March 28, 2024

Financial Fears as Street Unrest Shakes Turkey

This curious happenstance — where both fear that the profusion of glass towers and shopping malls now overwhelming the classic Istanbul skyline is not only ugly but unsustainable — underlies the convulsive uprising in Taksim Square.

The once soaring Turkish stock market has fallen about 9 percent in the past week, interest rates are on the rise and, crucially, after a period of strength, the currency, the lira, has lost 8 percent in recent months and 1 percent just since the protests began.

For more than two years, a very small subset of investors and economists has warned that, as with other economic booms built on a mountain of debt — like the property spikes in Japan in the 1980s and more recently in the United States, Spain, Ireland and other European countries — the one in Turkey would reach a painful end.

Until recently, their warnings were ignored.

In contrast to a Europe stagnating throughout most of the past decade, Turkey has grown at a 5 percent annual rate while keeping its public finances in check.

In fact, with a budget deficit that is below 2 percent of gross domestic product and overall public-sector debt of less than half its economic output, Turkey challenges powerhouse Germany for best-in-class status when it comes to these critical benchmarks of broad economic health.

For Prime Minister Recep Tayyip Erdogan, the political crisis he is facing seems manageable precisely because of Turkey’s economic success, which has buoyed a pious entrepreneurial class that forms the core of his constituency. As the protest movement has unfurled, few analysts have suggested Mr. Erdogan’s hold on power is in jeopardy, arguing that he maintains the support of the religious masses that propelled him to power.

But that dynamic could change quickly should the economy falter, as a growing number of analysts now say is possible.

Hundreds of billions of dollars of short-term loans have been flowing into the country from investors in search of higher yielding assets, financing the very malls and skyscrapers that have so dismayed the small but growing coalition of secular intellectuals, left-of-center political activists and a smattering of the professional classes.

What worries financial experts is that this so-called hot money can leave the country just as quickly as it arrived, touching off a currency crisis and, eventually, a collapse in the property markets that could threaten the nation’s banks.

“This is a classic credit boom, with money being thrown at Turkey, especially the banks,” said Tim Lee, an independent economist at Pi Economics in Greenwich, Conn., who has warned for years of a Turkish financial bubble. “At some point, though, you reach a moment when the music stops.”

It is perhaps too soon to say if that moment has come, but the financial jitters that have followed the protests have been noticeable, especially with regard to the wobbly lira.

Mr. Lee and other skeptics point to the currency as the ultimate barometer of how foreign investors see Turkey. The country’s two previous financial implosions, in 1993 and 2001, were largely currency disasters, set off by a stampede of fleeing investors and lenders.

Two points in particular concern them.

This year, for example, Turkey’s private sector will require $221 billion in outside financing alone, with most of it coming in short-term loans.

By normal standards, that is a heady sum, about 25 percent of Turkey’s G.D.P., and it is about the size of the economy of Greece, Turkey’s longtime rival.

Moreover, in preparation for the 100th anniversary of the founding of the Turkish republic in 1923, Mr. Erdogan’s government has unveiled a $400 billion public works program, which is more than half the size of the $770 billion Turkish economy.

Many of these grand projects will have a visible aesthetic effect on Istanbul, which is what infuriates the protesters.

Planners envision a third bridge spanning the Bosporus at a cost of $3 billion, for which ground has already been broken; $10 billion to be spent on a third airport, which would be the world’s largest; and a $2 billion outlay to create a financial center in Istanbul to compete with Dubai and London. On top of a slew of equally large projects in high-speed rail, subways, ports and other amenities, Istanbul is also seen as a leading contender to secure the 2020 Olympic Games.

The decision on the Games will be announced in September, and if Turkey wins, the building and borrowing will only speed up.

Article source: http://www.nytimes.com/2013/06/06/world/europe/financial-fears-as-street-unrest-shakes-turkey.html?partner=rss&emc=rss

Drilling Off Cyprus Will Proceed Despite Warnings From Turkey

Turkey called the wells an act of provocation, and Prime Minister Recep Tayyip Erdogan said in a televised statement that Turkish “frigates, gunboats and its air force will constantly monitor developments in the area.” He later added that Turkey would start its own seismic exploration program in the area, the site of major natural gas deposits claimed largely by Israel.

Cyprus has been divided since 1974 into an internationally accepted Greek Cypriot south and a Turkish Cypriot north that is recognized only by Turkey. While the Greek Cypriots say the drilling is taking place south of the island, in their exclusive economic zone, Turkish officials do not accept the Greek Cypriots’ claims to the area.

“We have different attitudes for the region that they have declared as an exclusive economic region,” Mr. Erdogan said. “This is a disputed exclusive economic region, and we have earlier conveyed to them that taking such a step in this disputed region would be incorrect.”

This is the second time recently that Mr. Erdogan has vowed to send the Turkish Navy into an international dispute. Earlier this month, he said that Turkish naval vessels would escort aid ships headed to Gaza to avoid a repetition of a confrontation last year, when eight Turks and one Turkish-American were killed by Israeli commandos.

Turkey claims that the natural resources around Cyprus belong to both the Turkish and Greek sectors, and that any development projects should be shelved until the dispute over the political status of the island is resolved.

Prime Minister Erdogan said the Turkish Petroleum Company would soon begin exploring for hydrocarbon reserves off northern Cyprus, in line with a continental shelf agreement between Ankara and the breakaway Turkish Cypriot state.

Cyprus is a member of the European Union, which on Monday urged the parties to focus on a comprehensive solution to the island’s political dispute, the Anatolian Agency reported.

Article source: http://www.nytimes.com/2011/09/20/world/europe/turkey-calls-cyprus-gas-drilling-a-provocation.html?partner=rss&emc=rss

Turkey Spends Freely Again, and Some Analysts Worry

Stock brokers endure four-month waiting lists to pay as much as $150,000 for top-of-the-line Audis and BMWs — twice the manufacturers’ prices after taxes. A real estate developer recently laid out a record $33.3 million an acre for a 24-acre plot of land in Istanbul’s city center.

But the most striking sign that the economy here may be overheating comes from a usual suspect: the country’s aggressive banks. They have found a creative way to finance consumer splurges by providing quick loan approval via text message or automated teller machine.

Analysts and bankers say the explosive growth in consumer loans has fed a worrying expansion of the country’s current account deficit, estimated to be 8 percent of gross domestic product this year.

Turkey’s trouble in financing gaps of that size has been at the root of its past two busts, and some worry that history may be repeating itself.

“We are again producing and consuming beyond our capacity,” said Atilla Yesilada, an economist at Istanbul Analytics, who has lived through Turkey’s last two busts, in 1994 and 2001. “We are financing our growth entirely through foreign credit, which is becoming more expensive. At some point life catches up with you, and you crash.”

More than any other emerging economy, Turkey has been on a roller-coaster ride over recent decades, in which manic growth has almost inevitably been followed by a sickening crash.

But this time will be different, promises the popular government of Prime Minister Recep Tayyip Erdogan, who is heading for a nationwide election in June in which the robust economy is widely expected to carry him to an unprecedented third term in office.

Many people have said as much just before the Turkish economy collapsed, of course. But here in Turkey, whose decade-long expansion was only briefly interrupted during the global financial crisis, the government and many business leaders argue that their nation has moved beyond its boom and bust syndrome, and that policy makers are now well-equipped to pull off a so-called soft landing.

“We are looking for 4.5 percent growth this year, and we think that is manageable for the economy,” said Faik Acikalin, the chief executive of Yapi Kredi Bank, one of the country’s largest providers of consumer loans.

Since the government’s crackdown on overly enthusiastic credit card lending by banks in the last decade, general purpose consumer loans have become the preferred vehicle for financing domestic demand here.

According to research from Standard Unlu, an Istanbul-based investment bank, general purpose personal loans grew at an average annual clip of 61 percent from 2005 to 2008 and have barely slowed since, registering a 42 percent gain last year.

It is not surprising that these loans have become so popular — for banks as well as customers.

After a consumer receives a text message from the bank informing him that he qualifies, or a note that he may pick up at an A.T.M., all he needs to do is pay a quick visit to his bank branch and collect the cash.

Mr. Acikalin insists that a close credit watch is being kept. And he says nonperforming loans are extremely low, at about 3 percent of loans outstanding. Broadly speaking, he adds, the Turkish banking system is in better shape than ever.

He points out that after the 2001 crisis — when scores of thinly capitalized banks failed — the government imposed stiff capital and lending rules that protected banks from the worst ravages of the brief 2009 recession, when the economy fell by 4.8 percent.

Under Mr. Erdogan, who heads a government with a Muslim character sharper than any in the 88-year history of the modern Republic of Turkey, the country has plenty to crow about. Turkey generated a gross domestic product of about $730 billion last year, making its economy the 17th largest in the world.

Article source: http://feeds.nytimes.com/click.phdo?i=e2cddcd7518c3f7e11a5d0fd0f05a794