After decades of a low to non-existent profile in the region, Turkey is now aggressively asserting its political and economic strength throughout the Middle East. As the country with the largest economy and conventional military force between the European Union and India, Turkey is staking a claim to a leadership role throughout the Islamic world. How many other Islamic countries agree to this claim is another matter altogether.
This claim has now extended to the finance sector. No less than the deputy prime minister for the economy now says Istanbul will become an international financial centre to rival Dubai or eventually even London. For those with memories longer than Twitter such a claim is empty rhetoric, merely an exercise in ‘box ticking’ where the box is, unfortunately, empty. They remember all too well the perilous decades of the 1980s and 1990s when inflation was in the high double digits, currency devaluation was measured by the hour, and banks were no more than hedge funds investing in high yielding government securities. With some regularity the system, such as it was, would crash with the currency devaluing at least 50% overnight and interest rates soaring into triple digits.
Yes, the country’s economy and financial sector have improved dramatically since those dark days in 2001 when the financial system imploded. After years of being looted by politicians the state banks had to be recapitalized by $20 billion. Big money in those days. Several banks failed, and the IMF stepped in with what was one of its largest bailouts at that time. Turkey’s current economic and financial strength are the direct result of rigidly following the IMF program. Greece take notice.
So Istanbul now wants to parlay that improvement into becoming an international financial centre. Ali Babacan, deputy prime minister for the economy certainly believes that Istanbul is well placed to replace Dubai as the region’s financial hub. Clearly the city is large with about 13 million, is increasingly popular with tourists, and is the heart of the country’s booming economy. But does all this make Istanbul ready to replace Dubai? Doubtful. Making the claim is easy. Turning it into reality is much more difficult.
For one thing Dubai, even with its current financial troubles, has already established the required legal, accounting and financial infrastructure and, more important, is surrounded by the enormous wealth of the Gulf region and much of the subcontinent. Reforming Turkey’s antiquated, creaking, and conflicting infrastructure is not yet even a work in progress. In addition, many of Turkey’s immediate neighbours like Bulgaria, Greece and Syria couldn’t afford a good lunch let alone support a regional financial centre.
At least one Turkish market player says that, in addition, no one has yet defined exactly what is meant by ‘financial centre.’ “No official here has a clue exactly what this term means. No one is going to come to Istanbul unless there is something to trade. Right now there is very, very little that you can trade on Turkish markets. What would they do, for example, if someone comes to Istanbul and wants to trade Japanese warrants? The bureaucrats would tie this one up for years. There really has to be much more sophisticated financial regulation and a more benign view of financial products before you can even think about becoming a regional financial centre.”
A senior international banker in Istanbul says the government’s claims for Istanbul as an international financial are ‘AKP (the ruling party) hype’.
“This is a pipe dream. Insufficient language skills, basic infrastructure, and legal system are major detriments to this claim. Moving the national financial institutions to Istanbul makes sense. But using them as the nucleus for a wider regional – or global – centre is a politician’s reach.”
Another former senior government official says the claims for an international financial centre ‘a nice dream, but total exaggeration.’
“Moving the central bank to Istanbul does not make the city a financial centre. Why don’t they (the government) first improve the education, language skills, and infrastructure before embarrassing themselves with these exaggerated claims? This is a real estate gimmick. Guess who owns all the land in the area they’re trying to develop as a financial centre? My strong suspicion is that it is loyal AKP supporters. The idea of Istanbul as an international financial hub has been a dream since (former president) Turgut Ozal’s time back in the 1980s. And we’re no closer to achieving this now then we were back then.”
Turkish officials are in danger of overplaying their hand as the country seeks its larger role on the world stage. It is very easy to confuse rhetoric with reality. It is one thing to claim regional financial leadership. But it is something altogether more difficult to create the reality on the ground that makes such a claim credible. Mr. Babacan might be better advised to restrain his oft-repeated claims of leadership until some