C&B Notes

A Bad “Recep”-e for Turkey

At the direction of President Recep Tayyip Erdogan, Turkey’s government continues seizing and nationalizing private assets, particularly from political foes.  Erdogan’s growing ambitions are troubling both for the populace’s civil rights and the country’s once-promising economy.

Down the mountain in Kayseri, the view is considerably bleaker.  Not long ago, this industrial city was touted as the birthplace of the Anatolian Tigers, a generation of conservative businessmen who helped create Turkey’s economic boom in the 2000s.  Today many of the Tigers are behind bars in the mass arrests that followed an attempted coup last July.  The boom is over.  Exports from the region have fallen by at least 4% over the past year.  Investment has dried up. For the local economy to recover, says Mahmut Hicyilmaz, head of Kayseri’s chamber of commerce, “our industrialists and our investors need a sense of security.”

They do not have it. .Roughly 40,000 people have been arrested across Turkey since the summer, and an increasing number are businessmen, from construction magnates to owners of chains of baklava stores.  Their crime, say prosecutors, was to have bankrolled the Gulen movement, a religious sect accused of masterminding the coup.  Armed with emergency powers, the government of President Recep Tayyip Erdogan says it has taken over more than 800 companies worth a combined $10bn since July.  A court in Istanbul recently confiscated the assets of dozens of writers and journalists arrested because of suspected Gulenist sympathies.  Officials say they are fighting the financing of terrorism.  Critics call it state-sanctioned plunder.

In Kayseri, scores of entrepreneurs — including the heads of Boydak Holding, the region’s biggest employer — have been arrested for financing Gulenist banks, schools and foundations.  Boydak, which owns three of Turkey’s biggest furniture companies, has been seized by the state.  More than 60 businessmen face terrorism-related charges.  Some have fled abroad.  Mr. Hicyilmaz himself was detained for over two weeks last August.  The worst-kept secret in town, says a local shopkeeper, “is that nearly everyone here was in business with the [Gulenists] at one point or another.”  The other open secret is that they were once encouraged to so by Mr. Erdogan’s government.  The ruling Justice and Development (AK) party had been the Gulenist movement’s biggest cheerleader for nearly a decade.  Their alliance collapsed in 2013 after AK accused Gulenists inside the bureaucracy of engineering a corruption scandal that involved some of Mr. Erdogan’s closest associates.

At the sprawling industrial zone outside Kayseri, business appears to go on as usual.  Employees at one Boydak factory say they have not been affected by the takeover.  At a number of other companies seized by the state, however, production has stalled.  “These seizures are catastrophic,” says Seyfettin Gursel, the head of Betam, an economic think-tank in Istanbul.  “There’s no definitive court decision, and no legal process.”  Officials say that owners will get their companies back if they are cleared of terrorism charges, but analysts fear most firms will be auctioned to Mr Erdogan’s loyalists

All this puts additional pressure on an economy already weakened by terrorist attacks, the war in neighboring Syria and growing corporate debt.  GDP in the third quarter of 2016 was down 1.8% from a year earlier, though it is thought to have rebounded modestly in the fourth.  The lira has lost about a fifth of its value against the dollar since November.  That makes it harder for Turkish companies to service the dollar-denominated debts with which they are laden.  The central bank could defend the lira by raising rates, but Mr. Erdogan has pressured it to keep them low, forcing it to resort to more complex and less effective mechanisms.  Foreign investment has fallen by nearly half since 2015.

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