Turkish economy recovered swiftly after the coup attempt

ISTANBUL

There was a big question mark on how the markets would react two days after the failed July 15 coup attempt. On July 18, the main index of Borsa Istanbul plunged at opening but economic activity and banking system operations continued uninterrupted the remainder of the week.

The economy soon recovered without any serious harm as the government, institutions and private sector collectively started to implement measures one by one. 

In the third quarter of 2016 that witnessed the coup attempt, the economy contracted 1.8 percent but growth picked up and recorded high expansion rates afterwards. In the whole of 2016, the Turkish economy grew by 3.2 percent and it expanded at 7.4 percent in 2017. With a growth of 7.4 percent in the first quarter of 2018, Turkey was among the fastest growing three economies in the world.

Credit Guarantee Fund’s strong effect

The U.S. Dollar/Turkish Lira rate initially rose above 3 per dollar. However, after then-Deputy PM Mehmet Şimşek held a teleconference with investors in London that helped to ease concerns the rate declined.

The Turkish economy was resilient to the possible adverse effects of the coup attempt mainly because of the reforms and measures undertaken in the banking system over the years.

The Credit Guarantee Fund (CFG) was restructured and provided much-needed lifeline to companies that were having financing problems. All NGOs took a common decision and they prevented a panicky environment and made sure that the economy operates smoothly and they did not allow mutual trust go awry. 

Since last year 467,776 companies have taken out 255 billion Turkish liras ($52.6 billion) with 227.3 billion liras of guarantee under the CGF. Some 75 percent of that total amount was extended to small and medium-sized companies. 24,335 exporters benefited from some 40 billion liras worth of guarantees. 

Standard & Poor’s (S&P), Moody’s and Fitch slashed Turkey’s credit rating in the wake of the coup attempt and this was the largest blow. The rather limited impact of the rate cuts were felt in the Turkish markets but the real sector was less affected. 

SDIF is a holding company

In the wake of the coup attempt, the Fetullahist Terrorist Organization (FETÖ)-affiliated companies were seized. Under the Saving Deposit Insurance Fund (TMSF) there are 981 companies with assets ranging between $1.5 billion to 100,000 Turkish liras. As of 2017, revenues of those companies, whose combined equity stands at 19.5 billion liras, increased by 30 percent to 35 percent. 

The way people reacted to the coup attempt was also significant. In the face of the volatility in the currency rates, President Recep Tayyip Erdoğan called on people to sell the foreign currencies they hold. Following the president’s call, people sold $20 billion worth of foreign currencies in the space of three months. 

The Turkish Exporters’ Assembly (TİM) chair İsmail Gülle explains how things were running smoothly in the aftermath of the coup attempt: “After the coup attempt we, as TİM, struggled to explain to the world that everything was normal in the Turkish economy and the wheels of industry and production kept on turning. We did not cancel a planned visit to Panama and Guatemala scheduled for July 16, 2016. We also sent out letters to our partners across the globe informing that Turkey kept exporting at full steam. We visited a number of countries together with the Economy Minister, other ministers and chairs of NGOs, lawmakers from all political parties and business people. As part of the Turkey Perception Campaign we managed to reach out a total of 450 million target audience through 360 repeated features in 27 newspapers and 22 magazines of seven countries.” 

The Istanbul Chamber of Industry (İSO) chair Erdal Bahçıvan noted that the private industry sector’s dynamic and crisis-resilient structure as well as the decisions the government swiftly executed played an important role in the strong economic growth that followed the contraction in the third quarter of 2016.

“We need to underline the “Lifeline Credit” extended to the SMEs and supported by the ISO, Special Consumption Tax reductions for consumers, incentives and a number of measures designed to support investments and consumption,” Bahçıvan said. 

Huge support for the real sector

The government supported both production and employment through a number of incentives packages it announced in the wake of the coup attempt. It mobilized resources to create jobs and the state provided various incentives to the companies that created new jobs. The tax reductions introduced in several industries helped consumption continue. Moreover, measures such as land allocations and tax breaks were introduced that helped larger investors, besides SMEs, undertake new investments.