What awaits Turkish economy amid coronavirus outbreak?

Assoc. Prof. Dr.  Selin Sayek Böke 

We are on the brink of a global crisis. It seems that when it is all over nothing will be the same. What it will look like, however, very much depends on how we all decide to act today. The coronavirus pandemic has triggered a crisis that has once again highlighted all the structural problems of the current world order. And Turkey is getting its fair share from the situation. What’s more, Turkey has been caught fairly off-guard by the corona-led economic crisis. 

We are once again confronted with our prevailing vulnerabilities. Our own structural crisis means that the current corona-led crisis will cause deep damage, cyclically as well as structurally. This is why we are in urgent need of rational and radical economic and social measures that are equal to the gravity of the crisis we are now facing. Clearly, all policies and measures have to primarily focus on protecting life. We need a framework that prioritizes securing a healthy life for all. Yet until that day comes, we urgently need supportive economic and social policies. 

We need to approach the current crisis with this mindset, and we need to seek answers to the following questions: What are the issues? What awaits Turkey? What should be done? Can the economic remedies announced by the government be of any help? The answers we give will not only affect today but will also have a huge impact on our tomorrow.

1.What were the global economic conditions prior to the coronavirus crisis?

The global economy has been in a crisis for quite some time now. Since 2008-09 these crisis conditions have become the new normal, as has been the case in Turkey as well. The world powers who have continued to take decisions favoring financial capital are to be held accountable for this new norm. This is a deliberate political choice, a choice our own government happily partakes in. And this deliberate political choice impacts our daily lives immensely and in multiple ways. The decisions that continuously and deliberately favor the 1 percent undermine the well-being of the 99 percent day by day. 

All basic social and economic rights—such as the right to health and education, and labor and housing rights—that are of deep concern for the 99 percent have eroded and continue to be eroded by the powerful. The political choice of weakening the welfare state over the years has left millions vulnerable to any crisis, meaning that each crisis deepens the deep inequalities already existing. Turkey too, with the deliberate choice of the AKP’s 18 year-long economic programs, has followed suit in this global economic structure.  

2. What were the economic conditions in Turkey prior to the coronavirus crisis?

Even before the coronavirus, we were in our very own economic crisis of our own making. Now the pandemic will worsen the situation. A part of this crisis is an outcome of the current economic structure, which overlaps with the global structure described above. This structure is one where health and education has been heavily privatized, where flexible and precarious employment is almost the rule, rent collection by property owners is encouraged by public authorities, and the population is left unprotected under the pressures of large debt burdens contributed to by speculative finance. It is exactly this economic structure that will lead the health and economic effects of the coronavirus pandemic to be graver. 

The political choices of the Palace Regime, a move towards authoritarianism, the demolition of the rule of law and erosion of inclusive institutions, has meant that an economic crisis was already deeply felt in Turkey before the world was shaken by the coronavirus. What were we experiencing as a result of this crisis?

Unemployment was already peaking, along with undercurrents of a social crisis. Nearly 4.5 million people were already jobless, with women and the young at a particular disadvantage. Moreover, unemployment duration had been on the rise for millions well before the coronavirus crisis hit: one million one hundred fifteen thousand people have been unemployed for over a year. 

Both households and the real estate sector were already heavily indebted, in an economy that can only stand up with lifelines of credit. Even debt has been “privatized”, with household bank and credit card debt rising to 624 billion TL, and the SME’s (Small and medium-sized enterprises) bank debt to 620 billion TL. 

Turkey’s risk premium was already high. Although it had been volatile, it had continuously been on the risky side among comparable economies. 

An unhealthy fiscal policy framework had become the norm. Long before the coronavirus arrived, the precautionary savings of the Central Bank were used for finances, and fiscal discipline had long been reduced to words on paper. The composition of the budget was always skewed heavily towards the rentier in a partisan fashion, rather than towards the needs of the society. On top of this, in the name of the Sovereign Wealth Fund a parallel treasury was established. Furthermore, this parallel treasury, that is not a public institution, is chaired by the President. All of this had happened long before the coronavirus crisis hit us.

In short, we were already in a chronic economic crisis, and on the brink of a serious social crisis. 

3. Given these conditions, what are the channels through which the coronavirus will affect the Turkish economy? Which policies are needed?

The four dimensions of the local economic crisis noted above will only worsen with the coronavirus. What should we expect? What should we do?

There is a rising risk of unemployment and of the social crisis deepening. Health concerns require social isolation and social distance. On the economic front, this means less interaction, fewer transactions and a halting of the economy. This puts immense pressure on employment. Therefore, any policy has prioritize means to support both the already unemployed and the currently employed whose employment security is now uncertain and at great risk. The already existing social crisis will now be aggravated with concerns over health and unemployment, as a much needed strong welfare state that could prioritize protecting the vulnerable and marginalized is absent. 

All policies should be introduced as an effort to build a strong welfare state.

For the heavily indebted, anxiety is building. Unemployment means the loss of income. This means significant payment difficulties for the indebted, on top of the social anxiety of unemployment. This is why there is an urgent need to reduce people’s debt burden and put forth social policies that will eliminate any loss of income. 

Given the global financial market’s reaction to coronavirus, Turkey’s already very high level of economic risk is a vulnerability. The appetite for risk of foreign funds has shrunk in the face of coronavirus crisis. Uncertainty catalyzes the reflex to return home, both for people and for money. The run to safe-havens first starts from the more risky areas. This contributes to the vicious cycle of ever-increasing risk premium for countries with structural vulnerabilities. For countries with high risk, such as Turkey, it is going to be harder to access finances and all finances will be costlier. 

We need to take all measures to reduce our risk premium. Participatory democracy,  transparency and inclusiveness will not only improve the healthcare governance of the pandemic but will also heal our macroeconomic health. 

What awaits us at the end, given an already unhealthy fiscal policy framework, depends on the steps we decide to take. Crises like this one require expansionary fiscal policies. However, two factors require caution in designing this much needed expansionary fiscal policy: First we must revisit the existing composition of the 2020 budget. All expenses that are not urgent and necessary should be halted. For example we should start by halting the 19 billion TL that was put aside for payments to the partisan rentier firms for public-private ownership project guarantees. Second, any fiscal design should focus on immediate relief, weighing the burdens these choices might have in further deepening the existing structural problems when this crisis period is over. 

In short, the budget should be revisited. A fiscal expansion that is in line with the changing needs of the society, without losing sight of avoiding the repeat of past structural “mistakes”, should be put forth.  

4. Who and what are in, and who and what are not in the “stability shield” measures put forth by the government? 

The “stability shield” of the government includes 19 measures, but none are ones that the people need urgently. An analysis of the measures in the order of urgent needs would be as follows: 

There is no social protection for ordinary people and the workforce in the “stability shield”; but there are contractors, a handful of airline companies and, once again, a credit and loan dependent economic order. We urgently need to provide social protection to the vulnerable and marginalized, and we need to stop the loss of income loss for millions of workers – employed or unemployed. Despite this urgent need, however, the economic package put forth by the government once again fails to tackle the core of the problems and remains short of supporting those who are heavily affected. 

There is no income support for the people, but only more debt and more construction in the stability shield package. The measures promise more debt to households through “social credit” rather than a steady income, and further encourages the taking of mortgage loans! 

What people need is not more debt but rather income protection and the reduction of basic costs in the face of this crisis. The unemployed need easier and wider access to the Unemployment Insurance Fund. Employed people, on the other hand, need the guarantee of a job and steady income. Those in need of social assistance require a stronger welfare state. Households need their debt burden to be reduced. And they definitely do not need mortgage loans; mortgage loans would serve only the contractors, if anyone at all. What households and small businesses need is not mortgage loans but rent assistance programs.  

The stability shield has no goal of reducing the anxiety of millions of employees, but rather sees an opportunity to increase the flexibility of an already very precarious labor market. The “minimum wage support” is packaged as a new policy. However, this is already a right that is in place, not one that would remedy the extra costs of the coronavirus crisis. 

The urgent need is to give a tax break to minimum wage earners and to ensure paid-leave for millions of workers. What is needed is to ensure social isolation by creating flexible work conditions for employees, reducing their anxiety. But instead the stability shield has opted to extend the “compensated working time” right of employers from 2 to 4 months. If the goal, as is said, is to ensure employment stability what is needed is not an extension of compensated working time but rather a ban on all firings. 

The measures are inadequate to sustain a comprehensive welfare state, but rather introduce only moderate social policies. At a time when the authorities think it is OK to transfer 19 billion TL from the budget as guarantee payments to contractors of PPP’s (Public-private partnerships), the shield only offers to add a mere 2 billion TL to social assistance programs. The people are not shielded. On the contrary, what is shielded is the economic structure that drives the crisis in the first place. 

Employer related measures promise more debt and less tax for employers. The postponement of tax and social security employer contributions that are included in the shield package overshoot the cause of this crisis. Indeed, every such necessary measure targeting employers has to be tied to the condition of protecting employment. 

As I come to the end… The most amazing measure put forth in the shield is one that once again makes “dreams come true”. At a time when we are all asked/required to stay at home, the shield reduces the cost of airline tickets. You can fly without leaving your home, thanks to the shield! Clearly, the reason underlying the tourism sector’s sharp collapse is not understood by the authorities. People did not stop traveling because they suddenly found it pricy, but they rather stopped out of health concerns. A reduction of airline VAT taxes is nothing but a policy to reduce tax collection by the government. What is needed is protection to an already highly seasonal, flexible and precarious working class. 

What we need is a shield for the people. By insisting on policies that will ensure both public and private health, listening to and implementing the advice of scientists and experts, and with strong solidarity and hope, we will definitely overcome these tough days. Stay healthy!

Author:

Selin Sayek Böke, is a Member of Parliament representing İzmir, since 2015. She has been a member of the Parliamentary Assembly of Council of Europe (PACE) since 2018. Ms. Sayek Böke has been elected to the Party Assembly of the Republican People’s Party (CHP) since 2014, during which she has served as the Vice Chair of Economic Policy between 2014 — 2017, and as the Party Spokesperson between 2016-2017. Selin Sayek Böke holds a B.Sc. degree (1993) in Economics from Middle East Technical University (METU, 1993), an M.A. (1996) and PhD (1999) degree from in Economics from Duke University. She participated in several World Bank projects as consultant, and worked as an Economist at the IMF (2001-2003).