Fed bound for ‘moderate increase’

Mustafa Sönmez – Hürriyet Daily News – March/23/2015

For long years, the world economic literature was not locked into a word such as “patient.” When the U.S. Fed turned the topic of the timing of the rise of interest rates into a lotto, then the answer to the question “when?” was formulated as: “being patient and not being patient.” The patient stance meant there would be no rush in the decision to raise interest rates; removing the patient stance meant “that moment” was nearing. Then came the awaited March 18 statement, when Fed governor Janet Yellen said they would not be in their patient stance anymore in increasing interest rates but they would not be impatient either, giving the signal of a soft rise. This is also called the “dovish stance.”

Yellen said, “Today’s modification of the forward guidance does not mean that an increase will necessarily occur in June, although we can’t rule that out.”

Yellen emphasized that interest rate decisions were totally based on economic conditions and “an increase in the target range for the federal funds rate remains unlikely at our next meeting in April.”

Despite that, Yellen said, “Let me emphasize, however, that the timing of the initial increase in the target range will depend on the Committee’s assessment of incoming information. Today’s modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase.”

She also said, “… market participants should be is looking at incoming data, just as we are…”

IMF warnings

The warnings of the International Monetary Fund (IMF) were influential in the Fed’s caution. On March 16, IMF head Christine Lagarde said more than six years after the global financial crisis, “the recovery remains too slow, too brittle and too lopsided.”

Speaking in New Delhi, India, Lagarde said, “Looking ahead, something better may yet come on the back of low oil prices and low interest rates. Still, there are significant risks to this fragile global recovery.”

vvReminding that the global economy is expected to grow by 3.5 percent in 2015, Lagarde also said, “This is still below what could have been expected after such a crisis.” She warned about “asynchronous monetary policy” in advanced economies, which may result in excessive volatility in financial markets.

In the Fed’s moderate pace decision, these warnings are influential. The Fed has to consider the global reaction of each step it takes; it needs to.

Forex rates

Since mid-2013, the Fed’s signals on raising rates have caused global funds to take new positions and turn their faces to the U.S., thus resulting in the devaluation of local currencies against the dollar by those funds leaving their host countries. Against the strengthening dollar, several central banks devaluated their own currencies against the dollar; especially the euro rapidly lost value against the dollar.

According to IMF data, the devaluations against the dollar and repositions, which accelerated in 2014, continued to accelerate in the first two-and-a-half months of 2015. With the message of the Fed’s March 18 meeting, fluctuations in local currencies restarted and they will continue.

According to the IMF, when the one-year period covering March 18, 2014, and March 18, 2015, is taken into consideration, the sharpest devaluation was seen at the Russian ruble with 69 percent. The Crimea and  Ukraine issue was the most important factor in this loss; however, since the beginning of 2015, the decline in the ruble has stopped.

In the yearly basis, the Brazilian real has become the most devaluated “emerging” local currency with 39 percent, with its loss nearing 22 percent since the beginning of 2015.

The loss of value of the euro against the strengthening dollar has become 24 percent in one year. The euro/dollar parity was 1.33 on March 18, 2014; it was 1.05 one year later. The new Fed decision is expected to decrease this toward 1.

While the Japanese yen devalued over 19 percent against the dollar in one year, the Chinese yuan’s loss has been 0.4 percent since the beginning of 2015. It is now being mentioned that for  China  to maintain its growth based on exports it may opt for devaluation against the dollar, which would create new fluctuations in world equilibriums.

Losses in the Turkish Lira 

The Turkish Lira, while it lost 18 percent value against the dollar on a yearly basis, has started losing fast against the dollar since the beginning of 2015. In 2015, the lira’s loss neared 13 percent in two-and-a-half months, accompanying the Brazilian real in the biggest losses.

After the Fed’s recent statement on the interest rate, it is wondered now whether it will trigger new capital outflows from Turkey and whether lira savings will be directed to the dollar.

The “moderate stance” statement and the lifting of the “pressure from the palace” on the Central Bank for now may have positive effects on the dollar/lira parity. Meanwhile, the “reconciliatory” meeting between President Erdoğan and the Central Bank did not have any effect on the climb of the dollar. The factor has always been the external dynamics; it has been proven by these developments.

Escape from the euro

With the attraction of the strengthening dollar, escape from the euro has accelerated; the dollar/euro parity has gone down to 1.05. This rate was 1.33 in 2014.

Even the currency of the 19 member countries of the  European  Union cannot withstand the dollar strengthening in the entire world. With the interest rate increase decision of the U.S., the euro and the dollar are expected to equalize. As the U.S. economy recovers, global funds are leaving not only countries like Turkey, but also the EU, which is stagnated and taking positions in the United States.

Resorting to liquidity expansion to overcome the disinflation problem of the EU will result in an interest toward the U.S. and the dollar. This situation is expected to equalize the euro and the dollar.

After 2002, the euro gained value against the dollar and it peaked at 1.47 dollars before the global crisis. However, during the crisis years, in 2009 and afterward, with the effect of the shrinkage in the Eurozone, the euro could not keep its supremacy against the dollar. Since 2013, as the U.S. economy gave signals of recovery and as positions toward the dollar accelerated, the euro’s devaluation against the dollar also accelerated. Despite this, in 2014, the dollar/euro difference remained at 1.33. The euro’s sharp loss of value happened in 2015 when the dollar strengthened against all currencies and the parity was near 1.05 in mid-March.

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With any sign of a U.S. interest rate raise perception, the euro will lose value. Those who were staying in the euro are now opting for the dollar. Exporters to the EU with the euro in Turkey have started losing, both because of decreasing demand and because of the euro’s devaluation against the dollar.

This has a declining effect on exports.

Euro-savers have started switching to the dollar.

What about the yuan?

It is a special source of wonder what the stance against the strengthening dollar the currency of emerging giant  China will be. It is a widespread belief that there is no other alternative for  China but to devaluate the yuan to increase its exports and its wavering growth. In this respect, it is argued that  China will remove its currency from the dollar band and this would choke the world into waves of deflation. In possibility evaluations, it is being reminded how the devaluation of the yuan in 1994 contributed to the Asian crisis.

Competitive power

There are two faces to the strengthening dollar. On one face, the strengthening in the dollar is taking the U.S. to the leadership position again. But strengthening also stimulates exportation to the U.S. market from those weakened currencies; the strong dollar increases export motivation. This is true for the Eurozone,  China and several other countries with exportation power. The export motivation to the U.S. market is a development which would lower the growth and employment in the U.S. as well as toughen the industry and service sectors. For this reason, the Fed has to take cautionary steps and has to foresee what outcomes its steps will create in the world economy.

For the weakening lira against the strong dollar, it is not that easy to switch to exports. This is such a neglected industry in the past 10 years that the dollar attraction solely is not adequate to motivate the exporter. Despite the attraction of the dollar, exports do not increase; actually they even decrease.

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Dollarization and downsizing concerns

 Mustafa Sönmez-  Hürriyet Daily News, March/ 16 /2015

Since the beginning of the year, in the list of the national currencies of the fragile five, which includes Turkey, devaluating against the dollar, Turkey has separated from the group. In the period between the beginning of the year until March 6, the Indian rupee gained 1.5 percent in value against the dollar.
The South African rand lost 4.1 percent and the Indonesian rupee lost 4.5 percent in value; whereas the lira lost 11.4 percent value in the same period. The devaluation of the lira is at a level incomparable to the others. From these five countries, the nearest one to the lira, even though not equal, has become the Brazilian real.

If the devaluation of the lira were as much as the devaluation of the countries – other than Brasilia – the Central Bank’s interest rates and some intervention in foreign currency could have helped. However, the lira, because of the condition unique to Turkey, has lost value in a sharp way.

Several domestic and international authorities have associated the high level of this blood loss to President Recep Tayyip Erdoğan’s pressure on the Central Bank to lower interest rates and the loss of confidence stemming from that. This situation has increased Turkey’s risk premium and the increased risks have carried the dollar higher.

Risk premium

The increased climb in Turkey’s credit default swap (CDS) in recent days has further decreased the appetite of the foreign investor, and together with outflows, the dollar is rapidly climbing against the lira. Turkey’s CDS was 185 on Jan. 16 when Erdoğan exerted pressure on the Central Bank and the dollar rate was 2.33 liras. Since then, CDS has increased, just as the exchange rate. At the beginning of the week, the risk premium was 201 and the dollar rate was 2.53 liras; at the end of the week the premium went up to 218 and dollar to 2.65 liras.

fuAbove Turkey’s 218 risk premium, there is Brazil with 253. However, South Africa follows Turkey with 195 and Bulgaria comes next with 171. Portugal has 129 while Spain has 92.

Difficult to stop

The January current account deficit was announced as $2 billion and the capital inflow as $7.5 billion. However, the month of January does not reflect the following months of February and March. The climate has rapidly changed. The current account deficit may still be low because of the fall in industry in the following months and the fall in the industrial imports but in February and March, it was observed that capital inflow rapidly declined. The outflows of capital also pushed the dollar up.

Because of the expectation of the Fed meeting and the fear of a signal of increasing interest rates in this meeting, while the Dollar Index has gone up to 98.50, in such an environment, it looks difficult for the Central Bank alone to stop the climb of the dollar with the decisions it has made one after the other.

For the dollar/lira to normalize and for the Bank’s moves to be effective, first of all, there absolutely has to be a break in the dollarization that develops in association with the rapid increase of the Dollar Index experienced globally.

Nonetheless, it is important in terms of “inner peace” that the information flow concerning the Central Bank to normalize fully and an entire harmony between the Bank and the government should be displayed for the markets. In this context, we would not know how effective it will be to use the meeting between President Erdoğan and Deputy Prime Minister Ali Babacan and Central Bank Governor Erdem Başçı to curb the tension; however international winds especially look as if they will highly marginalize this kind of image build-up effort.

It is very difficult for the Central Bank in its next scheduled meeting on March 17 to start a new action and make the interest rate cut that Erdoğan and his aides are hoping for, due to the current situation of the dollar/lira and uncertainties about the Fed meeting. Unless there is a positive improvement in the current domestic and international circumstances, it looks more probable that the Central Bank will have a “wait and see” policy.

If the dollar/lira rate stands at the 2.65 step, then the 2.68-2.70 band will stand out on an important psychological level. From there to move on to 2.80 will depend on news coming from the Fed.

Industry’s downward trend

The storm of dollarization is keeping many sleepless, especially the ones that have external debts totaling $400 billion. Two-thirds of this debt stock belongs to the private sector. Moreover, 40 percent of this amount has to be paid in 12 months. Any climb in the dollar means the loss of liras at the exchange rate.

ggIt is no secret that this situation turns the balance sheets of debtor firms upside down and negatively affects all investment decisions. Especially in the industry sector, the shrinkage that results from the shrinking of the domestic market and exports has begun to be seen in the figures.

The Turkish Statistical Institute’s (TÜİK) January data released on March 9 about industry production has shown that we have entered an important decline phase in industry. When seasonally adjusted, the January industry production fell 1.4 percent compared to December 2014.

Those declining rapidly

When the decline in production is listed from the most to the least, in computer, electronic and optical products, electrical equipment, the decline varied between 9 percent and 12 percent. The sharp climb in the dollar exchange rate is considered as influential on this production shrinkage.

It was also noteworthy that “mineral products” such as glass, ceramics, bricks and cement that are inputs for construction have declined 6.2 percent in production in one month. In particular, the decline in cement exports to Iraq has caused capacity drops in this sector. The fall in house sales and the stagnation in mortgaged sales because of high interest rates have also brought a decline in house production and the construction material industry.

The 6 percent production drop in cigarette production is again noteworthy. The drops in base metals, mostly iron-steel, and medicine, textile and food production are considered to be related to the fall in domestic demand and partially to the drop in exports. The manufacturing industry declined 1.4 percent in general in January.

The fear of losing one’s job

It is stated that the decline in industry production may continue in the coming months. This will be related to the stagnant course of domestic demand due to the increasing dollar exchange rate and non-declining interest rates. This negativity is accompanied by the devaluation of the euro against the dollar as well as the decline in exports.

The decreasing domestic and external demand is shrinking capacities in many workplaces and it is said that starting from this month, workplaces will begin taking precautions on employment. It is being reminded that originating from industry centers such as Kocaeli, Bursa and Tekirdağ, an employment shrinkage beginning with unpaid leave may be in question, just like the 2009 conjuncture.

In 2009, the exchange rate had a sharp climb with the effect of the global crisis and as a result of the shrinkage in domestic demand unemployment climbed to 15 percent.

It is also mentioned that especially in places where a union is not present, the crisis would be attempted to be overcome over the employees; also in workplaces where unions are active there could be some measures taken in agreement with the unions.

The unemployment risk stemming from the production drop in industry will also be felt in some branches of the service sector.

The stagnation in the construction sector will lower employment on construction sites. Declining sales in the retail sector will lower employment in this sector and this may be followed by finance, real estate and other service sectors, thus with falling advertisement spending there could also be downsizing in communication and media sectors, it is estimated.

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“Faiz gerilimi artacak, AKP içinde çatlak büyüyecek”(sendika.org)

Sendika.org’a verilen mülakat 13 Mart, 2015

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Foreign investors in Turkey close to finance, distant from industry

 

MUSTAFA SÖNMEZ – Hürriyet Daily News – March/ 09 /2015

The focus from the foreign resource inflow into Turkey from 2003 onwards, when the Justice and Development Party (AKP) took power, as well as the focus of foreign direct investments have been radically different from previous eras.

In the period under AKP rule, the acceleration of the inflow of foreign resources is mostly associated with the results due to the IMF’s controlled measures package for the 2001 crisis.

While a new IMF program was implemented in 1998, the 2000-2001 fluctuation dragged Turkey’s economy into a major crisis; the outflow of capital forced the Bülent Ecevit-led coalition government to take emergency measures to overcome the crisis. Kemal Derviş, trusted by the IMF and World Bank, was invited to Turkey as deputy prime minister and as a result of the bitter medicine administered by the IMF, equilibriums were reconstructed.

The policies implemented included the rehabilitation of the banking system, which had collapsed with the bankruptcy of about 20 banks, as well as a serious revision policy for central budget, social security system, the state economic enterprises (KİT), the privatization process, municipalities and agriculture sales cooperatives. Through these policies, public finance was also rehabilitated. These radical measures produced serious political results and coalition partners failed to pass the threshold in 2002 elections. This huge voter reaction was beneficial for the AKP. The recovering economy attracted extraordinary foreign resources.

HDN The AKP became the only ruling party thanks to the election system, which has a 10 percent threshold. One-party rule, plus the rehabilitated finance system and public finance, was attractive for foreign investors. The IMF control was a separate assurance. As a sum of all these factors, it resulted in an extraordinary resource inflow, some of them buying KİTs in the industry sector. The banking sector of the economy, which grew at an average of 7 percent during the 2003-2007 period, was a separate attraction for foreigners who also entered the finance sector by buying banks.

When the 2003-2014 period is reviewed, the foreign direct investment in these 12 years neared $120 billion. Almost one-third of the foreign resource inflow in the same period came as direct foreign capital while the remaining two thirds came as portfolio investment and credits – these are “debt raising capital.”

The sector breakdown of the FDI reveals another striking fact. Foreigners have chosen to invest in the finance sector more than in industry. The finance sector, banking and insurance have the biggest share in direct investment with 37percent.

The mobile phone market has been another attractive sector for foreign investors, nearing 10 percent of total direct investment. Foreigners engaging in commercial activities primarily did so in the retail sector, with the percentage exceeding 5 percent. Construction and real estate sector also attracted nearly 5 percent of foreigners. Other sectors such as transportation, health and other service sectors also attracted foreign capital, corresponding to a share of 62.5 percent of total foreign capital, constituting nearly $75 billion of the nearly $120 billion direct foreign capital in 12 years.

Capital foreign to industry

Industry has constituted a share of 37.5 percent in direct foreign capital in the general sense in this period; however, when the definition is narrowed to the manufacturing industry, only 22 percent of FDI has gone to the manufacturing industry. Energy investments have a share of 13.5 percent in total, while mining has almost a 2 percent share.

Thus, we can say that during the 2003-2014 period foreigners have invested $2.2 billion in manufacturing industry and $1.3 billion in energy industry annually. This is equal to the amount invested in the finance sector alone. In other words, foreigners have invested in the manufacturing industry, energy and mining an amount equal to what invested in the banking-insurance sector alone. This preference is associated with profitability. Because foreigners saw that profit rates in finance were higher than industry, they steered their investments in that direction.

While 22 percent of the almost $210 billion foreign direct investment in 12 years was directed to the manufacturing industry, their subsectors were food, alcoholic beverages and tobacco which had a one-fourth share. The entries to this manufacturing branch was nearly $7 billion in 12 years, with the privatization of Tekel and investments in the tobacco sector playing a major role.

The chemical industry (including medicine) has 17 percent share in manufacturing investments of foreigners. While the computer and electronic utensil subsector came third in attracting foreign investors in the manufacturing industry, the main metal industry is the fourth subsector with its nearly 11 percent share.  It can be seen that foreign investments in the subsectors of manufacturing are mostly domestic market-oriented sectors. It should also be noted that chemical and computer-electronics sectors have quite a high rate of imported inputs.

HDN

Foreign in the bourse

Foreign investments also came as investments in shares on the bourse. Investors involved in buying and selling shares traded on bourse are exporting capital this way.  According to Central Bank data, the value of shares of Turkish companies bought by foreigners at the end of 2014 was $62 billion. This amount was around $33 billion in 2005. This means an increase of around 88 percent in 10 years.

In 2005, in the portfolio of foreigners, 24 percent of shares belonged to industry firms and their market value was $8 billion. When it was 2014, the value of foreigners’ shares in industry firms reached $15 billion; the share did not change.

The sector preferences of foreigners where they became partners to companies do not vary much from their preferences in the stock exchange market.

In 2014, shares belonging to foreigners were predominantly from the finance sector, while 52 percent of the portfolio was made up of banking shares. At the end of 2014, the amount of shares of the financial sector that belonged to foreigners was $32 billion, with a share of 52 percent.

 

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Interest rate-foreign exchange rate conflict under the shadow of politics

Mustafa Sönmez

Hürriyet Daily News- March/ 02/ 2015

In Turkey’s economic agenda, as in several other emerging countries, there has been a conflict going on for a long time about the price of the interest rate and foreign currency. The price of foreign currency is determined by domestic and external dynamics at the end, but when it comes to the interest rate, the political will wants to take the independent Central Bank under its influence and make it do what it wants. However, wanting is not enough and the sharp wind of the market can seriously knock down this ambition.

For the international investor who was looking for a place to land in the world markets shrunken by the 2007-2008 global crisis, Turkey became an attractive address, especially in the years 2010 and 2011.
The volume of foreign currency grew by the inflow of foreign investments, pushing the exchange rates down. This situation also pulled down the interest rates.

In an economy oriented toward the domestic market, interest rates on consumer loans, which the consumer primarily uses for buying homes and automobiles, also followed a low course, making the mechanism work. However, after the domestic market-oriented growth expanded the current account deficit problem and when Turkey started having current account deficits reaching 8 – 9 percent of its national income, the brakes were pulled in 2012. In 2013, the pace did not catch up.

uuIn mid-2013, the developments in the United States that were to affect all balances in the world economy also affected the paradigm in Turkey. When the U.S. Central Bank Fed announced it would reduce bond purchases and increase interest rates in time, the U.S. started becoming the center of attraction for the world capital that had temporarily parked at countries such as Turkey. Capital outflow started from emerging countries; new inflows weakened.  In the decisions of foreigners to change their positions, the political risks and geopolitical risks were effective as well as economic risks.

Until mid-2013, the interest rates and the foreign exchange rates followed a level that the ruling Justice and Development Party (AKP) wished; however, since then they are not following their wished course, but rather are fluctuating. It is such a fluctuation that every month the expectation of what the interest rates would be changes; the foreign exchange rate, especially the dollar, makes shocking hikes. These change the entire state of affairs of the economy. Especially in a Turkey which is going through the conjuncture of the general elections scheduled for June 7, the economy stands out more.

Political pressures

The Central Bank Monetary Policy Board made its last interest rate decision in the meeting it held on Tuesday, Feb. 24, and lowered the interest rates a small slice. With this decision, the top end of the interest rate corridor was cut by half a point; the lower end and the benchmark rate, a quarter point.
While the Turkish Central Bank was doing that, it said, “Taking into account the elevated volatility in food and energy prices, the Committee decided to cut the interest rates at a measured scale.”
President Erdogan is aiming for the AKP to come out of the June 7 elections with a victory large enough to be able to change the constitution. The presidency he is wishing for will only be possible through a constitutional change with such voter superiority. In order to gain this voter mass, he wants a boost in the economy. He is hoping that this boost will be possible with the lowering of the interest rates and the activation of the domestic market. For this reason, without caring about its cost, without calculating what kind of damage it would cause other equilibriums, he wishes that the interest rates are lowered.

The Central Bank is constantly under Erdoğan’s pressure. Some members of the cabinet are accompanying him. One of them is Economy Minister Nihat Zeybekçi, and he did not consider the 0.25 cut adequate. Zeybekçi said, “In Turkey the benchmark rate should be below 7 percent and the top end of the interest rate corridor should be under 10 percent. I have not seen any courage in the Central Bank’s decision.”

Prime MinisterDavutoğlu does not adopt the same dose of reaction as President Erdoğan and his entourage; he speaks more “moderately.” While speaking in Budapest, Davutoğlu said it was significant that the interest rates were trending downward and that this situation was one of the healthy indicators of the Turkish economy. Davutoğlu said, “It is positive that interest rates have a downward trend. I’ve said this before and would like to restate that we would like further monetary easing. We would like rate cuts to continue in Turkey.”

On January 20

In its previous meeting, the Central Bank Monetary Policy Board (PPK) had lowered the interest rates from 8.25 percent to 7.75 percent. This decision also was not liked by Erdoğan and some cabinet ministers who want to face the election conjuncture with an economic boost through interest rate cuts. The pressure for a bigger cut forced the Central Bank to pledge to convene extraordinarily on Feb. 4 for a possible cut in the case that the inflation rate came out low. There was an immediate reaction to this pledge and the dollar rose 8 percent against the Turkish Lira from a level of 2.32 up to 2.51. However, when the January inflation came out higher than expected at 1.1 percent and when the reaction of the dollar to a cut was apparent, the Central Bank’s meeting to determine the interest rates was back to its normal schedule, Feb. 24.

Before the Feb. 24 meeting, President Erdoğan and some ministers continued their pressure that the lira was too high and the interest rate cuts should be bigger. The Central Bank’s quarter point cut did not make those behind this pressure happy, but the bank gave the message: “In the light of this inflation and the exchange rate pressure, this is all I can do.”

Taking sides

Over the Central Bank’s interest rate decision, the sides politicians are taking became clearer. While Deputy Prime Minister in charge of the economy Ali Babacan and Finance Minister Mehmet Şimşek supported the Central Bank, fearing the reaction of external markets and a possible overturn, it was interesting to see Bülent Arınç joining them. Prime Minister Davutoğlu though, opted for a more “central” path. Former President Abdullah Gül, who is preparing for a comeback to politics, is emphasizing the independence of the Bank.

Foreign exchange rates

Any decision on interest rates has an immediate effect on the price of foreign currency. Especially when foreign investors take positions according to the rising political risks and the international climate as well as the interest rate cut, then foreign exchange rates fluctuate. Against the upward effect on the dollar of the Feb. 24 cut decision, the speech of Fed president Janet L. Yellen on the same day had a counter-effect. When Yellen did not speak too promisingly about interest rate increases, the price of the dollar came to a stop, again.

jjDespite this, political risks rising in certain regions, geopolitical risks, provide a suitable platform for the dollar to rise against all other currencies. In general, there is a devaluation of local currencies against the dollar in the world. The lira has lost 45-50 percent of its value in the past two or three years and whether it will continue to lose depends on the monetary policies adopted.

All local currencies in the world are priced again against the dollar. This process has certain differences among the currencies of developed countries, currencies of emerging countries and the currencies of oil-producing countries.

Oil-exporting countries, among which are Azerbaijan, Algeria, Iran and Libya, are trying to balance the growing gaps between their decreasing oil revenues due to the fall in oil prices and non-decreasing foreign currency expenditures, with high devaluations. Azerbaijan’s currency, the manat, has been devaluated 34 percent, for instance.

Rich countries also in accordance with the fall in the commodity prices, in order to support their falling exports devaluated their money against the dollar. Norway, Sweden, Denmark and even Canada were countries which devaluated their currencies in the past four month with a rate of between 12 and 14 percent.

Emerging countries

Local currencies of emerging countries, of which Turkey is among, are going through significant changes depending on the preference of the foreign investor in the country. Among them, Russia  leads the group which, due to the Crimea and Ukraine issues and the effect of the economic sanctions imposed by the U.S. and EU, has devaluated the ruble almost 42 percent in four months.

The currencies of theCzech Republic, Poland and Hungary, which are considered the backyard of the EU, are among those that have lost value with the withdrawal of foreign investors. The Czech koruna lost 10 percent in the past four months, as did the Hungarian forint, while the Polish zloty lost nearly 9 percent.

The loss of the lira and others

Turkey stands out as another important country whose currency lost nearly 10 percent of its value against the dollar in the period between November 2014 and February 2015. While the average dollar price in November was 2.24 liras, it went up to 2.29 in December and in January it was 2.33 liras. The first three weeks of February were up 2.45 liras. This was the result of the pressure of the president and some politicians close to him on the Central Bank to lower interest rates and with the withdrawal of foreign investors the dollar/lira rate in February at one time exceeded 2.51.

The dollar did not climb past 2.50 because of a Feb. 24 cut decision, but it looks as if it will not go below 2.45 either.

The Mexican peso and the Brazilian real also went through devaluations almost as much as the lira in the past four months; however the South African rand and the Indian rupee had devaluations against the dollar relatively low, around 4.5 percent. It is observed that the foreign investors withdrawing from Russia, Turkey, Europe and Brazil are mostly trending toward India  and South Africa among emerging countries.

March/02/2015

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Turkey’s external gaps growing rapidly

 

MUSTAFA SÖNMEZ – Hürriyet Daily News/ February 23 2015

The “equilibrium” situation in countries’ relations with global economy has vital significance. How much a country can cover its foreign debts to global markets and other liabilities with its assets it has contributed to the global economy, in other words, with its investments in the external world and with its domestic gold and foreign currency reserves? If there is a gap in its liabilities versus assets, what is its dimension and where does this stand at its national income?

HDN This indicator and similar ones, reveal the fragility coefficient of countries. The method to measure this has been determined by the IMF and it collects information from member countries with a handbook.

How much are your assets, how much are your liabilities and thus what is the dimension of your gap or surplus?

In Turkey, the Central Bank produces the International Investment Position (IIP), which is the stock value at a certain date of external financial receivables and financial assets versus external financial liabilities. This statistical data is updated every month.

In IIP, the difference between the total financial assets and total financial liabilities, is named the net international investment position. In other words, the net international investment position is the net of Turkey’s receivables from other countries and Turkey’s debts to other countries. The IIP can be negative or positive.

For Turkey and similar countries, the IIP is generally negative. External assets are not enough to meet external liabilities. This situation changes from year to year. The rate of Turkey’s assets meeting its liabilities and the size of its external gap according to its national income are increasing instead of decreasing every year and its risk coefficient is rising.

HDN

The picture at the end of 2014

Last week, Turkey’s IIP gap was declared for 2014 as $431 billion by the Central Bank. In the Central Bank data for December 2014, while Turkey’s external asset-receivable amount was defined as $230 billion, the amount of its external debts and other liabilities were reported to have reached $661 billion. In this case, as of the end of 2014, Turkey’s position gap has reached $431 billion and it has surpassed the gap of 2013 by $37 billion.

This means only 35 percent of meeting debts and liabilities and that Turkey has a disadvantage of 65 percent. In the wide sense, external debts are 187 percent more than external receivables.

Turkey’s national income of 2014 will be announced at the end of March and it is estimated to be $800 billion. In this case, debts will reach 54 percent of the national income. This rate was 48 percent in 2013. This means the position gap has worsened $37 billion in one year, increasing 6 points.

Beware the course

While Turkey’s external assets increased only $4 billion in 2014, its external debts and other liabilities increased $41 billion. It looks like the value of foreign direct investments in Turkey has increased $19 billion. While the value of foreigners’ investments in securities has been $10 billion, their investments in state bonds increased 14 billion. There was a $2 billion decrease in foreigners’ external debts.

The picture does not look good as of 2014, with $661 billion liabilities versus assets that can only cover nearly 35 percent of them. The fact that assets can only meet 35 percent of liabilities means that there are no assets to cover almost two-thirds of debts and other liabilities. The size of the gap that reaches 54 percent of the country’s national income is considered a significant fragility.

The situation that has emerged at the end of 2014 is the product of a buildup of years. In the first year of the rule of the Justice and Development Party (AKP), which was 2003, Turkey’s assets reached $74 billion while its liabilities were $179 billion. In other words, assets were able to cover 41 percent of the gap that was 35 percent of Turkey’s national income. The year 2003 was one when the AKP prepared to further integrate with global economy and, from there, draw more loans, hot money and direct investments. In following years, warming and integration accelerated.

For more privatizations and purchases, more foreign capital flew in, more hot money went into the stock exchange and state bonds and more loans from foreign banks started to flow in. As a result, debts and other liabilities increased more than the buildup of assets and at the end of 12 years, in other words, in 2014, the rate of the assets meeting liabilities went quite below what it was in 2003, from 41 percent to 35 percent. The amount of foreign gap, in the same period, went up from $105 billion to $431 billion. The rate of the gap in national income hiked to 55 percent from 35 percent.

Among the fragile

The dimensions Turkey’s position gap have reached, even if only Europe is analyzed, show that it is among the leading of the fragile countries. For the IMF, if the rate of the position gap to the national income exceeds about 40 percent, then it is considered that the red line has been crossed. The place Turkey has reached is 54 percent. This is very fragile and it is a rate that would scare foreign investors.

HDN

The burden in terms of Turkish Liras

While the average dollar exchange rate was 1.90 Turkish Liras in 2013, the average dollar exchange rate became 2.20 liras in 2014. Thus the increase in the dollar exchange rate reached 16 percent. Both with the effect of the increase in the exchange rate and also the increase in the debts to foreigners, Turkey’s external liabilities increased in terms of liras nearly 24 percent in one year. Its debts and other liabilities in liras increased 276 billion liras to reach 1 trillion 454 billion liras.

In other words, the increasing foreign dependency has giant costs in difference in exchange rates and only in 2014 this exchange rate burden was 276 billion liras and with the dollar exchange rate of 2014, it was $125 billion.

One does not even want to think of the extra burden that would be brought on the position gap with the likely leap in the dollar exchange rate with the U.S.’ interest rate increase…

 

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Turkey’s industrial sector highly dependent on raw material imports

Mustafa Sönmez    Hürriyet Daily News – February/16/2015

The Turkish economy, after 2002, by using the foreign capital inflow of an annual average of $40 billion, was able to grow 4.5 percent annually. With this capital inflow, Turkey’s imports and exports also grew rapidly. So much so that the imports, which were $40 billion in 2000, reached $242 billion at the end of 2014. This corresponds to an increase of 505 percent. Imports, which were around 15 percent of the national income in 2000, went up to 30 percent of the national income at the end of 2014. This corresponds to a nearly 100 percent increase in 15 years.

Turkey’s trade with the world economy, even only in the last five years, increased 33 percent from $300 billion to become $400 billion. While foreign trade constituted 41 percent of the national income, in 2014 this figure went up to 50 percent. The average of the past five years is 47.7 percent. Even this shows how much a huge integration has been experienced in a short time. The averages of the past four years, the period from 2010 to 2014, have incredible indicators. Turkey, in these four years, has had $231 billion of importation against $142 billion exports; in other words, the foreign currency gained from exportations was only able to cover 61 percent of import expenditures. As an average, Turkey was a net importer of $89 billion every year, in other words, had a foreign trade gap of $89 billion each year.

vvvWhen agriculture is excluded, which has a share of less than 5 percent in foreign trade, it can be seen that imports of industry and energy, which were $136.3 billion in 2010, increased to $233.6 billion in 2014. These two sectors’ annual average of the past five years is an importation bill of annual $223.5 billion. On the other hand, our industry exports, which barely reached $109 billion in 2010, have been nearing $152 billion in 2014. The average of the past five years is an annual $137 billion of exports of the Turkish industry. The foreign trade gap of the industry was $70 billion in 2010, going up to $82 billion in 2014, averaging almost $87 billion a year.

Export three, import four

Taking the average of the past five years, the annual increase in exports is 9 percent while the annual increase in imports is 12 percent. In other terms, while exports rise by three, imports rise by four. The average increase of the past five years in the foreign trade gap is 22 percent. Again, as the five year average, the rate of exports covering imports is 61 percent. This is the most important indicator of dependency.

The backbone of industry, which is exports, has constituted an average of 18.2 percent of the national income in the period 2010-2014. However, imports are more and are nearing 30 percent of the national income. This means that Turkey’s national income has a foreign trade gap of around 11.4 percent every year, which is quite high. This is a negative feature that makes Turkey quite fragile.  In every sector, there is both exportation and importation. While it varies from sector to sector, there is a distinction between sectors that have strong export power and those that do not.

As a result, when growing foreign trade gaps cannot be closed with foreign currency inflow through the service sector, tourism, etc., then giant current account deficits emerge that are in the 7-10 percent corridor of the national income. And this means more dependency on external resource inflow and in order to provide this inflow, succumbing to several unwanted policies.

An analysis of the 2010-2014 period shows that net exporter or net foreign currency earner sectors constitute 12 of the 29 sub-sectors. In this analysis period, the net exporter sectors exported nearly $64 billion as an annual average, while importing $31 billion. The imports of these sectors made up 49 percent of their exports.
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Among net exporters, the first three places belong to wearing apparel-textile and food sectors, followed by non-metallic minerals (ceramics, glass, cement, etc.) and metal products.

Among the net exporter top 10 sectors, the apparel sector constituted nearly 30 percent of the net exports in the past five years; textile has a share of nearly 23 percent. Thus, these two sub-sectors that are complementing each other have a share of 53 percent in net exports. When you add food, which nearly has a 14 percent share to this, these three traditional branches that have a low added value constitute two-thirds of Turkey’s net exports. It has been like this for years and shows the skidding in industry.

ttAmong the 17 net importer sub-sectors, the highest net importation or the highest foreign trade gap, as expected, belongs to energy, in other words, to the importation of crude oil, natural gas, coke, petroleum products and pit coal. In the 2010-2014 period, Turkey’s annual energy importation has reached $52.5 billion. In return for this total importation, the export of energy products are merely $6.1 billion and average annual importation has neared $46.5 billion.

With the setup of “low foreign exchange rate – high interest rate,” they were able to maintain the capital inflow for more than 10 years, but at mid-2013 due to the developments especially in the U.S., the umbrella of the foreign exchange rate upturned. When political and geopolitical risks were added to the increasing economic risks, capital inflow decreased and foreign exchange rate hiked. The dollar exchange rate, which was 1.80 Turkish Liras in 2012, went up to around 1.90 liras in 2013 and closed the year 2014 with 2.20 liras. The depreciation of the lira over 15 percent in especially 2014, even though it relatively decreased imports, did not bring the expected increase in exports. Despite the 15 percent increase in the dollar exchange rate, the increase in exports was below 4 percent. The same year imports decreased around 4 percent.

The course of the exchange rate has a vital importance for indebted establishments that had foreign debts reaching $400 billion, out of which 30 percent were short term loans. The private sector used two-thirds of this debt. It is of huge importance for banks and companies that the dollar exchange rate exceeded 2.50 liras at mid-February. Huge foreign exchange losses will negatively affect many industrial firms.

 

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“Türkiye için riskler 2009’un çok ötesinde”

İleri Haber, 10 Şubat 2015

“Türkiye için riskler 2009'un çok ötesinde"

Irmak Ildır – İleri Haber

Son günlerde ekonomiyi yakından ilgilendiren ve Cumhurbaşkanı ile Merkez Bankası arasında bir atışmaya dönüşen “faiz tartışmaları” kızışmış durumda. Cumhurbaşkanı Recep Tayyip Erdoğan faizlerin enflasyonu doğurduğu konusunda ısrarcı, Merkez Bankası ise faizleri indirmek konusunda ayak diriyor. İleri Haber olarak “faiz tartışmalarının” arkasındaki niyetin ne olduğunu deneyimli iktisatçı Mustafa Sönmez ile konuştuk.

“ERDOĞAN ORGANİK SERMAYEDARLARININ BEKLENTİLERİNE CEVAP VERMEK İSTİYOR”

Cumhurbaşkanı Erdoğan’ın benzer şekilde faizlerin aşağı çekilmesi yönünde zorlamaları daha önce de olmuştu, ancak bu sefer dozajın çok daha arttığını görüyoruz. Nedir sizce Erdoğan’ın tam olarak istediği, neden bu kadar ısrarcı?

Ekonomi, RTE’nin lideri olduğu AKP rejimi için bir araç. 2002 seçimlerinden bu yana, hangi ekonomi politika seçmen artışı getirecekse, o tercih edildi. İç ve dış konjonktürün de yardımcı olmasıyla, seçmen odaklı “popülist” ekonomi politikalar öne çıktı.

AKP, hem kendi organik burjuvazisini yaratacak bir büyüme rotası ile, ağırlıkla inşaat odaklı oldu bu, hem de seçmen oranını yüzde 30’lardan yüzde 50’lere çıkaracak “popülist” politikalarla, kamu harcama politikalarıyla yol aldı. Seçmen kitlesinin büyüklüğü, sandık onayı, RTE için izlediği bütün hukuksuzluklar, yasa dışı icraatlar için bir tür canlı kalkandır. O nedenle bu defa da ekonomiye maliyeti ne olursa olsun Haziran seçimlerine seçmeni sorunsuz götürmeyi ve yeni bir onayı amaçlıyor.

Canlandırılmış bir ekonomi hem durgunluktan yakınan kimi seçmenleri yatıştıracak ve oy kopmalarını önleyecek hem de iç pazardaki durgunluktan yakınan başta konut üreticileri, inşaatçılar olmak üzere organik sermayedarlarının beklentilerine cevap verecek. Faiz indiriminde bu kadar ısrarlı duruşun nedeni esas olarak bu politik beklentilerdir.

“24 ŞUBAT’TA FAİZ İNDİRİMİ ZOR”

Erdoğan’ın konuşmalarının ardından dolar önce 2,45, Cuma günü ABD tarım dışı istihdam rakamlarının ardından da 2,47 ve en son 2,50 rekorunu kırdı. Enflasyonda ise göreceli bir katılaşma var. Mevcut tabloda 24 Şubat toplantısından ne bekliyorsunuz, Para Politikası Kurulu(PPK) ne yapacak, bu kriz nasıl çözüme bağlanacak? Merkez Bankası yasasının seçimlerden sonra değiştirilmesini ve buna bağlı bir kur krizini öngörüyor musunuz?

Kurdaki yukarı yönlü hareket, iç ve dış iklimin etkisiyle sürebilir. ABD’nin faiz artırımı ile ilgili kararını öne çekecek gelişmeler önemli bir etken. Bu, sadece Türkiye’den değil, tüm benzeri ülkelerde geçici park etmiş yabancı yatırımcıları ABD’ye yönlendirici etki yapıyor, dolayısıyla bu, sermaye çıkışı ve/veya yeni girişlerin azalması demek. Haliyle kur yukarı gidiyor. Yanı sıra Yunanistan ve Avro alanı gerilimi, Rusya’nın çöküşü, Orta Doğu’daki gerilim, bütün bunlar ihracatı, dolayısıyla büyüme performansını aşağı çekiyor ve tümü birden dış yatırımcının iştahını azaltıyor. Bu şartlarda 24 Şubat’ta da bir faiz indirimi zor, ya da gerilimi tırmandırmamak için göstermelik bir indirim ancak olur. Merkez Bankası’nın “bağımsızlığının” kaldırılması ise radikal bir karar olur. Göze alınabileceğini sanmıyorum. Zaten seçimle beraber siyasi kaygılar sonlanacağı için, siyasi saik arka plana geçirilebilir.

“TÜRKİYE İÇİN RİSKLER 2009’UN ÇOK ÜZERİNDE”

PPK’nin faizleri indirmesinin Türkiye’ye yabancı para girişini azaltacağı yorumları yapılıyor. Öte yandan 2014 yılında sermaye girişlerinin önceki yıllara nazaran ciddi şekilde azaldığı görülüyor, Peki Erdoğan neye güveniyor?

Erdoğan’a sermaye kaçışının ve kur artışının geçici olacağı anlatılıyor birileri tarafından. Faizler indirilirse ekonomi canlanır, canlanmayla beraber yabancıların iştahı yeniden açılır ve yeniden gelirler, o zaman da kur tekrar düşmeye başlar, dengeye gelir türünden anlatımlarla ikna ediliyor RTE. O da buna inanıyor. 2009 krizini örnek veriyorlar, ekonomiye can suyu verdik, sizin dediğiniz gibi “kriz teğet geçti” ve yabancılar geri geldiler, gibi anlatımlarla inandırmışlar RTE’yi. Oysa 2009 dünya koşulları ile bugünkü aynı değil. O dönemde yabancıların gidecekleri fazla bir yer yoktu. Bugün krizden çıkmaya çalışan ABD seçeneği her şeyi değiştiriyor. Türkiye’nin için riskler 2009’un çok üzerinde.

“CARİ AÇIĞI KAPAMADA KAYIT DIŞI GİRİŞLER ÖNEMLİ”

Toplam finansman içerisinde kaynağı belirsiz sermaye girişlerinin payı oldukça arttı ve bu konu dış basın da dâhil fazlasıyla spekülasyon yapılıyor. Siz net hata noksanda görülen bu artışları neye bağlıyorsunuz?

Net hata noksan, teknik nedenlerle de büyümüş olabilir, kozmik nedenlerle de. Teknik nedenler, firmaların dışarıdaki dövizlerini geç transfer etmeleri, istatistikî kayıtlarda büyüyen “hatalar”, turizm ve öteki hizmetten sağlanan döviz girişlerinin kayıtlarında sorunlar vb. Kozmik nedenler ise, AKP ile dayanışma içindeki güçlerin, Orta Doğu’daki kayıtlı-kayıtsız sermayenin Türkiye’ye girişinin kolaylaştırılmasının da bu kayıt dışı sermaye girişlerde etkisi olabilir. Ama yine de nereden baksanız, cari açığı kapamada dörtte birin üstünde etkisi var kayıt dışı girişlerin. Takip edilmeli.

“DİDİŞME EKONOMİK İKLİM SERTLEŞİRSE TIRMANABİLİR”

Merkez Bankası bağımsızlığı kavramına nasıl bakıyorsunuz? Merkez Bankası’nın yalnızca fiyat istikrarı başlığına odaklanması, öte yandan milyonları çok daha yakından ilgilendiren ekonomik büyüme başlığını ikinci plana atması gerçekten Merkez Bankası’nın bağımsız olduğu anlamına mı geliyor, yoksa mevcut yapı sermayedarlara ve yabancı yatırımcılara bir bağlılık anlamına mı geliyor?

Merkez Bankası başta olmak üzere “bağımsız” kurul konsepti, neoliberalizmin bir düsturudur. Başta IMF-Dünya Bankası, bu tür “özerklik” sevdalısıdır. Onlara göre Merkez Bankası öncelikle enflasyonu kendisine dert edinmeli ve buna uygun para politikalarını siyasi otoritenin etkisinde kalmadan izlemelidir. Bunu başarabilir, enflasyonu kontrol ederse, ülkenin beklentisi olan dış yatırımcı için koşullar elverişli duruma gelir. Ana amaç, siyasetçilerin “dar” siyasi saiklerinin ekonomik rasyonalitenin önüne geçmesini engellemektir.

Mesela RTE’nin bugün siyasi beklentileri için ekonomiyi araç olarak kullanmak istemesi, bunun için de Merkez Bankası’nı dilediği gibi faiz indirimine zorlaması, küresel güçler açısından sakıncalı ve oyunun kuralına aykırıdır. Nitekim, “ekonomik rasyonalite”yi ön plana alan Babacan, Şimşek gibi bakanlar, TOBB, TÜSİAD , RTE ile çatışma pahasına MB’nin somut koşullara uyan faiz duruşu sergilemesini destekleyerek RTE ile didişir duruma gelmişlerdir. Bu didişme, ekonomik iklim sertleşirse tırmanabilir de.

“İNŞAAT ODAKLI BÜYÜMENİN SONUNA GELİNDİ”

Son olarak kısaca sizce Türkiye’nin büyüme performansı ne durumda, Türkiye 2015 seçimlerine nasıl bir ekonomik resimle girecek ve bunun seçimlere etkisi ne olacak?

Türkiye 2011’den sonra düşük büyüme patikasına saplandı. İnşaat odaklı, iç pazara dayalı büyüme paradigması ile yüksek büyüme devri sona erdi. Çünkü her büyüme, yüksek cari açıkla ancak mümkün oluyor. Bu cari açığı karşılayacak yabancı para girişi de eskisi gibi değil. Hem içerinin riskleri arttı, hem dışarıda artık yabancılar için seçenekler fazla. Dolayısıyla bu paradigmadan çıkmadıkça, döviz kazanan yeni bir büyüme kurgusu yaratmadıkça, yüksek büyüme ivmesi yakalamak artık kolay değil. Bu da yeni bir ekonomik mimari gerektiriyor. AKP, eskimiş kurgu ile en çok yıllık yüzde 3 büyüme ile avunabilir ki; bu da resmisi yüzde 10, gerçeği yüzde 17 işsizlik yaşayan bir topluma yetmez. Asgari yüzde 5-6 istikrarlı büyüme hızı gerekli.

Seçimlere 5 ay var. Buraya RTE, seçmeni ürkütmeden ulaştırmak isteyecek. Gerekirse bütçe açığını bir-iki puan artırma pahasına seçmene şirinlikler yapacak, başka “popülist” icraatlardan geri durmayacaklar. Şok kur artışları ummadıkları sorunlar yaratabilir ama onun hasarını da bütçe kaynakları ile onarmayı deneyecekler, özellikle yandaş firmalara öncelik vererek. Ama borçlu, işsiz, düşük gelirli birçok seçmen bu seçim şekerleri ve pansumanlarla artık mutlu olmayabilir. Önceki seçimlerde verdiği desteği çekebilir de. Dolayısıyla ekonomide keyfi kaçmış bazı seçmenler, Haziran seçimlerinde AKP’ye hiç olmasa birkaç puanlık kayıp verdirebilir de…

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Too many payroll workers, too few trade unions in Turkey

 

MUSTAFA SÖNMEZ – Hürriyet DailyNews -Februrary/ 09 /2015

 Turkish capitalism has experienced a long period of growth in the period since 2002 when the Justice and Development Party (AKP) came to power. The wind of this growth was provided domestically and internationally. This growth, which occurred with the push of a foreign capital inflow totaling an annual average of $40 billion, was mostly oriented toward the domestic market. This rapid growth, which occurred in big cities, primarily in Istanbul, accelerated the migrations both between rural and urban and also between small and big cities.

Domestic market-oriented growth was mostly concentrated on construction, which brought together an increase in employment, though it was distorted and unstable.

A portion of the workforce that moved from agriculture to the non-agricultural sector found employment opportunities in industry, as well as in the services sector. According to the Turkish Statistical Institute’s (TÜİK) household workforce survey, employment went up from 19.6 million to 26.1 million between 2004 and 2014, an increase of 6.5 million. It has to be said that almost all of this hike of 6.5 million was in payroll employment. In the same period, the number of employed went up from 11 million to 17 million, an increase of around 61 percent.

This period was one when the population coming from agriculture was employed in non-agricultural payroll work and when the population who migrated to the cities mostly joined the workforce market.
However, this quantitative boost in payroll employment was never transformed into an organized trade union structure; its qualitative transformation almost never occurred. The AKP preferred to limitlessly take advantage of this without ever touching the obstacles over the dysfunctional trade unions, the obstacles to collective bargaining and strike rights which were implanted with the 1982 Constitution, a product of the Sept. 12, 1980 coup.

HDN

Without trade unions

Two weeks ago, while 15,000 workers were preparing to strike in the metal work sector led by the Birleşik Metal-İş union, a member of the Confederation of Progressive Trade Unions (DİSK), it was once more remembered that the country of payroll employment, Turkey, was one that is poor on the rights of trade unions and strikes. In its first day, the strike was postponed for 60 days on the grounds of “national security” by President  RT Erdogan  and the cabinet. We once more understood how eviscerated the rights had become. Postponing the strike meant not being able to use this right again, because according to the law, any postponed strike means a strike which has to be solved through mediators. Now, the entire power rests with the mediating council in this case.

In Turkey where the payroll class exceeds 17 million, the rights of workers and their so-called gains lack content; a fact that has once more been understood. The economic-democratic rights of the working class are defined, on paper, in the 53rd, 54th and 55th articles of the 1982 Constitution. However, there are several thresholds standing before the formation of a trade union; after those are overcome, there are several thresholds before the authorization for collective bargaining. Once past these, in the event of any disagreement, a series of obstacles stand before the strike weapon. As a result, it looks as if there are union, collective bargaining and strike rights in the Constitution, but in practice, it is not possible to apply them.

Non-organized

TÜİK announced the number of payroll workers as 17.2 million for 2014. The Labor Ministry, on the other hand, accepts only the registered ones at 13.2 million. Only 10 percent of them, which means only about 1.3 million are members of a trade union, of whom 700,000 are under collective contracts. In other words, out of the total number of payroll workers, only 4 percent of them can actually use one of their constitutional rights. From 1990 onward, the number of workers able to use this right has rapidly decreased. While 1.5 million workers benefitted from collective contracts between 1990 and 1991, only 1 million had such contracts by the end of the 1990s; today, this figure is just 700,000.

After the 2001 crisis, in those years of AKP governments, economic growth was mostly based on cheap labor used as a competitive force. In parallel with this, public institutions in which collective contracts were relatively more common eroded rapidly with privatizations. When it was 2013, it can be seen that the number of workers benefiting from collective contracts went down to 700,000. This is a decrease of 55 percent compared to the 1.5 million workers in 1990-1991.

HDN

What about strikes?

Only 700,000 out of the 13.2 million registered and insured workers have the potential to use their collective contract rights; in other words, not even 6 percent. But graver than this is the situation of the most important defense weapon of the working person, the strike. The ability to strike has been eroded to such an extent that it exists in name only.

Despite the anti-union framework of the Sept. 12 environment and its aftermath, 160,000 workers staged a strike in the late 1980s amid a rising workers’ movement in mining.

In 1995, the number of strikes rose again, only to drop substantially in following years. In 2000, only about 19,000 workers used their right to strike and in 2005, the number of those workers able to strike went down to around 3,500. Between 2010 and 2012, they were not even 1,000 a year. In 2013, only 16,000 people were able to strike. The ministry has not disclosed 2014 data yet.

Non-organized voter

The growth in the 2003-2013 era, which was possible with the inflow of foreign resources that were oriented toward the domestic market and focused on construction caused quantitative boosts in employment, as expected. Those who abandoned agriculture and came to the city to join the workforce found jobs as wage earners. As a result, they have approved AKP rule as “voters.” However, when it comes to organizing for better pay and better working conditions, there was no qualitative transformation; the AKP governments were not facilitators. It was observed that in this field, the AKP governments did not make any changes in the working environment taken from the anti-union 1982 Constitution and, when necessary, they made ample use of them.

The largest union establishment that is mostly organized in the public sector, Türk-İş, lost a significant number of members due to the rapid privatization of public workplaces after 2000. Unemployment, which is over 10 percent officially but is as much as 17 percent unofficially, is the biggest nightmare for workers. While the fear of losing one’s job while trying to organize kept workers distanced from unions, new work models due to changing technology, new business models such as subcontracting and sub-employers are processes that work against trade unions. Trade unions are powerless and ineffective in terms of finances. This is also an obstacle in their efforts to increase the number of their members.

HDN Anti-union AKP

The AKP administration has demonstrated in numerous occasions that it is unhappy that wage earners freely use their rights to form a union and bargain collectively. The AKP is a political power that regards wage earners as “voters” and prefers to be on good terms with them as voters and to achieve this, where necessary, has increased salaries at the rate of inflation. It is also as “charitable” as to distribute social aid totaling as much as 5 percent of the budget for those who are poor, but when it comes to independent organized union movements, things change. It either frightens or intimidates most of the existing unions to make them “harmonize” with the government or become “pro-government,” or it makes them ineffective and, as seen in the last metal strike example, it does not hesitate to ban them with Sept. 12-era laws.

 

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Social protection in Turkey, too many words with too little content

Mustafa SÖNMEZ – Hürriyet Daily News February 2 2015

 


After 2003, while the ruling Justice and Development Party (AKP) won successive elections, raising its voter share from 30 percent to the brink of 50 percent, it was considered by many that the number of voters lining-up behind the AKP was associated with various support programs and the coal and food aid it was distributing to the poor.

Following any lost elections, they even scorned AKP voters by saying, “They have sold their vote for coal and bulgur.”

What actually were the AKP’s “social welfare” programs? Would it be correct to say they were at such a dimension to be able to hike the votes to this extent? A ministry was founded in 2011 specifically to deal with this business, named the Family and Social Policies Ministry.

What is the truth? Is the AKP “charitable” to an unusual extent? Or, is it that the propaganda and publicity of it is more than what is actually happening? For example, when compared to the social expenditures of EU and OECD member countries, where does Turkey stand?

It is a right

A template has indeed been developed to measure the public social expenditures of countries.

In this template, a definition has been made which says social protection encompasses all interventions by public or private bodies intended to relieve households and individuals of the burden of a defined set of risks or needs, provided that there is neither a simultaneous reciprocal nor individual arrangement involved.

Data related to social protection expenditures and income in Turkey and several other countries is measured according to the standards set in the manual of The European System of Integrated Social Protection Statistics (ESSPROS).

The ESSPROS manual categorizes social aid under eight categories of risks and needs. These are sickness/health care, disability, old age, survivors, family/children, unemployment, housing and social exclusion.

To define expenditures, there are these items: Pensions paid to the retired, survivors, the handicapped, unemployment payments, sickness and health care, pharmaceuticals, rehabilitation, accommodation costs, funeral aid, birth aid, maternity leave costs, vocational course expenditures and contributions to vocational course participants, among others. The data is collected from establishments and organizational records, as well as through questionnaires for municipalities, foundations and associations.

Where does Turkey stand?

Turkey’s social expenditures in 2013, on this basis, have neared 13 percent of its national income. It was around 8 percent in 2000. In other words, there has been an increase of 5 percentage points in expenditures. However, this is not unique to Turkey; it is the same almost everywhere else in the world. OECD puts the average for its members as 18.4 percent in 2000 and 21.7 percent in 2013.

The dimensions of public social expenditures vary according to the “social features” of different countries. For instance, France leads the group as a country that has increased its social expenditures to 32 percent of its national income, while Turkey, Korea and Chile are not even half of France, with expenditures around 10 to 12 percent of their national incomes. That means, despite the “charitable” policies the AKP seems to have adopted, Turkey is behind several EU countries in social expenditures and exactly 10 points behind the OECD average; almost 12 percent to 22 percent.

Several factors play a role in the differences in expenditures by nation. It can be seen that social protection is high in countries where the “social” principle is prioritized in its constitution, where equal distribution is considered important and where lower classes have the habit of struggling for this. Besides, it is also important whether or not the population is covered by social security and whether they contribute to social expenditures. In countries where unrecorded activities are low and social security is high, social expenditures can be high as a result of premiums paid. When there is no premium, indeed, social spending is also low.

The reason Turkey is left behind in this area is because both the number of those who join the workforce and the number of those who pay a premium are low. Participation in the workforce is only half, meaning only half of those who could work are employed.

As a matter of fact, when we look at 2013, out of the social protection aid that reached 216 billion Turkish Liras ($114 billion), salaries of pensioners and survivors make up 48 percent. For health expenditures, the rate is 30 percent and unemployment aid is only 1 percent.

According to this template, almost half (41.1 percent) of the expenditures for social protection in 2013 was financed by the state. This was followed by 27.7 percent from employers and 25.2 percent from the premium contributions of other people within the scheme of protection. Other incomes were 6.1 percent.

What about the AKP-invented ones?

During the AKP regime, with a huge usage of external resources, an economic growth of an average nearing 5 percent has been experienced annually, but research reveals that a large enough share has not been allocated to the wage/salary earners from this growth. Besides, despite this growth, social expenditures have also remained short and according to international definitions, it was 10 points behind the OECD average, at only 13 percent.

When we say social expenditure or “social protection” here, it is generally understood as the contributions provided by establishments known as “Fak-fuk-fon” founded by the Family and Social Policies Ministry and/or health care provided to the poor who hold a “green card.” These are included as social expenditures and amounted to 215 billion liras in 2013, but in total this, together with AKP-invented aid, constitutes a small slice (almost 10 percent, 20 billion liras, $10.5 billion). This corresponds to a bunch of aid amounting to 1.2 percent of the national income. Another measure would be that the total in 2013 was only 4 percent of the central budget.

The biggest portion, 34 percent, of this 20-billion-lira aid budget coordinated by the Family Ministry is made up of free health care. The “green-card” holding population who receives free health care from the state and who has to prove it with an income test is around 8 to 9 million. The overwhelming majority of them are Kurdish-origin people from the east and southeast. A premium payment of nearly 5 billion liras (almost $2.5 billion) is transferred to the Social Security Corporation (SGK) from the central budget.

The elderly and the handicapped who are paid 230 liras ($115) every month are the second-largest group benefiting from social aid. The money spent for home care of the needy is another significant item. Another one is the aid from the Social Aid and Solidarity Fund, commonly known as Fak-Fuk-Fon, managed by province governors and district governors. The aid from this fund has many forms and can be home furniture, education, rent, clothing or coal aid. Scholarships for needy students and municipal social aid have the least share in social aid programs.

A matter of propaganda

How come aid that constitutes only 1.2 percent of the national income makes so much noise? How come it looks as if it has such an important place and an important impact on voter behavior?

The AKP regime, while distributing social aid from a very limited portion of the budget, which is financed by the taxes of people, presented them as a favor, as an alms-giving of the AKP regime, not as the obligation of a social state, despite the fact that this aid was inadequate at only 1 percent of the national income.

Certain opposition bodies and writers, instead of defining this aid as a “right” and criticizing its scarcity, could not go past criticizing that it is being presented as “alms.” They somehow opted for almost humiliating those who have received these “alms,” instead of recognizing the neediness of those who receive this aid and that most of this aid, which stays at 1 percent, has not reached the poor.

Moreover, instead of criticizing the AKP’s efforts to transfer the gratitude of those who receive aid into votes, they criticized those who have received aid for voting for the AKP, and they did this without any existing scientific data.

The “policies of alms-giving” were used almost as an excuse for their failures, those who were not able to develop alternative and more effective social policies against the AKP regime. Its scarcity and deficiency have not been criticized adequately.

In fact, it could have been revealed that social aid was much lower than it looked and it could have been explained how a more just and equal distribution should have been provided; however, this was not able to be done.

 

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