Turkish purges could cause long-term damage

 Turkish purges could cause long-term damage
Turks demonstrate to show their loyalty to the Erdogan regime after the failed coup.
By bne IntelliNews February 23, 2017

Turkey has dismissed more than 100,000 people from the police force, military, public administration, universities, judiciary and several key ministries since the bloody abortive coup in July last year that left more than 200 people dead.

Turkish strongman Recep Tayyip Erdogan accuses US-based cleric Fethullah Gulen of being behind the botched putsch. He has launched  a massive purge on an unprecedented scale, with far reaching social and economic consequences.

More than 800 companies, including Islamic lender Bank Asya, Boydak Holding, mining group Koza-Ipek Holding, furniture company Alfemo, clothing maker Aydinli and even famous baklava maker Gulluoglu have also been seized by the state over their suspected links to the Gulen movement.

The collective assets of these seized companies is estimated at about TRY38.3bn (€10bn) and their combined annual turnover is some TRY14bn, according to Hurriyet. They employ around 40,000 people. The government will either put these businesses up for sale or they will be liquidated. Their fate remains to be seen.

Purges in public sector

Most commentators have focused on the social problems the dismissals have caused. Thousands of peoples have lost their jobs and their properties. Those who were dismissed from duty in the government bureaucracy probably won’t be able return and it would be very difficult for them to find jobs in the private sector in the near future: the economy is slowing, with the unemployment rate hitting a seven-year high of 12%. So there is little prospect the economy will create enough jobs to employ them. Moreover, private companies are likely to hesitate to offer jobs to those who are now widely seen as the enemy of the state.

Besides the social problems, it is equally important to look at the impact of the purges on Turkey’s economy and the functioning of state institutions.

There were 2.45mn public servants in Turkey in 2016, according to data from the ministry of labour. Thus, the number of the dismissed personnel correspond to around 4% of the total work force in the public sector.

Daily life in Turkey does not seem to have suffered from the purges. Schools opened on time this autumn even though 33,000 personnel have been dismissed from the Ministry of Education. The Ministry of Finance, which lost 1,220 employees, is still able to collect taxes. More than 20,000 police officers and their chiefs have been sacked, but police officers still patrol the streets.

One explanation for the seemingly uninterrupted continuation of public services is that government departments had already been overstaffed and the purges have therefore only had a limited impact on state institutions’ capabilities.

The government also should be able to fill these vacated positions without facing major problems. Indeed, the Ministry of Health and the Ministry of Justice have said they are planning to hire a total of 56,500 people this year. More state agencies will probably announce new job openings in the run-up to the April 16 referendum on the presidential system.

But Atilla Yesilada, Turkey analyst at GlobalSource Partners, still has some concerns. “Vacancies will be filled with staff whose only qualification will be absolute loyalty to the AKP leadership. It is hard to be optimistic about the quality of state services in Turkey,” Yesilada told bne IntelliNews. He expects sackings to continue for at least another year “as investigations reveal more names associated with the Gulen network”.

According to Yesilada, who suggested that Turkey’s institutions were in a secular decline even before the coup, some of these state jobs may go to MHP’s cadres.

The nationalist opposition party MHP is supporting the ruling AKP’s bid to change the country’s constitutional charter. Its leader Devlet Bahceli has publicly said that he would vote “yes” in the referendum and has urged his followers to rally behind him.

As things stand now, the removal of civil servants in large numbers does not appear to affect the quality of government services. But the arrests of hundreds of businesspeople is another matter and may have consequences.

Investors unnerved

When some rogue elements within the army staged the failed coup last year, Turkey’s economy was already showing signs of weakness.

Economic activity was losing steam, the country’s tourism industry was suffering from a sharp decline in tourist arrivals because of the wave of terror attacks, exports were falling in part due to tensions with Russia.

For more than a decade, under the rule of the charismatic leader Erdogan, the Turkish economy was booming. But growth slowed to 5.2% in 2014 from 8.5% in the previous year. In the third quarter of 2016, the Turkish economy suffered its first contraction in seven years.

In the face of these challenges, the government has taken a number of measures and mobilised resources to put the economy back on its feet: It has cut taxes to stimulate domestic demand and set up a controversial sovereign wealth fund to finance mega infrastructure projects.

The effects of these actions on the economy remain to be seen.

“Foreign investors have in the past been drawn to Turkey because of its substantial domestic market, low taxes, skilled and competitive labour force, and location at the junction of Europe and Asia. But many appear to have taken fright at Turkey’s instability,” according to Yigal Chazan at Alaco.

The companies seized from the suspected Gulen supporters may not be the crown jewels of the Turkish economy – indeed, only a few of them such as Boydak, Bank Asya or Koza-Ipek are large enterprises – but Yesilada still thinks the purges can hit the economy through different channels.

The informal ties of trust that underpins business relations have disappeared, he told bne Intellinews. “You simply don't know who is a Gulenist, therefore you tend to shy away from extending credit, or shipping goods on credit.”

Yesilada concedes that it is very difficult to quantify these effects. “It is hard to estimate the loss of output due to these dismissals and arrests, but it is easy to say that they will contribute in non-negligible ways to Turkey’s secular growth slowdown.”

The IMF thinks the Turkish economy is set to grow below potential this year and next due to a combination of a number of negative political and economic factors. Meanwhile, the World Bank has lowered its 2017 GDP growth forecast to 3%, also citing political uncertainties.

In the face of such criticism, the government defends the unprecedented measures it has taken in response to the botched putsch.

It argues that once the country rids itself of the Gulenists – who it claims had infiltrated the judiciary, the police, the military and other key institutions to establish their own “parallel state” – Turkey can then unleash its true potential because this secretive and influential network was only paralysing state institutions, hindering the country’s social and economic development.

Gulen-affiliated prosecutors sent hundreds of people to jail in cases brought against military officers and journalists, who were accused of plotting to topple the government, based on false evidence. All those accused were later acquitted. These trials further divided the country and added to social polarisation.

According to officials, the problems the country faced over the past couple of years have shown that Turkey needs a powerful presidential system that will only deliver more political stability and a stronger economy through more effective governance.