IMF-Backed Reforms Separate Economy From Politics, Face Opposition of Turkey’s Ruling Elites

By Jon Gorvett

With winter’s stormy weather apparently over, the battered good ship Turkey has finally limped into the calmer waters of an Eastern Mediterranean summer. Despite the arrival of a new pilot, however, there is still a disturbing amount of angry shouting and arguing emanating from the captain’s cabin.

With former World Bank chief Kemal Dervis brought in to sort out the mess left by years of mismanagement and corruption, culminating in the November and February’s financial crashes, international donors—and principally the IMF—finally were persuaded to release a total of some US$16 billion in credits to Ankara at their mid-May meeting. This figure includes the remnants of the previous IMF financial program for Turkey—the exchange rate peg plan that was so unceremoniously abandoned last February.

The markets, naturally, were overjoyed at the prospect of fresh money, but the politicians seemed to have more mixed feelings. Tied to the cash are a number of conditions, with Dervis having pushed hard for 15 new laws recommended by the IMF to be passed before the credit starts to flow. Among these “Dervis Laws” are a major reform of the banking sector and a bill to facilitate the majority-share privatization of Turk Telekom, the state telecommunications giant. There also are laws to liberalize other state-dominated markets and phase out government price subsidies, particularly in the agricultural sector.

Classic free market stuff, of course. It must be remembered, however, that Turkey is not really a free market economy. Some 50 percent of all the land belongs to the state, as does around 60 percent of all industry. The state also runs three banks, which help farmers and small businesses with large subsidized loans. While the foundation stones of the republic established by Kemal Ataturk and his followers back in 1923 were very much of a type fashionable across Europe at that time—a big state and a command economy—they long since have gone out of style, but linger on in Turkey.

This gives the “Dervis Laws” a much more radical character than first appears. What is being asked for is not simply better housekeeping, but a new type of house. The point has not been lost on Turkey’s nationalists—nor on its Islamists, who are beginning to share much the same position on the economic reform program.

Devlet Bahceli, leader of the far-right National Action Party (MHP), the second largest group in the three-party coalition government, accused Dervis of acting in the interests of the U.S. and the IMF, rather than of Turkey, in pressing for the banking and Turk Telekom laws. Bahceli reportedly then walked out of the cabinet, only being persuaded back in by Prime Minister Bulent Ecevit himself.

The main objection to the Telekom privatization is that it may give foreign interests control over what the MHP—and the powerful Turkish military—see as a vital, strategic interest. This appears to have been overcome, however, by the issuing of a “golden share” to Turkey, meaning that in time of crisis or war, the state would be able to use the company’s telecommunications satellites.

Meanwhile, the largest opposition group, the pro-Islamist Virtue Party (FP), also has been quick to condemn the new program. Virtue’s view is more that the scheme plays into the hands of big capital and does nothing to encourage investment in the “real sector,” the non-financial part of the economy that has been seriously cash-starved over the past decade. This was largely the result of the fact that the government, in an effort to counter rampant inflation and mushrooming public debt, continuously raised cash through paper issues, at higher and higher interest rates. With vast profits to be made from investing in these papers, little money was going into “real sector” development.

More indirect opposition to the reforms is coming from parties on the mainstream center right that, on the face of it, should be more friendly. Here the problem stems from the fact that much of the economic crisis also was caused by widespread corruption, particularly in the granting of government contracts and tenders, political party funding and banking-sector fraud. With the center right largely dominating government since the reintroduction of party politics in 1983, the mainstream conservative parties—the Motherland Party (ANAP) and the True Path Party (DYP)—both have a lot to lose from any increase in transparency, and from the variety of anti-corruption investigations currently under way.

Also feeling the pinch is Turkey’s all-powerful military. With the February collapse of exchange-rate controls, the defense budget lost nearly half its value, seriously undermining the military chiefs’ plans for an eight-year, US$31 billion shopping spree to modernize the country’s 600,000-strong army, the second largest in NATO. The expectation was that the procurement plan would hit US$150 billion by 2030. Instead, in May the General Staff announced that some US$19.5 billion of weapons projects had been postponed. The U.S., Turkey’s main weapons supplier, is likely to be one of the main casualties of this pullback. A contract for 145 Bell attack helicopters looks now to be cut down to 50, with the remainder postponed.

It was the military, too, which was first to criticize the Telekom sell-off as posing “national security risks.” Given that much of the 50 percent of Turkey’s state-owned land is in reality owned by the military, and the army’s ideological commitment to Ataturk’s beliefs—known as “Kemalism”—and the Dervis reforms are clearly a long-term threat to the military’s position as well, despite the defense chiefs’ public pronouncements of support.

Yet for all the seriousness of this opposition, there is still a mood of underlying optimism. The feeling is that what is happening here is, of course, a painful process, but one that ultimately may set Turkey on the path to becoming a more open and democratic society.

Notes the respected columnist Cengiz Candar of the Yeni Safak newspaper, “The essence of the [economic] program is, as Dervis keeps saying, to separate the economic from the political.”

This process is bound to come up against the established system of state patronage, whereby politicians can exercise economic power by handing out jobs in state industries or in the bureaucracy.

“Those who are opposed to these reforms are elements of the existing political class who are being obliged to slowly exit the stage,” continues Candar. “MHP, pro-Islamist, social democrat or conservative—it really makes no difference.”

The arguments in the captain’s cabin, therefore, are likely to continue, but not necessarily on strict party lines. Meanwhile, as the enormity of the changes required begins to dawn, Dervis will need all the support he can muster to keep piloting the ship.

Jon Gorvett is a free-lance journalist based in Istanbul.