Turkey on brink of economic tipping point

Hizir Albayrak, who oversees a seven-floor shopping mall in the busy Eminonu area, gestures as he holds a pampers pack inside a baby store in Istanbul, on May 30, 2019.AFP / Yasin AKGUL

ISTANBUL: Hizir Albayrak began work in a tiny children’s store in the Istanbul bazaar 25 years ago, in the same year that future President Recep Tayyip Erdogan took over as mayor of the city. Today, Hizir oversees a seven-floor shopping mall in the busy Eminonu area, weaving energetically among the latest prams, toys and babywear - one of many success stories from Turkey’s astonishing economic transformation in the past quarter-century. “I started from zero. Now we sell 295 brands from all over Turkey and around the world,” he says, proudly.

Most of the credit for Turkey’s dizzying growth - its economy now six times larger than it was in the mid-1990s - goes to Erdogan, who oversaw a period of unprecedented political stability and economic growth on his path from mayor to prime minister to president.

But that stability has vanished in recent years amid a spate of terrorist attacks, a failed coup in 2016, a ruthless purge of internal opponents, and deteriorating relations with the United States.

The currency lost almost a third of its value against the dollar last year, helping to plunge the economy into recession and fueling inflation of around 20 percent.

Turkey officially exited recession in the first three months of this year with growth of 1.3 percent, though many fear the bump may be temporary and the price rises still sting.

“Look at this,” cries an exasperated Hizir, grabbing a pack of nappies and buzzing it through the till.

“A week ago, we were selling this at 30 or 35 lira [around $6]. Now look - 49 lira!

“In the past, prices would change every few months. Now it’s every week or two. It’s very hard for those on minimum wage, but mothers always make sacrifices for their babies,” he added.

As his skullcap indicates, Hizir is a longtime supporter of Erdogan’s Islamic-rooted party, the AK Party.

But what he really needs is stability. Instead, Istanbulites face their eighth election in just five years Sunday - this time because officials ordered a rerun of the March mayoral vote which was narrowly won by the opposition.

Critics say the constant cycle of elections has only fueled Erdogan’s taste for attention-grabbing mega-projects like Istanbul’s gigantic new airport, and for divisive clashes with opponents at home and abroad.

“Trade in Turkey is like being an acrobat. A crisis strikes, the currency weakens, and you can lose everything in a year,” Hizir says.

“We want political stability. God willing, the decision-makers will take the right measures.”

Some economists fear the worst. With much of Turkey’s growth fueled by foreign credit, the recession and falling lira have left many firms struggling to repay their debts.

“Turkey has seen a series of minicrises, each worse than the last,” said Fadi Hakura, an analyst for Chatham House in London. He said a major tipping point will be reached unless the government stops splurging on mega-projects, and targets bad debts in the banking system.

“Unfortunately, the government is wedded to its model of debt-fueled consumption and construction. It equates modernity with gleaming high-rise buildings.”

Other economists call such criticism overblown fear-mongering.

Turkish companies are cushioned against bankruptcy; with cash reserves that add up to $6.5 billion more than their debts, said Mevlut Tatliyer, associate professor of economics at the SETA think tank in Istanbul.

The government’s own debt levels are also low compared to other countries, he added, giving it room to prime the pump.

“Yes, there is a recession right now, but it has not turned into an economic crisis, despite all the instability and incredible fall in the value of the lira,” Tatliyer said.

“Most economies would have collapsed, but Turkey has a very energetic economy and Turkish people are accustomed to instability.”

The game changer could be U.S. sanctions, which Washington has threatened as a result of Turkey’s controversial decision to buy a Russian missile defense system.

Even if Erdogan somehow resolves tensions with Washington, investors remain worried that he has purged many able economists. They were particularly concerned when he appointed his son-in-law as minister of finance last year.

Atilla Yesilada, analyst for the GlobalSource think tank, says there is still hope. He is “no fan” of the government, and points to a range of statistics - from slumping car sales to reduced manufacturer confidence - to argue the economy is heading south.

“But in the past, when Erdogan realized he’s at the edge of the abyss, he’s always pulled back. He has dismissed or fired a lot of good people, but they are still alive and can be brought back,” Yesilada said.

“Give the guy credit: He gave political and economic power to a huge number of people who were previously disenfranchised. To destroy all of this just on a whim sounds silly.”

A version of this article appeared in the print edition of The Daily Star on June 19, 2019, on page 4.




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