Turkish cabinet’s move to transfer top public firms to wealth fund stirs strong criticism
ANKARA/ISTANBUL
Turkey transferred its stakes in Ziraat Bank, the Borsa Istanbul stock exchange, Turkish Airlines and state-owned pipeline operator BOTAŞ, among many others, to a new sovereign wealth fund, in a bid to help finance giant infrastructure projects, through two separate statements on Feb. 5-6.
Selin Sayek Böke, the Republican People’s Party’s (CHP) spokesperson and vice chair responsible for economic policy, said on Twitter on Feb. 5 that the move would drive the Turkish economy toward a steep cliff through the creation of a “parallel” treasury.
She also noted that the state’s companies would be used as collateral.
Turgay Bozoğlu, the economy adviser to CHP leader Kemal Kılıçdaroğlu, said the fund’s audit-free structure would create big risks for the economy.
Such funds are established by energy-rich countries or economies with high foreign trade surpluses, but Turkey is not a member of any of those groups.
“Although Turkey is not one of the aforementioned groups, this fund was established in a bid to detach some key budget revenues out of the budget and public control. This will only lead to new financing opportunities for some pro-government businesses … mainly in big infrastructure projects,” he said, according to Doğan News Agency.
Like establishment of ‘Düyun-u Umumiye’
Bozoğlu also likened the move to the establishment of the Düyun-u Umumiye (Council of Ottoman Revenues and Debts Administration) in 1874, adding that Turkey’s fiscal discipline would deteriorate severely.
Durmuş Yılmaz, a former central bank governor, said the cabinet’s move signaled some serious problems in the economy, adding that such steps drove the Turkish economy toward a serious financial crisis in 2001.
“If there had not been a serious problem, such a step would not have taken … Such actions led to the 2001 economic crisis. There were more than 40 funds in Turkey ahead of the crisis, and they created huge problems for the economy. If the fund’s resources are used as collateral to receive foreign debts, then Turkey will see a rise in fund inflows. But it will also see an increase in its foreign debt,” he said.
Economist Uğur Gürses said the cabinet’s move was “meaningless and unlawful,” noting that the companies that had been transferred to the sovereign wealth fund would no longer be subjected to budgetary audits.
“The companies under the control of the treasury used to be sold in the past through privatizations. The privatization revenues used to be left to the Treasury. Now, such companies can be transferred to the sovereign wealth fund by decrees. The government has the right to issue decrees during states of emergency, but the latest move has nothing to do with the state of emergency … Now, the companies formerly owned by the Treasury are exiting budget control, making the move ‘meaningless and unlawful,’” he said, as quoted by the T24 news website.
Pressure over ‘fiscal discipline’
Meanwhile, Mahfi Eğilmez, a leading economist, wrote in 2016 that the establishment of such a fund would lead to a complex fiscal mess.
In his article, which was shared by many in social media on Feb. 5-6, Eğilmez noted the re-launch of multiple non-budget funds in the 1980s.
“The most harmful effect of such treasury systems is the over-distribution of central treasury revenues, the loss in the country’s expenditure priorities, the inability to make some key expenses gradually and the loss of fiscal discipline in the public administration. The negative impact of such funds played a key role on the road to Turkey’s economic crises in 1994 and 2001,” he said.
“One of the most crucial structural reforms, which were made in Turkey in the 2000s, was the end of these multiple fiscal structures,” said Eğilmez.