Saturday, 22 October 2016

Economic Realities Begin To Hit Home

Forget the usual loud-mouthed bleating from Turkish President Tayyip Erdoğan about Turkey’s exclusion from the coalition fighting to retake the Iraqi city of Mosul from the sadistic Islamic State. Even if he is right, almost everyone outside Turkey has become sick and tired of his bombast about Iraq and several other topics. Simply put, other leaders and diplomats are no longer willing to separate the message from the messenger.

But the real news out of Turkey has nothing to with Erdoğan’s bruised amour-propre, coups and counter-coups. No, the real news as discussed recently by two well-known journalists is the widening fault line in Turkey’s economy.

In the most historic shopping mall of all, namely the Grand Bazaar in Istanbul, 600 shops have been closed because of an ‘unspoken’ economic crisis. Four decades ago such news toppled a shah in Iran.”
Hundreds of shops in the Grand Bazaar have closed

She notes that others from hairdressers, to landlords, to posh restaurants on the hills overlooking the Bosphorus are also suffering from a lack of customers.

A respected jeweller with shops in the Grand Bazaar and an up-market shopping center complained that “There are no Western tourists coming, no Western businessmen, no Japanese either. We are off the cruise calendar until 2018. The only shoppers here are Arabs that stay in the hotel and use the gift cards given by the hotel to buy clothing. There is no light at the end of the tunnel.”

In another column she quotes the founder of a menswear clothing line as saying that shopping-mall driven consumption has plunged drastically. In an attempt to ease the high consumer debt burden the government said debt could be restructured into 70 installments – albeit at high interest rates. But a young banker notes that such steps are not enough. “So many people have applied for debt restructuring because they know they will never be able to pay it even if it was 140 months,” a young banker said.

One tell-tale cause of this consumer distress is that the unemployment rate has reached double digits, and Özyurt notes that the unemployment rate among university-educated youth has risen to 13%.

Economist Güven Sak writes that at a time when the Turkish government is countering a myriad of real or perceived enemies it is making itself even more vulnerable to outside influence.

“Turkey’s domestic savings rate was around 14% for the latest year on record. It’s around 50% in China, 30% in Russia, 20 % in Poland and South Africa. So 14% is a low number, even for a developing country, and it is declining. We all know that living on other people’s money makes Turkey more vulnerable, yet we plan to go ahead with it.”

Sak continues by noting that Turkey’s growth rate has slowed and its current account deficit has increased. “The global financial crisis has made Turkey a more vulnerable country.”

“So is there any wonder why the Turkish Lira has been depreciating rapidly again this week? Forget about President Erdoğan’s Mosul remarks or the Moody’s downgrade for a minute. . . . Look at the high risk strategy of low growth and less savings. It is bad driving that is pulling the lira down.”

Sadly, none of this economic reality has so far penetrated Erdoğan’s virtual world dominated by foreign (read American, Israeli and European) conspiracies aimed at thwarting Turkey’s growth, grandiose regional dreams, and his long-standing desire to create a ‘Turkish style’ executive presidency – in other words one without any of the checks and balances that define a modern democracy. Finance Minister Mehmet Şimşek, a rare voice of economic rationality in the government, appears to have lost whatever small degree of influence he may have once had. His challenge now seems to be keeping a straight face when telling sceptical Western bankers that black is white.

Erdoğan and the ruling Justice and Development Party (AKP) have no serious domestic political opposition, and are pretty much free to make whatever changes they want in the country’s political structure regardless of any external pressure or criticism. The economy is a different matter. Ignoring financial realities and global volatility sooner rather than later will lead directly and quickly to economic pain for ordinary citizens.

1 comment:

Mark and Jolee said...

Excellent summation of reality, David. In addition, we often think of the many people who have lost their jobs during the coup attempt aftermath - many of them the main breadwinners in large families. And the figure of high unemployment for the college graduate is also very discouraging, many of them educated at great sacrifice by their families. One would think that it's got to strike home soon.