In 2001, Turkey’s banking sector was in dire straits due to the economic crisis. Banks like Imar Bank and Pamuk Bank were looted by their owners or managers. During those years, Turkey had a fixed exchange rate regime. However, unlike countries like China that could implement a fixed exchange rate, it was not feasible in countries with limited foreign exchange reserves like Turkey. Consequently, the exchange rate experienced overnight increases of up to 40%.
To address these issues, then-Prime Minister Bülent Ecevit and the coalition government decided to make an agreement with the IMF. As part of this agreement, Kemal Derviş, working at the World Bank, was appointed to manage the Turkish economy with full authority. Kemal Derviş first made regulatory changes in the banking sector. These changes included granting autonomy to the Central Bank, establishing the Banking Regulation and Supervision Agency, and creating the Savings Deposit Insurance Fund for troubled banks. This transformed the Turkish banking system into a structure where banks were under constant scrutiny, and their assets couldn’t be emptied.
As the economic crisis began to recede, calls for early elections by Devlet Bahçeli started. The early elections, coming before the wounds of the economic crisis were fully healed, marked the beginning of the end. With the greater freedom of the press during that period, especially with the emergence of AKP from the Saadet Party and the newly formed Young Party entering the elections with only a 6-month history, they made a significant impact. AKP, in particular, was continuously praised in the media.
While Bülent Ecevit’s DSP fell below the electoral threshold in power, the CHP, which had fallen below the threshold in the previous election, entered the parliament as the second party.
Due to the 7% vote obtained by the Young Party, MHP, DYP, and ANAP fell below the 10% threshold, and despite AKP’s 34% vote, they held 67% of the parliament. This meant that out of Ak Party’s 550 MPs, they had 365. In its first term, AKP did not deviate from Kemal Derviş’s policies and strictly adhered to EU harmonization laws. Until 2007, the country made significant progress with Kemal Derviş’s policies. While the government led by Bülent Ecevit suffered the consequences of these policies, AKP benefited from the cream of the IMF policy. When negotiations were held with the EU, celebrations took place, and the EU applauded Turkey’s privatization of public institutions and integration into the global economy. Ultimately, there was a population of 70 million continuously consuming in the heart of Europe, making Turkey a significant market for EU countries.
In 2008, with the bankruptcy of Lehman Brothers in the United States, the mortgage crisis erupted. The Federal Reserve (FED) believed that the economy could be boosted not by shrinking but by expanding within this crisis. Additionally, having the reserve currency, they decided to grow the economy by printing unbacked US dollars. Naturally, to ensure that this printed money is not held in banks, they lowered interest rates to the bottom and even started making deductions for money held in banks, not giving interest. Consequently, hot money began to flow out of the country, moving towards developing countries that offered high interest rates.
In Turkey, privatizations were carried out to attract this hot money, high-interest rates were offered, EU harmonizations were utilized, and most importantly, credit rating agencies were given confidence.
The Turkish government directed the incoming hot money to the construction sector to create wealth for its elite. Massive tenders were awarded to favored contractors by the state, and the construction sector was declared the locomotive sector. The reason was that profits that could not be obtained from any production channel in construction could be achieved. For example, a house produced for 50,000 liras could be sold for 500,000 liras. Public and municipal lands were plundered, and the wealth of favored contractors skyrocketed. While the best industrialists made sales with a margin of 30-40%, the construction companies, with government support, could sell at a cost of up to 10 times. In addition, propaganda such as “have 3 children, buy a house” turned the country into a construction site.
According to a World Bank study, 5 of the top 10 companies in the world that received government tenders are Turkish companies. In other words, the AKP government consistently awarded tenders to the same companies in a build-operate-transfer logic. Only 5 companies, Limak with 45 billion, Cengiz with 50 billion, Kolin with 35 billion, MNG with 35 billion, and Kalyon with 40 billion, seem to have received a total of 205 billion dollars in tenders. The real problem in the economy started with this 205 billion dollars being channeled into construction instead of production.
State-sponsored tenders were given to pro-government contractors. Banks gained huge financing with syndication loans from abroad. Banks then offered these funds to the public as loans (housing, commercial, vehicle, and consumer). Savings advertisements on television were reduced, and instead, credit card and loan advertisements were increased. The Turkish people, who did not know how to save and borrow, are now suffering the consequences.
Meanwhile, the construction sector was experiencing its golden age in the economy. Interestingly, existing contractors could not become tax champions. As a small piece of information, it should be noted that all donations made to organizations such as TÜRGEV and Deniz Feneri could be deducted from taxes. In other words, when businessmen paid 10 million liras in corporate or income taxes, if they donated this money to TÜRGEV instead of the revenue agency, their tax debts were forgiven. Even the longstanding Eczacıbaşı turned its serum factories into construction sites and started dealing with construction. Justice palaces, bridges, roads, airports, all projects funded by incoming hot money and public indebtedness, continued privatizations, and the country set a dead investment record with the construction sector. Occasionally, houses were sold to Arab businessmen to impress people.
The public was directed towards spending, and there was almost a race to give credit cards and loans to anyone passing by. The country became a haven for hot money. People thought low-interest hot money would be permanent. Between 2008 and 2013, there was a huge liquidity abundance in Turkey. Turkey invested this money in construction. Previously, we mentioned that only 5 contractors received 205 billion dollars in tenders. If we note that NASA’s annual budget is 23 billion dollars and Xiaomi, China’s largest technology giant, has a total value of 45 billion dollars, we can better understand what can be done with this money.
When Turkey reached the end of summer, in 2013, bad news began to emerge. The FED announced that it would raise interest rates and withdraw the dollars it had been printing for years. However, the AKP government, ignoring these warnings, continued to support projects such as the Istanbul Canal, the 3rd Bridge, the Osmangazi Bridge, and the 3rd Airport, which were not a priority. Instead of solving the problems of livestock and agriculture sectors, where production costs were increasing, the government threatened, “If you raise prices, we will import.” Rather than solving the problems of agriculture and animal husbandry, they preferred to sweep the problems under the rug. Instead of protecting the local producers who produced local products, they left the producer unprotected against China’s cheap and shoddy products by completely opening the way for imports.
Turkey’s industrialists could not compete with the prices of products brought from China, and factories closed. Today, Turkey has become a country that imports garlic from China, walnuts from America, and flavored peanuts from Spain. Even toothpicks are imported from China. Because Turkey started importing products from China as it could produce something that a Chinese could produce for 1 dollar for 2 dollars. Rather than protecting domestic producers and equalizing prices with an additional tax on imported products, Turkey chose to prefer the imported one. Those who withdrew from the production sectors turned to the construction sector with their own power and capabilities.
In short, Turkey could only reach these days with low-value-added production, tourism, and agriculture. From now on, we will witness how Turkey will survive with the colossal debts it has to pay and the increasing costs. The country is entering a period it has never witnessed before. The economic difficulties experienced in previous years were nothing compared to today’s problems. Moreover, it is unclear how long this problem will last and whether it can be corrected. In short, Turkey has come to the days when it will be disciplined with hunger. It does not seem that the current government has the opportunity to solve the problem because recognizing the existence of the problem is a prerequisite for solving it.
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