicitly in the coming months. 

The second channel is the weakening and even reversal of capital inflows from imperialist centres into developing countries. This hasn’t become widespread yet, as for more than a year big players of financial markets have been using high returns provided by the so-called “emerging markets” to compensate part of their losses made in financial markets in the major industrial countries. But with the recent developments unfolding in the US and Europe marked by the collapse of banks and other financial institutions, the main financial monopolies in the imperialist centres will be required to bring fresh money “home” as a last resort. 

Despite the homilies by government officials aimed at lulling the Turkish population, all the indications are that the growing international storm will invariably drive the Turkish economy onto the rocks.