Turkish business circles in-between debt calendar and snap election fears
Mustafa Sönmez - email@example.com
Turkish business circles want to see the end of post-election uncertainties and express their concerns to politicians. Many of them are under huge debt burdens. Their biggest concern is the possibility of the non-establishment of any coalition government and entering a snap election period, which will both increase political risks.
The United States Federal Reserve (Fed) did not make any change in rates last week, parallel to expectations. The Fed, however, signaled a rate hike within 2015 again. This has triggered expectations about a rate hike in September. The bank’s signals about lower rates in slower than earlier expected has enable emerging markets, including Turkey, to save at least six months.
The negative effects due to the expected rate hike by the Fed have recently been limited. Some relatively good news is also resolving Greece’s bailout problems. We didn’t see a big investment rush out of Turkey, despite high political risks the country has. The Turkish Lira has gained some value after the elections, lowering to 2.65 against the dollar from the lira’s 2.75 exchange rate during the elections. Nevertheless, Turkey has a big volume of debt stocks at $164 billion, which must be paid back in the next 12 months. This huge amount represents around 40 percent of the country’s total external debt stock, $403 billion.
Due debts in 12 months
According to data from the Central Bank, around 86.3 percent of Turkey’s short term debts are from the private sector, 13 percent are from the public sector and 0.7 percent from the Central Bank.
Privately-owned banks have almost $90 billion of the sector’s short term debts at around $141 billion. Public bank’s debts also stand at $18 billion. The country’s banks need to repay around $108 billion in debts in the next 12 months. The non-banking financial institutions also need to pay $7 billion in the short term. Other (non-financial) companies need to repay $44 billion in debts, representing 27 percent of the total debts.
Around $56 billion of the banks’ short-term debt stocks are comprised of borrowed loans. Their foreign currency accounts stand at around $13 billion. Banks’ deposit liabilities are almost at $27 billion and their lira-based liabilities are around $13 billion.
The debts of the non-banking private companies are around $51 billion, around $26 billion of which is comprised of import debts. The remaining amount is loan debts.
As of the end of April, some 54.7 percent of the short-term debt stocks have been based on the dollar, 30.3 percent on the euro, 12.3 percent on the lira and 2.7 percent in other currencies.
It is very well known that the indebted companies will be negatively affected from the loss of value in the lira against foreign currencies when they are paying their short-term debts. Keeping in mind that the lira has lost 30 percent of value against the dollar last year, the companies which have external debt liabilities have faced losses in their balance of sheets; this will be seen in their year-end financial results.
Besides, the costs of the existing $163.4 billion of debts will increase when the lira loses more value with the expected rate move of the Fed.
Eyes on parliament
Turkey’s business world is closely following the ongoing coalition negotiations between the political parties. A parliamentary speaker will be selected June 29-July 3. At least 367 votes will be sought in the first two rounds and just 267 votes in a third round if any speaker does not get the required votes in the first two. If the candidates cannot get the required voted in the third round, the two candidates with the most votes will be put to a vote in a fourth round. The candidate who wins the most votes will be the parliament speaker.
Unless an eligible coalition choice rises up before the parliament speaker polls, this election will become of greater significance. If a coalition idea occurs during the parliament speaker elections, the markets will start to price this message. The markets, therefore, will be closely following these elections.
Fear of snap elections
A number of leading business organizations has already started to voice their requests for an immediate solution to the parties. A total of eight non-governmental business organizations, including the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and Turkish Confederation of Employer Associations (TİSK) as well as two biggest employee confederations, Türk-İş and Hak-İş, planned to meet the leaders of the four political parties.
Under the shadow of the discussions over the launch of a coalition government, Turkey’s top business organization, the Industry and Business Association of Turkey (TÜSİAD), met the representatives from all four parties, while the representatives from TOBB, Confederation of Turkish Tradesmen and Craftsmen (TESK), Turkish Agricultural Chambers Union (TZOB), Türk-İş, Hak-İş, the Confederation of Public Servants’ Trade Unions (Memur-Sen) and TİSK visited Prime Minister Ahmet Davutoğlu as members of the EU-Turkey Joint Consultative Committee (KİK) in a private meeting at the Justice and Development Party (AKP) headquarters. The KİK delegation reportedly gave the message that “the political parties should reconcile and a coalition government should be established. Any snap election may cost the economy and the social life a lot.” Davutoğlu called on the delegation to say the same to other parties as well.
TOBB President Rifat Hisarcıklıoğlu said in his speech that the poll results had given the parties a message of “reconciliation,” adding: “We believe that any snap election will not bring a permanent solution to our country’s structural problems, but will make Turkey lose time. We eye the establishment of a government within the existing arithmetical realities of the parliament.”
“Ant ship cannot be left without a captain when the waves are rising. The establishment of a coalition government in line with the peoples’ wills will prevent, in the short term, any domestic risks as the global economy becomes more and more fragile and, in the long-term, make a great contribution to the development of a reconciliation culture in our country. We need to remember that we are in the same ship. If we all work together in a reconciliatory manner, building dialogue and common sense, there will be nothing we cannot overcome,” he said.
In response to a question about whether the delegation had a preferred coalition government, Hisarcıklıoğlu said, “In the past, we saw how wrong it was for business organizations like us to intervene in political affairs and political engineer. Nobody should do such things today.”
Davutoğlu said the AKP has a positive attitude to any coalition possibility and party at the meeting. “I will try all alternatives and I believe this will last with reconciliation,” he added. In the meeting, President Recep Tayyip Erdoğan voiced his positive stance to the coalition negotiations. The employee and employer organizations also underlined the need of the immediate establishment of a coalition government for the sake of the citizens.
TÜSİAD: ‘Reconcile fast’
The TÜSİAD delegation had a 50-minute meeting with the Republican People’s Party (CHP) delegation in Ankara. TÜSİAD President Cansen Başaran Symes said Turkey is now experiencing a positive process, in her speech after the meeting. She said the delegation voiced its pleasure to CHP leader Kemal Kılıçdaroğlu in the composition of the parliament, with a public participation of around 95 percent. She noted the business world wants to see the establishment of a government immediately in a reconciliatory manner. “As the representatives of the business world, we have fairly positive expectations that our politicians will establish a government that will smooth the way for our country immediately in a reconciliatory way,” she said. Symes said the delegation exchanged ideas with Kılıçdaroğlu about turning the country’s attention to the reform agenda and economic matters with the immediate establishment of a government. She said their meetings would continue with the leaders of other parties. “I want to underline a significant point here. As the representatives of a non-governmental organization, we are definitely not here to urge any specific government formation. In fact, we are here to express the business world’s request, in our loudest voice, to concentrate on the economic matters again,” she said.
The TÜSİAD delegation then met Nationalist Movement Party (MHP) leader Devlet Bahçeli. Following the meeting, Symes said, “We discussed which reforms the business world wants to immediately make in a ‘warm’ environment. We had a very productive meeting.” The TÜSİAD delegation reportedly gave two important signals in the private meeting with the party. The delegation members said they want the continuation of the [Kurdish] peace process for the maintenance of democratic progress. The TÜSİAD delegation also underlined the fragile economic indicators both in the world and in Turkey when voicing its expectation about the establishment a new government. “A snap election may lead to delays in key economic decisions, and delays in the taking of structural measures will negatively affect the economy,” said delegation members.
MÜSİAD wants coalition as well
Nail Olpak, head of the Independent Industrialists’ and Businessmen’s Association (MÜSİAD), which is known as the closest business organization to the AKP, held meetings in Ankara as well, later speaking to Cansu Çamlıbel from daily Hürriyet. “We already told this to the political parties: If any of them extend the process to establish a new government too much, they will need to govern a blocked system. The bureaucracy is on hold right now. No signatures have been right now,” he said.
Upon a question about what MÜSİAD members think about the parliament decision’s to close the four 2013 graft probe ministers’ path to the Supreme Court, he said, “Any politician says anything during elections. If politicians give a favorable or unfavorable vote about the Supreme Court, we need to read this as a political decision. He or she will see the results of these decisions during elections. When the general public conscience is considered, it may be better for the ministers to be cleared in front of the courts, but not in the parliament. Some questions, however, must be kept in mind: Will there be any further political showdown exceeding the four ministers’ issue if the case is carried to the courts?” he said.
Upon a question about whether he meant President Erdoğan, he affirmed.
“Maybe...There are similar questions. Despite anything, we prefer such things are not covered. This is quite clear,” he said.
Responding to a question about the MÜSİAD members preferred coalition scenario, he said, “Our branch heads told me that a coalition government between the AKP and MHP will be easier to form. In my opinion, it is harder for the CHP and the AKP to form a coalition government, but then again it will also be a wider and longer government, too,” said Olpak, adding that a coalition between the AKP and Peoples’ Democratic Party (HDP) should not be overlooked in discussing possible scenarios.
“The HDP has the claim of being the party of [a wider segment of society in] Turkey. What is important is that the coalition should be formed rapidly but not without principles. Several of our members even proposed giving a required time for a coalition, saying [a coalition should stay in power] for at least two years. It is of importance to see the establishment of a government from this parliament. We have reached these conclusions following our meetings with President Erdoğan and the leaders of the three political parties. We said our members have seen the situation in this manner,” he said.
In summary, Turkish business circles are concerned about the rise of political risks and agree that a permanent, stable coalition government should be established in a reconciliatory manner. On the opening of the corruption files that occurred during the AKP rule, even MÜSİAD is not negative, but the organization does not refrain from voicing its concerns about the extension of these probes to the president. According to some circles, the main element in the coalition government negotiations will be the 2013 graft probes; the president, who believes such investigations will extend to him and his family, will not pave a smooth way for any coalition choice. He will reportedly urge a snap election with the aim to establish a single party government run by the AKP. This, however, will mean confronting business circles, who oppose snap elections.
There are also some circles who talked about the AKP’s disintegration. Some businesspeople say there is nothing to fear from such disintegration as long as a coalition government is formed.
The current conjuncture seems to continue to attract attention as one of the most uncertain political periods of the country.