Turkey needs help, but from IMF
US, WASHINGTON (ORDO NEWS) — Turkey’s economy is in decline. But President Erdogan will not turn to the IMF for help in obtaining a loan, because its conditions may deprive the President of Turkey of unlimited influence.
The Turkish economy is a dam that is about to break through. Over the past three years, the lira has lost 90% of its value against the dollar, Ankara depleted its net international reserves as of last month amid ineffective currency protection. Turkish non-financial companies, whose foreign currency liabilities reach $ 300 billion, continue to pay for them. Nevertheless, President Erdogan is still not going to sign an agreement on financial assistance with the IMF.
Erdogan prefers quick adjustments. One example is its recent expansion of the swap line with Qatar. This is a temporary arrangement that theoretically expands the reserves of the Central Bank of Turkey from $ 5 billion to $ 15 billion, and does not involve negotiations on issues that Turkey desperately needs to resolve: a stand-by agreement or an expanded financing mechanism with the IMF, which will provide the country with a medium-term loan at a low interest rate in exchange for a commitment to implement structural reforms.
Many experts in Turkey and abroad believe that the main obstacle to the IMF program is the ideology of Erdogan and his fear of a negative reaction of voters to such a program. However, it is not. Rather, the obstacle for a strong Turkish president is the IMF conditions and its ability to undermine Erdogan’s hypercentralized management style.
Over the past 10 years, Erdogan has consolidated power on the basis of a political platform based on unorthodox economic policy. Investors are routinely annoyed by the president’s strange beliefs: interest rates leading to higher inflation, “lobbying interest rates” by Jews seeking to undermine the Turkish economy. These times are long past. After the Central Bank lost its last semblance of independence in 2019, these beliefs became prevailing. By and large, it is they who dictate the monetary policy of Turkey.
Even worse is the senseless defense of the Turkish currency exchange rate, first 6 lira, then 7 lira per dollar, which turned out to be catastrophic for the Central Bank reserves. This is one of the most vulnerable factors for Erdogan, because his efforts were made by his insufficiently prepared son-in-law, Minister of Finance Berat Albayrak, who should not have held this position at all.
Erdogan had proven his pragmatism before, especially in the face of the crisis. There was an increase in interest rates, even when he was against them. Amid the intensification of the crisis with Russia, he restored ties. But after these decisions there was no transfer of power. Given his almost complete control over the media, Erdogan can make U-turns much easier than with real democracy, unless they require the abolition of the 18-year consolidation of power.
The real reason Erdogan will not apply to the IMF is that any stand-by arrangement or enhanced financing mechanism requires structural reform, which implies a separation of powers and the creation of effective governance. The ruling “Justice and Development Party” Erdogan only benefited from a lack of transparency.
The Turkish National Welfare Fund – essentially the parallel budget of the Turkish president – is not audited by parliament. One private auditor even said that there was not enough data to conduct an adequate assessment. Also suspicious are the economic data provided by the Turkish Statistical Institute.
Erdogan’s economy thrives on off-balance agreements with friends of the Justice and Development Party. For example, Zafer Airport was opened in 2012 in the western province of Turkey Kutahya. He is managed by a construction tycoon from Erdogan’s inner circle who helped him take control of government media. The government predicted 7.6 million passengers in the first 7 years of the airport, but only 300 thousand passengers passed through the airport. Under an income guarantee agreement guaranteed by the government, which expires in 2044, the company was supposed to receive 205 million euros from the state treasury for servicing non-existent flights at the airport, which it built for more than $ 55 million.
An IMF program would require reform, the removal of such outrageous income guarantees and countless other off-balance sheet arrangements. She would also require the involvement of competent technocrats in management, ensure transparency, accountability, and independence of regulatory bodies. She would need guarantees that the central bank is free from political pressure. But carrying out such reforms would deprive Erdogan of control over all the dubious transactions that he and his associates have concluded in recent years. In other words, a deal with the IMF is a direct threat to its rule.
The previous IMF program, which began in 1999 and peaked during the 2001 crisis, provided the country with greater transparency. This package was created in response to an unsustainable level of public debt. The IMF called for structural reforms to strengthen public finances and fiscal transparency. Also, one of the requirements for obtaining credit was the new management. And it worked: Turkey stabilized, achieving an average growth of 7% over the next 6 years.
Today, the IMF program promises similar benefits for Turkey, but Erdogan does not want to submit to its conditions. The last time the austerity measures of the IMF yielded results, but not before Devlet Bahceli, ultranationalist partner of the tripartite coalition of Turkey, held early elections in 2002, which resulted in the overthrow of all political parties represented in parliament, both ruling and and opposition. Erdogan, the former mayor of Istanbul, came to power. Bahceli, as unpredictable now as he was then, today is Erdogan’s key coalition partner.
Erdogan would not want to be his last victim on the eve of the presidential election of 2023, especially after the current mayor of Istanbul, Ekrem Imamoglu, became his main rival. Nevertheless, the elections will be held in 3 years – for Turkish politics this is a whole life, and Erdogan needs to make sure that the production goes not only to the patronage network of the RPS, but also to Bahceli and his clients.
That is why the IMF will be the last stop for the Turkish government. If the economic problems of Turkey and its suffering citizens force Erdogan to sit at the negotiating table, the IMF should not give him free access to credit. The IMF should demand transparency in the fiscal sphere, the termination of off-balance sheet agreements, the hiring of professional technocrats, not members of the Erdogan family, and the introduction of tough measures to combat corruption and money laundering.
The large, young and vibrant population of Turkey can be the driving force behind the economic growth of Europe and the Middle East, and it deserves to be given such a chance.
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