Turkey's ruling control freaks

By bne IntelliNews September 16, 2011

Justin Vela in Istanbul -

On August 17, it was announced in the Turkish state's Official Gazette that, by government decree, some 10 legally independent regulatory and supervisory bodies were being attached to their corresponding government ministries. This effectively ends the independence of these bodies, which were established to disperse power following the country's 2001 financial crisis, but only now is this move to concentrate power coming to light.

The bodies include: the Banking Regulation and Supervision Agency, the Capital Markets Board, the Energy Market Regulatory Board, the Telecommunications Board, the Saving Deposits and Insurance Fund and the Competition Board, among others. "Their autonomy was secured by the Public Financial Management and Control Law of 2003, a landmark law among Turkey's post-2001 crisis reforms targeted at de-politicization of the decision-making process and improvement of broader governance practices in the public sector," writes Murat Ucer and Atilla Yesilada of Global Source Partners in note.

Several of the affected bodies contacted by bne refused to comment; indeed, the whole issue has not been widely discussed in the Turkish media. Emre Deliveli, an independent Turkish consultant and columnist, says the decision - and the subsequent silence - is very concerning. "We have not seen many criticisms of this in the media... Turkish media is a lot of morons, but no one wants to anger the government," he says.

The whole issues smacks of "the government knows best," say analysts - a defining characteristic of Turkey's ruling Justice and Development Party (AKP), which appears to believe in its own infallibility after ushering in a new era of stability and growth during its eight years in power.

Needless to say, this mentality is dangerous. On a political front, the AKP appears to be going backwards on the country's long-standing Kurdish issue while at the same time trying to influence the outcome of unrest in the Middle East. Both these issues are distractions from its management of the economy, the success of which won the AKP its mass popularity.

Yet the economy is again in need of reforms. Years of short-term portfolio investment from abroad has overheated the economy even as Turks, basking in their new wealth, overspend, swelling the country's current account deficit and revealing key structural problems. In trying to remedy the problems, the AKP believes it knows best - and the decision to attach the formerly independent bodies to government ministries proves this. The move is rooted in the AKP's desire to have more immediate control over the functions of the economy. For example, about six months ago, the government wanted to curb credit growth. Had they then controlled the Banking Regulatory Board, they could have taken the steps to do so. Now, by attaching the bodies to ministries, "in economic policy they can do whatever they want," Deliveli says.

New agenda

What the AKP wants for the economy will be revealed in the new mid-term economic plan, which is scheduled for release in September, though it is likely to be postponed until October to coincide with the budget being released.

According to analysts and news reports, the plan is likely to be far ranging. First off, a large degree of attention will be focused on the informal sector, which is thought to comprise about 50% of the Turkish economy. The recent crackdown on seating in front of bars in restaurants in Istanbul's central Beyoglu district is regarded as part of this. Though a shock to business owners, some of whom are reportedly close to bankruptcy due to the loss in patrons, the local government seems to be trying to deal with the safety hazard of the overcrowding of tables and chairs and signaling they are serious about collecting taxes from outdoor seating. While some look for conspiracy in the move (top members of AKP come from an Islamist background), the collection of taxes from outdoor seating is likely to raise prices throughout Beyoglu, fueling Istanbul's already strong real estate boom.

Another measure focused on Istanbul is increasing the city's stature as a global financial centre. This will take time, as the government has only completed nine of 71 items in the government's Strategy and Action Plan, which was introduced in 2009. According to many analysts, the talk of Istanbul as a global financial centre is also aimed more at raising real estate prices in the already expensive city.

There are also less lofty, albeit more complicated, changes expected to be laid out. These include labour reforms that will stipulate a regional minimum wage and reducing severance pay. Then there is increasing domestic production in such a way that the current account deficit does not widen along with it. This is the most complex economic task. The country must focus on using more of its own raw materials and at the same time begin producing more value-added products. These include military products, pharmaceuticals, tablets and cars, for example.

Here, the government will face the most resistance. Currently, businessmen throughout Turkey are making a great deal of money already. In order to change the system, the government will have to carry out a degree of arm-twisting, along with rewarding those who take the necessary steps. However, the government is aware of this. For example, part of the plan is likely to involve the establishment of special industrial zones for qualified individuals, with the only requirement that those involved start production within three years and employ at least 10 people.

The plan is indeed far ranging. But distracted by politics, the government is in danger of relying on hubris to sustain Turkey's economic dream, say critics. But, after eight years of success, the AKP believes it knows best.

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