Disputes with EU or US won’t have lasting impact on relations

Disputes with EU or US won’t have lasting impact on relations

Barçın Yinanç - barcin.yinanc@hdn.com.tr
Disputes with EU or US won’t have lasting impact on relations Turkey’s disagreements with both the United States and the European Union after the failed coup of July 15 will not have a lasting impact on economic and political cooperation, according to Deputy Prime Minister Mehmet Şimşek. 

“Investors should be smart enough to see that we can agree to disagree. It’s OK to have occasional disagreements; it is not a make-or-break scenario,” Şimşek recently told the Hürriyet Daily News.

Turkey has survived a tremendous threat that has raised questions for foreign investors. What are your plans to alleviate these concerns?

Turkey has gone through a lot over the last few years, and the perception of Turkey has deteriorated. The reality on the ground is much better than the perception. But perception matters and while we are trying to improve the reality through structural reforms, we also need to try to narrow the gap between perception and reality – something that requires a significant campaign. 

Immediately after the [July 15 coup attempt], I got in touch with global investors. My message was that the Turkish democracy would become stronger, political stability would be strengthened, domestic political tensions would ease and that political consensus building would start. This failed coup will not have any negative implications on politics; in contrast, it will be an opportunity to reform the Turkish state to prevent coup attempts from ever taking place. 

The event was so short-lived that ultimately the impact on the economy, as well as household and investor confidence, will be limited. Turkey will continue to be fairly resilient; there won’t be any lasting damage.

And we will continue to address structural problems through structural remedies.

The state of emergency has only two purposes; one is to have a fast-track cleansing of FETÖ [Fethullahist Terrorist Organization] militants. The second [is to] only use the state of emergency powers to restructure the Turkish military system so that coups never ever take place, and that’s what has happened so far. 

Standard and Poor’s does not seem to agree.

S&P made a premature, rushed decision. It is a knee-jerk reaction. Normally, if an event takes place and if it might have a significant impact, you would expect the rating agencies to get in touch. Other rating agencies got in touch with us, and I explained that Turkey, including the opposition, was united against the coup and FETÖ.

We respect other institutions’ judgments but we would like them to make informed decisions.

How do you intend to continue this campaign?

President Recep Tayyip Erdoğan and I have already met investors to listen and address their concerns. But the best way to do that is to travel and do it face to face. Although it is holiday season, on my first trip by mid-August I am planning to go to the Asia-Pacific and cover places like Tokyo, Singapore and Hong Kong. Europe is another place where I would like to spend some time in late August or early September and afterwards again in September, I’d like to cover the United Kingdom and the United States. So hopefully we will be on the road explaining where Turkey is headed. Much of the fear is based on suspicions. But the facts on the ground do not support those suspicions, and these fears are misplaced.

Looking from outside and seeing 60,000 people suspended, the first concern of investors would be whether Turkey is going to stray from the rule of law.  

For the vast majority of investors, the question is whether or not purging will weaken the administrative capacity and the ability to provide services. Second, [they wonder] whether this preoccupation will weaken the ability to deal with security threats and third, whether or not such a purge will lead to a certain segment of society becoming discontent and creating a political backlash. 

First, suspension does not mean purging. Suspension is a risk mitigation strategy. You suspend those about whom you have credible evidence that they might be FETÖ militants or are complicit in the coup attempt or have been involved in criminal activity. So far, let’s say, 60,000 have been suspended. Most of those purged are military personnel caught red-handed. On civil servants, we will have a proper review of the status of those suspended and identify concrete objective criteria under what ground we would have a strong conclusion they are FETÖ militants. For those who are suspected of being part of this network, we may retain them as civil servants but in less active positions. In the Treasury, for instance, we have over 1,800 personnel. Only 62 have been suspended, and there have been no sackings yet. Some 60,000 suspended means 1.5 percent of all public sector employees; [such suspensions] do not have a material impact on our ability to continue to provide public sector service. Most senior-level civil servants have been already sidelined since 2014. So largely senior-level public servants are not FETÖ members. The impact would be rather felt in the judiciary, the police and the army, but even there, it won’t hinder our ability to combat security threats whether it is DEASH [Islamic State of Iraq and the Levant] or the PKK [Kurdistan Workers’ Party] or any other. Turkey has decades of experience of dealing with these threats. We are building a wall on the Syrian border; there is electronic surveillance, and the border where DEASH has control is fully sealed. Networks have been crushed. The PKK miscalculated our resolve, and people stood with the government. The vast majority of Kurds support our effort to cleanse PKK militants from city centers. The Turkish state apparatus is pretty sizable, and it is not depended on certain names. Most of the time the work is done at the lower rank any way. 

On your point; how do you deal with a terrorist organization that infiltrated your judiciary, army and police? We’ll go after them. We absolutely adhere to democratic principles. The rule of law applies in all circumstances, including in coup circumstances, and those arrested will have a proper judicial hearing. Those suspended will have recourse to the judiciary. The old judiciary was for a while controlled by Gülenists; cleansing those will actually save the judiciary. 

The president’s wish for a presidential system is perceived as a lust for one-man rule, and there are concerns that the purge will target all dissent in Turkey, as even some journalists believed to have no links to FETÖ were taken into custody.

President Erdoğan has been elected by a significant majority of this country, and trying to read somebody’s intentions is not the right way of assessing the direction of a country. While FETÖ is seen from outside as a moderate voice with a strong focus on education and dialogue, it is an organization that owns a bank, conglomerates and is involved in the extortion of money from businesses. The fact that FETÖ has media outlets and that the government is going after the FETÖ network does not imply that the government is going after other media or journalists. Some platforms have been used by FETÖ to achieve its aims; those are part of criminal activity. This is not about free speech; this is about essentially getting rid of a criminal network; if you can’t distinguish it, it looks like the rule of law has been weakened from the outside. Yet even the traditional opposition to the ruling party and Erdoğan are actually relieved; the vast majority of Turks believe that Turkey’s actions in the wake of the coup are right. These people are not responding to the Turkish constitution, they are taking instructions from a retired [Islamic scholar]; it is not consistent with any democracy. Purging those and getting rid of those networks is to save the rule of law. 

But one would expected the government to consult the opposition before restructuring the army.

Which we did.

That’s not want the opposition said. The opposition wanted more debate.

They will have the chance to debate it because all reforms are being sent to the parliament.

But you have the majority in the parliament; these decrees will pass through parliament.

The point is that the prime minister has had a number of interactions with key opposition leaders. We have been in close dialogue. How can you have a rule of law when a bulk of your judges and prosecutors respond to orders from a retired [Islamic scholar].

In my view, if you go to back to 2010, which is when the perception of Turkey began to deteriorate, what happened in Turkey is closely associated with FETÖ. We thought the Ergenekon and “Balyoz” (Sledgehammer) cases were about prosecuting those contemplating a coup. It is clear today that it was aimed at getting FETÖ’s low-ranking guys higher up. Go back to Gezi. Looking at the harsh treatment of the initial protests which were innocent at the beginning, one wonders whether they had their hands there or not. The corruption allegations that followed our decision to close down the prep schools were politically motivated. 

Once you [realize] that much of the terrible experiences of previous years are associated with the ambitions of this network to take over Turkey’s administration, then you have a better understanding.

Still, when a foreigner sees police raiding companies, that might make them reluctant to come to Turkey.

This process will be very short and it will not be prolonged. Companies where administrators have been appointed are well-known companies; there is a court ruling. Administration does not mean the outright liquidation of a company, it just mean this terrorist organization has been in control. If those business are viable, they will continue to operate under the new administration.  

This is about terrorist financing. We shut down universities and associations because you need to dismantle the network. But students have been given the right to attend other universities.

Will the government prioritize economic reforms while it is so busy staging a fight against Gülenists?

Absolutely; while some are dealing with the aftermath of the coup and dismantling this network, other parts are working hard to make sure that normalcy is returned and we go beyond achieving normalcy. If the priority was not the economy, would we send a bill to parliament to boost savings. We did it last week; auto enrollment in the private pension scheme is a critical piece of reform since one of the problems is low domestic savings. 

Many tend to think that in the last eight or nine months, progress has been slow.  I disagree. This is a quick run-down of what has been achieved but not promoted enough: Turkey’s position in the global value chain is very low. Only one third of our exports and manufacturing is medium high and high tech. In February, we passed a Research and Development reform package. We prepared a comprehensive new patent law completely in line with EU and U.S. rules and regulations; the bill is in the parliament. Usually, you need an echo system to make the economy more innovative. I refer to incentives for venture capital, the introduction of crowd funding and restructuring the development bank to support high tech start-ups. We have done much of that. Some pieces are still being put in place.  

And then there is labor market reform: Turkey has a fairly rigid labor market regulation constraining the economy. We passed legislation, enabling temporary employment facilitation that makes the labor market more flexible. We passed legislation which eases restrictions on part-time employment. 

Judicial reform: I am speaking of the delivery of justice in a timely fashion. We established regional appeal courts and 70 to 80 percent pf court cases will not go to supreme courts; they will be finalized at the regional level, speeding up justice. The reform of the expert witness system is in parliament. We are now working on arbitration mechanisms. 

On education, we invite the private sector to build technical vocational schools and provide huge incentives.

Investment climate: a day before the coup, parliament was debating and adopting a reform bill on investment, making it easy to set up a company to liquidate a company reducing red tape, etc. The work is not finished, and more is needed. 

Income tax reform is at parliament. For public procurement, there is a draft; it’ll be sent to parliament.
We had an agenda to enhance transparency and combat corruption. The core element of that is rule-based zoning and building permits; the draft is ready.

The Turkish opposition says the repatriation bill will turn Turkey into a heaven of money laundering.

We made it clear that anti-terrorist financing and money laundering will be fully applied. The tax-free repatriation of resources is not an exemption from money-laundering legislation. 

How can you do that; are the two not mutually exclusive?

On the repatriated money, no questions will be asked for tax scrutiny purposes. But if it is a suspicious transaction; if some company involved in money laundering; if there are people suspected of having links with terrorist organizations, that legislation will be fully applied. Similar repatriation bills have been adopted in many countries, including the EU.

Where is the EU accession in this agenda?

There is huge progress even on the EU front. A number of chapters were opened, high-level dialogue on economic issues took place in Turkey and we agreed to have impact assessments to expand the customs union to include public procurement, services and agriculture. Once impact assessments are completed, negotiations will start in early 2017.

Don’t you think President Erdoğan’s harsh criticism of the U.S. and Europe will irritate investors from those countries?

You have to take everything within a context. If you can’t differentiate underlying fundamental shifts versus occasional disputes you can’t make informed decisions. The U.S. is our ally, and we combat international terrorism together; we have a lot of common interests.

We have disagreement over FETÖ and the PYD [Democratic Union Party]. Even within a family, people disagree with each other occasionally. On FETÖ, they asked for evidence and we provided evidence; we hope they will live up to their own norms – they should look at their Patriot Act. On the PYD, we have disagreements, but none of them will get in the way of cooperating elsewhere.

Investors should be smart enough to see that we can agree to disagree. It’s OK to have occasional disagreements; it is not mean make or break. 

The EU needs Turkey and Turkey needs the EU. We are disappointed because we just had one of the most violent coup attempts, and our allies have been saying, “the coup is bad, but…if.”

Have some dialogue and show some solidarity instead of trying to express suspicions. Watch Turkey, it has not abused the powers of the state of emergency; they have been applied in a very limited fashion and only against FETÖ. It has not been applied otherwise. We have restructured the army, and it is a core reform requirement by the EU; they should be applauding Turkey. It’s hard to understand their judgment. They are either in holiday mode and haven’t gotten their facts right or something else.

In the heat of the moment in incidents like that, you have a backlash and all sorts of voices. But the vast majority of investors believe in Turkey’s potential and believe Turkey remains anchored to the EU, and neither Turkey nor the EU can afford a breakup. I doubt that you will have a lasting impact. 

Temporarily, yes, there may be some questions, and temporarily these notices may be getting in the way; that’s why we will go and have face-to-face meetings. Time will heal a lot of wounds. We had an extraordinary period; some of our criticism is justifiable, and our partners will begin to understand – there will be some sort of reconciliation. I don’t see a point of no return. 

We believe there is massive anti-Turkish propaganda, and that’s why we need to go on a counteroffensive. But soon investors will see that Turkey is heading back to normalcy and beyond.

Who is Mehmet Şimşek? 

Disputes with EU or US won’t have lasting impact on relations

Mehmet Şimşek serves as a deputy prime minister for economic affairs. He previously served as the finance minister (2009-15) and as the economy minister (2007-09).

Before entering politics, he worked for Merrill Lynch in London for seven years as an economist and strategist, and subsequently as the head of Fixed Income Strategy and Macroeconomic Research for the emerging EMEA region.

Şimşek holds a B.S. in Economics from Ankara University, and an M.Phil degree in Finance and Investments from Exeter University.

Şimşek was born in 1967 in a small village in the southeastern province of Batman. Of Kurdish origin, he is fluent in Kurdish as well as English.

Şimşek was nominated as one of the 500 most powerful people on the planet by Foreign Policy in 2013, and awarded as the “Finance Minister of the Year for Emerging Europe 2013” by Emerging Markets magazine.