Turkey is freezing new government investment projects, President Recep Tayyip Erdogan announced on September 16.
Amid economic turmoil that has seen the Turkish lira collapse in value, inflation rocket towards 20% and analysts warn that a steep recession may be around the corner, Turkey has brought in substantial interest rate hikes and has promised a tough fiscal squeeze to rein in spending. The monetary tightening was only brought in after months of complaints that the central bank, under political pressure, was falling behind the curve but now that move has been made investors—still very wary of the precariousness of Turkey’s economic plight—will push for more government measures to balance the books.
Infrastructure mega-projects to build bridges, ports, tunnels and railways—the likes of which have been symbolic of populist Erdogan’s attempt to transform Turkey in the past 15 years, but which have been highly debt-fuelled—could be suspended. However, it is not yet clear which projects will be frozen as Erdogan said that those which are more than 70% complete will be finished. “All our ministries will be reviewing the investment stocks they have and will conduct their work by prioritising,” he said.
“We are not considering any fresh investments right now,” Erdogan added. “There could be extraordinary and must-implement investments, those are a separate issue, but apart from this, we will begin looking [at investments for suspension]”.
Excessive costs, enviromental impacts
Some of Erdogan’s more ambitious mega-projects have drawn fire over the years for excessive costs and environmental impacts.
Istanbul’s third airport is due to be one of the largest in the world when it opens in October, but there is substantial scepticism as to whether or not it will prove to be air passenger market overkill.
Erdogan has also rolled out plans for a 45-kilometre (28-mile) canal project, valued at $16bn, that would turn the western side of Istanbul into an island, linking the Black Sea and the Sea of Marmara north and south of the city. On September 16, state-run news service Anadolu reported Environment and Urban Minister Murat Kurum as saying his ministry was moving ahead to acquire land along the canal route, and develop plans with contractors.
Environmentalists say the waterway, designed to ease traffic on the Bosphorus Strait, is not needed and, what’s more, will destroy water basins supplying the city with freshwater and alter oxygen levels in the seas.
Looking at the economic action now being pursued by Ankara, Charles Robertson, Renaissance Capital’s global chief economist and head of macro-strategy, told Reuters: “Just a rate hike is not enough.”
Turkey needed to publish stress test parameters of banks and details of fiscal tightening, as well as secure external funding, he added, saying: “The economy is entering recession, interest rates will be hurting, so the more they do to improve investor sentiment, the better.”
Erdogan, meanwhile, on November 16, reiterated that he still disagreed with the necessity for higher interest rates amid Turkey’s economic situation.
“Yesterday the central bank carried out the much talked about interest rate hike... Now we will see the result of [central bank] independence,” he said.
“Right now, personally, I am being patient, but my patience has its limits because we can’t accept a lever of exploitation.”
He also warned enterprises that stockpiled goods to exploit higher-profit opportunities amid the Turkish economy’s economic challenges that they would be identified and subjected to raids.