Treasury guarantees were a critical rift between Erdoğan and Davutoğlu, sources say
AFP photoSeveral disagreements between Turkish President Recep Tayyip Erdoğan and outgoing Prime Minister Ahmet Davutoğlu have been highlighted since the latter’s announcement to step down, however the issue of Treasury guarantees was an unvoiced yet critical source of friction, according to sources in the capital Ankara.
In line with the tight fiscal policy implementations in Turkey following the 2001 economic crisis, the country had quit offering Treasury guarantees on any projects. With the end of the high liquidity party in global markets and the rise in financing problems, especially in emerging markets, Turkey again started to offer a 100 percent Treasury guarantee for major projects which cost more than $1 billion in April 2014.
Many companies which undertook the building of giant projects - from the third airport in Istanbul to the third bridge over the Bosphorus, the İzmit Bay Bridge and huge city hospitals - were subsequently able to obtain a crucial guarantee in the form of cheaper costs and financing diversity.
According to sources close to the matter, Davutoğlu had recently created another formula regarding this issue which contradicted with Erdoğan’s general approach.
Davutoğlu and his economic team wanted to decrease the share of guarantees from 100 percent to 80 percent due to fragile economic conditions, sources said.
Davutoğlu even asked for the preparation of a report over this issue from the related ministers in a cabinet meeting around one month ago, they added.
When this demand was heard, some circles however voiced their concerns about the possible negative effects of this move on the country’s giant projects, according to sources.
The planned move to decrease Treasury guarantees by 20 percent was ultimately canceled.