Thursday, 17 April 2014

Is The Greek Glass Half Full Or Half Empty?

Is Greece finally emerging from the long, dark tunnel of economic, political and social woes? Is there light at the end of the proverbial tunnel? Or is that light merely another train thundering down the track about to crush whatever feeble hopes the long-suffering Greek people may have?

Opinions differ sharply. Some have taken heart from Greece’s recent successful heavily over-subscribed issue of €3 billion in long term bonds at less than 5%. To them, this signals a return of investor confidence and a just reward for the country’s economic reforms. They note that the primary budget surplus – a surplus before any interest payments – is forecast at 2.7% of gross domestic product this year and set to rise further next year. The current account is in balance and there is a glimmer of growth.

But others, notably Wolfgang Münchau of the FinancialTimes, are less sure. Münchau mentions some damaging statistics to show that Greece has barely begun to climb out of the very deep hole it has dug for itself. He uses data collected by Greek political economist Yanis Varoufakis to show the size of the task.

He notes that of 2.8 million Greek households, 2.3 million have tax debts they cannot pay. Youth unemployment stood at 60.3% in 2013. Bank loans to businesses are down sharply. Non-performing loans that the banks record reached 38% of total loans. One bank manager told me that several of his customers simply don’t acknowledge that their bank loans have to be repaid. And 3.5 million employed people in Greece have to support 4.7 million unemployed or inactive people. Perhaps most damaging is that the country’s long term debt amounts to about 175% of GDP.

“The Greek economy is not in recession. Nor is it recovering. It has collapsed,” Münchau says.

The only caveat I would add to this dismal list of numbers is that it doesn’t appear to reflect how much of the Greek economy has gone underground, i.e. how much activity is off the books, unrecorded. If Greece is anything like other emerging economies I have worked in, the amount of unrecorded activity increases sharply in times of trouble. In order to avoid onerous social payments and taxes people are paid off the books, cash is king, borrowing from friends, relatives and local loan sharks replaces bank borrowing.

“Greece’s return to the bond markets last week was a symbolically important for the euro crisis,” he wrote. “For a country at the centre of the crisis to draw €20 billion of foreign demand for a five-year bond yield under 5% shows that the market now believes Greece will stay in the euro zone, that it won’t collapse into chaos and that any further debt relief will be provided by official rather private lenders. A year there were few takes for that bet.”

 PaulTaylor of Reuters cautions that Greece is a long way from being able to fund itself unassisted in the market. He suggests that one road to relieving the crippling burden of Greece’s long term debt is to extend the maturities from 30 to 50 years and reduce interest rates. Private sector banks have long practised this ‘extend and pretend’ policy by keeping bad loans on the books rather than classifying these loans as write-offs. Like Dickens’ Mr. Micawber they are hoping that ‘something will turn up.’ Whether Greece’s official creditors will go along with this gamesmanship is another matter altogether.

One point of agreement for all these assessments of Greece’s progress is the absolute need to spur growth by sweeping structural reforms to unblock the many obstacles to such growth. These reforms cover everything from instituting more flexible labour laws, breaking cartels that control many industries and keep prices high, reforming the legal system, cutting red tape, and clarifying the tax system.

The real risk in Greece and other southern European countries, as Nixon points out, is “that easier financial conditions will sap political commitment.”

The ruling coalition in Greece has a very slim majority. With elections coming up it will take a very brave politician to press for these reforms to spur long-term growth when he faces a very-short term problem of getting re-elected. The main opposition party Syriza has loudly proclaimed its rejection of the tough reform conditions imposed by the so-called Troika – the International Monetary Fund, the European Commission, and the European Central Bank. This stance is popular with many voters because they are fed up with more than five years of penny-pinching austerity and are ready to support anyone who promises an end to their struggles, even if those policies might push Greece right back into the situation that created the mess in the first place.

Yes, the successful bond issue was an encouraging sign. One should be careful, however, not to read too much into that. Investors notoriously tend to have the attention span of fire-flies and can disappear as quickly as they arrive. Whether that bond sale was merely a one-off blip in an otherwise stagnant economy or a sign of real improvement depends entirely on the political will to create conditions for growth instead of government hand-outs. This takes much more time, effort and political will than a single bond sale.

Monday, 7 April 2014

Erdoğan’s Election As President Is No Slam-Dunk

After the local elections in Turkey on March 30th there are undoubtedly millions of voters who would agree with the late American journalist and essayist H.L. Mencken about the value of democracy.

The ruling Justice and Development Party (AKP) won another large victory in the municipal despite allegations of massive government corruption and the increasingly intolerant, authoritarian behaviour of Prime Minister Tayyip Erdoğan. Opposition political leaders must be scratching their heads wondering what it takes to shake the faith of the mass of voters about the value of the AKP.

Mencken would probably tell them they had a very difficult task indeed.
Democracy, he once wrote, “is the theory that the common people know what they want – and they deserve to get it good and hard.”

Still others would share his cynicism that “democracy is a pathetic belief in the collective wisdom of individual ignorance.”  Or perhaps they would agree with him that “Every decent man is ashamed of the government he lives under.”

Certainly there are many in Turkey who are ashamed of the government they must live under. Unfortunately for them they don’t seem to agree what to do about it. In the old days it was easy. Simply dial up the army and let them deal with it. Now, the opposition has to do the hard work of grass roots politics. And that takes time, money and commitment to deliver services rather than merely bleat about the evils of the existing government. Twitter and YouTube alone are not going to deliver the hard-to-earn votes.

You may not like the AKP, but you have to admit they are very, very good at grass roots political organising. The opposition needs to take a page out of their book to make a dent on the mass of voters.

As Sedat Ergin notes in the Turkish daily HurriyetDaily News, however, Erdoğan may find it more difficult to translate victory in the local elections into victory in the presidential race due to be run in August this year. The president used to be selected by the parliament, but now for the first time the Republic’s history the president will be chosen by popular vote. The victor has to get 50% + 1 vote in a two-round battle.

Some numbers show the difficulty of his decision about running for president, a position he has long coveted. Despite his impressive win last month the fact remains that Erdoğan’s party received 19,455,000 votes, almost 2,000,000 votes less than it did in 2011.

There were 44,725,000 total valid votes cast in the 30 March elections. Assuming the same number of valid votes in August the winner of the presidency will have to receive 22,362,501 votes. In other words, Erdoğan has to pick up another 3,000,000 votes – not a slam dunk. The obvious place to turn is the Kurdish party that just happened to receive almost the magic number of 3,000,000 votes. But the Kurds are far from stupid and will definitely want some tangible reward for giving him their votes.

Therein lies the problem. How much can he give without alienating his core nationalist/conservative base? This problem is particularly acute because the right-wing Nationalist People’s Party recorded 7,875,000 votes last month, up 17.6% from 2011. Too many concessions to the Kurds could see these numbers climb even higher.

He may also face a different political landscape. The anti-AKP vote has always been splintered among several different parties. There is a lot of talk now about the two major opposition parties uniting behind a common candidate in a rare concession to common sense.

In the first few days after the municipal elections Erdoğan showed absolutely no sign of reaching out to the 57% of the electorate that did not vote for him. Indeed his first public remarks were to scold the Constitutional Court for overturning the ban on Twitter and order the theoretically-independent Central Bank to reduce interest. His actions over the next couple of months could even alienate that block further.

Another factor in his calculation is that he has been unable to change the nature of the presidency from its largely ceremonial role. The president has some authority, but real day-to-day power and patronage lie with the prime minister. Will Erdoğan give up that power base for the symbolism of the presidency? Or would he rather remain in his more-or-less guaranteed role as prime minister?

And then there is the economy. For the moment Turkish assets are booming in a post-election glow. But growth forecasts keep getting cut, and now are under 4% for 2014. Unemployment cannot be reduced with these sliding GDP growth numbers. Meanwhile inflation is creeping up, and the important middle classes could soon start to feel a squeeze. How will Erdoğan react? If he forces the Central Bank to reduce rates to spur growth he risks a sharply devalued currency and reduction of the required foreign fund flows. If he lets rates remain high the key construction sector – filled with his cronies – could be hurt.

Given these difficulties no one would be surprised if Erdoğan makes a deal with Abdullah Gül, the current president, to allow Gül to run for another term while he remains at his power base as prime minister. In either scenario Turkey is, unfortunately, in for another several more months of political turmoil.

Thursday, 20 March 2014

Disturbing Echoes Of The Bad Old Days

There is a very good reason why anyone over the age of 50 in Turkey is deeply concerned about the increasing political and social polarisation in the country. They remember all too well when similar divisions in their youth led to the violent clashes of the 1970s and ultimately to the military coup of September 1980.

            I was in living in Ankara in 1968 and 1969 and remember vividly the building tensions. The 1968 upheavals in Europe had made their way to Turkey. Hardly a day went by without an angry demonstration against ‘imperialism’, the United States, the general ‘establishment’ or any of the other assorted evils perceived by students of that generation. Walls at Ankara University were covered with posters urging solidarity with the Palestinians, Che Guevara, Mao Tse-tung. , and, of course, Ho Chi Minh. The anti-capitalism works of the German philosopher Herbert Marcuse became very popular.

            All this made the government extremely nervous. The only way officials knew how to respond was with heavy-handed police action and subsidising squads of right-wing thugs. The stage was set for a decade of escalating violence that routinely resulted in several killings a week.

            I remember going to a dinner party and joking that people should check their guns at the door. It was not a joke when several of the guests then deposited their hand guns on a table by the front door. It was also not a joke when a journalist friend of mine was kidnapped, badly beaten and left for dead in an empty lot. It was a miracle that he survived.

            Of course there are sharp differences between now and then. For one thing, the military is a less obvious source of intervention than it was more than 30 years ago. For another, Turks have more experience at the ballot box and rather like the chance to choose their own rulers.

             The biggest difference, perhaps, is that now it is the government itself fuelling tensions. Not a day goes by without the prime minister accusing his growing number of opponents of being terrorists, atheists, stooges for unnamed foreign powers (everyone understands he means the US, EU, and Israel), or simply working against the National Will. Most politicians offered ritual sympathy to the family of the young man who died recently after being hit with a police tear gas canister. No such words of sympathy from Prime Minister Tayyip Erdoğan. Instead, he accused the 15-year-old of being a terrorist whose pockets were filled with explosive devices. Those charges might carry more weight if earlier outrageous claims by the prime minister about desecration of a mosque or attacks on a head-scarfed woman had not been proven to be complete lies.

            The immediate causes of these angry, irrational outbursts are the municipal elections and the spreading corruption charges against his cronies and family. Erdoğan is fighting for his political life in these elections scheduled for March 30. The actual outcome in individual cities is much less important than the overall national share of the vote. Erdoğan has been bragging that with 50% of the vote he is essentially invulnerable and the voters love him regardless of any corruption charges. If the ruling Justice and Development Party (AKP) vote share falls much below 50% those claims go up in smoke and his political future is thrown in doubt. It is unclear how low the AKP vote total would have to go before other forces in the party would summon the courage, if any remains, to get rid of Erdoğan before more damage is done.

            Given that the stakes are so high, will Erdoğan try to rig the elections? Turkey has an enviable record for relatively clean elections, but Erdoğan has demonstrated time and again that his role model is more Vladimir Putin than Thomas Jefferson. His government has routinely bent theoretically independent state institutions to serve his own purposes. His Minister of Interior has been caught on telephone yelling at a prosecutor to arrest and charge a journalist. When the prosecutor demurs, the minister angrily tells him to go ahead and that the government will pass any law needed to cover his action.

            So there is understandable anxiety in the opposition parties about the fairness of the elections. Why, one opposition leader asks, have more than 140 million ballots been printed when Turkey only has about 47 million voters? What is going to happen to those un-used ballots? So far there are no answers.

            These elections will go a long way to show if, and how far, Erdoğan’s electoral star has dimmed. The electoral landscape has changed since he won about 50% of the vote in 2011. His one-time partnership with the movement controlled by Islamic scholar Fetullah Gülen has been irreparably broken. Now the question is how much electoral power does the Gülen movement really have? Can their votes make a difference? Also, will the urban young who demonstrated so vigorously against Erdoğan last summer go to the polls? Can they channel their street anger into anti-Erdoğan votes? And what about the three major Istanbul football clubs? Their millions of supporters have reasons of their own for disliking the prime minister. Will they express their dislike at the polls?

            Meanwhile, scenes from the bad old days continue haunt the country. Football matches and funerals have become platforms for massive anti-government rallies. Unknown assailants attack a Gendarme post and kill three soldiers. Pro-government gangs disrupt political rallies. AKP blocks a legislative investigation of government corruption. Throughout it all the prime minister continues to bellow his increasingly hollow claims that it is the internal and external ‘enemies’ of Turkey that are causing problems. Unfortunately, the March 30 elections will not be the end of these deep divisions in Turkey. The presidential and legislative elections that follow will keep tensions high. One can only hope they don’t escalate into the violence seen not that long ago.

Friday, 28 February 2014

Are These Guys For Real?

One of the most annoying aspects of the massive corruption scandal in Turkey is the sheer incompetence coupled with unbelievable arrogance and brazen in-your-face behaviour of the alleged perpetrators.

            I mean, really, what self-respecting thief would keep millions of dollars in a shoe box, of all things, tucked away in a closet? Another one of these geniuses managed to have his picture taken with a $350,000-watch prominently displayed. If you’re going to steal, do it with some subtlety. You don’t have to throw it in everyone’s face.

            One doesn’t know whether to laugh or cry about the latest taped conversation between Prime Minister Tayyip Erdoğan and his son Bilal. Erdoğan is caught telling his son to move about €30 million from his house to various other locations. The prime minister is now yelling and screaming that the tapes are manufactured. But so far he has offered no proof of his claim. If he were serious the least he could do is have the tapes analysed by an independent expert.

            All that cash in their homes?! Haven’t these guys ever heard of the Cayman Islands, Lichtenstein or even Switzerland? I will admit it is a little hard to see this crowd sipping chilled Margaritas with Jimmy Buffet on some Caribbean island. But you have to wonder about the sheer arrogance. If you’re sure you’re never going to get caught why bother some little island hide-away?

            Then there is poor Muammer Güler, the former Minister of the Interior, who closely resembles a chubby little rabbit caught in the glare of the headlights of a huge truck. The taped conversations between him and his son who was arrested in the corruption probe provide some of the best humour of this entire situation.

            He reminds me somewhat of a story I covered as a young reporter on the police beat. A burglar who held up a convenience store was amazed when the police found him so quickly after his crime. “How did you guys find me so fast,” he asked, genuinely puzzled. The police laughed that the clerk in the store could identify him because his name was written in large letters on his shirt.

            One can almost feel sorry for Egeman Bağış, former Minister for the European Union, who reportedly got less than $2 million for services rendered to various shady characters. He must feel very hard done by when he reads that the former Minister for Industry collected more than $50 million – plus the watch – and even hapless Muammer Güler reportedly got more than $10 million.

            While vehemently denying even a hint of corruption none of these people has offered the slightest bit of half-way convincing evidence of their innocence. It’s almost as if they are challenging anyone to do something about their alleged larceny. “Yeah, I did it. So what? There’s nothing you can do about it.”

            And as long as Tayyip Erdoğan stays in power they are absolutely right. Nothing will be done. One minister was fired for being caught in the glare of corruption and then resigned from the party with nasty parting shots at the prime minister. He was brought sharply back into line when it was pointed out to him that the best way to avoid the unpleasantness of a trial was to support Erdoğan 100%. Then this case just might never come to trial.

            In short, all these people owe their wealth to Erdoğan. Without his favour they would most likely be collecting unemployment checks. Any public trial of their behind-the-scenes activities would reflect very badly on the ruling Justice and Development Party (AKP). And with a series of important elections coming up this not something that Erdoğan can afford.

            It has to be said that Turkish government officials are hardly the first to supplement their ordinary income with a few side deals. I remember one senior official from a large, relatively poor, Middle Eastern country who was returning home from Asia in the first class section, naturally, where the airline used real gold cutlery. This official saw no reason why he shouldn’t put that very nice cutlery into his brief case. The airline objected, and over the vigorous objections of the official searched his brief case. He was met by police when the plane landed. However, rather than punish the official for embarrassing the country, the president kept him in place. A friend close to the situation told me the president’s rationale for the lenient response was something like “Now I own him.”

            And Erdoğan’s henchmen must be green with envy at the excesses of Viktor Yanukovich of the Ukraine. Next to him the Turks look like amateurs.

            It is entirely possible that Erdoğan and his crew do not even recognize these alleged excess ‘payments’ as corruption. He actually said that if the famous money in the shoe box was not stolen from the state then it was not corruption. If this is his narrow definition of corruption then it is no wonder he finds it hard to accept that bribery of state officials is even unethical let alone criminal.

            This situation would be worthy of a TV sit-com if it weren’t so serious and damaging. Turkey has a long list of serious problems that need urgent attention. Unfortunately, while the prime minister is so busy defending himself, his family and senior officials from wide ranging corruption allegations nothing is getting done on the country’s real agenda. Turkey has worked hard to climb out of the Third World category. Now it is hanging on by its finger nails to these hard won gains and is real danger of slipping backwards fast.

Tuesday, 25 February 2014

Kiev On The Bosphorus?

Could Kiev come to the Bosphorus? Could the mounting frustration felt by much of Turkey’s young, urban population with the increasingly autocratic regime of Prime Minister Tayyip Erdoğan spill over into widespread demonstrations even greater than last summer’s Gezi Park protests?

Probably not. For one thing, Erdoğan is much better at tightening the screws on protests and opposition views in general than his former counterpart in the Ukraine – Viktor Yanukovich. Where Yanukovich let things get out of hand, Erdoğan has kept a steel grip on any dissenting voices. The new law on the internet attempts to stifle publication of any more news or opinions regarding the serious corruption claims. The proposed law on the judiciary completely erodes the separation of powers and increases political control of the already fragile Turkish judiciary.

The less said about the media the better. All but a very few outlets and writers have been completed cowed into supporting whatever outrageous claims the government makes. It is getting worse as the date of municipal elections draws closer. The prime minister is going out of his way to make sure that any opponents of his Justice and Development Party (AKP) get as little exposure as possible. He has gone so far as to call a TV station demanding that it give less time to the opposition candidate for the mayor of Istanbul. AKP is also accused of putting pressure on some newspapers to publish false poll results to give the impression that AKP candidates remain in far in the lead.

Another reason is that Erdoğan has been very clever at playing the ‘Us-Against-Them’ theme. In this case the ‘Us’ is that segment of the Turkish population that remains highly xenophobic, deeply suspicious of all foreigners, and distrustful of the well-educated, well- travelled economic, cultural and educational elite based mainly in Istanbul and Izmir. This segment is easy prey for the hair-brained conspiracy theories of varied lobbies – interest rate lobby, unnamed foreigners, Jews, the European Union – all working to keep Turkey from growing. The prime minister constantly accuses the ‘Them’ of trying to suppress the rest of the population by opposing what he grandly calls the ‘National Will’

Erdoğan’s constant, slightly panicky rants must be causing severe headaches for Turkey’s professional diplomats. How do they explain the irony – lost on Erdoğan – of sharply criticizing the Egyptian military for overthrowing the Moslem Brotherhood and then using the same techniques as that military for stamping on any dissent? How do they explain the prime minister’s often repeated love of democracy – or at least what he calls democracy – and his silence over developments in the Ukraine? Isn’t the overthrow of an autocrat something a real democrat should praise?  

The reality is that Erdoğan has absolutely no interest in foreign affairs at the moment. He is mainly concerned with two things: keeping AKP’s 50% vote threshold in the upcoming municipal elections and preventing any further investigations into corruption in his government.

Respected veteran journalist Hasan Cemal said in a recent interview that “Erdogan’s only concern is how to cover up the corruption charges. In order to do that he is trying to keep a tight grip on the media; his next target is the Internet, and he is trying to silence the internet . . . In a desperate attempt to save his political life he is trying to darken the (corruption) investigation by saying there is a coup attempt against him and his government. However, he is making a coup d’état against democracy in the country.”

Cemal was forced out of one of Turkey’s mainstream papers under government pressure last year. He is the author of several books and now writes online. 

One hope for the future is that much of the young generation in Turkey is no longer affected by the same ‘bunker’ mentality as previous generations. One of Turkey’s acclaimed novelists Elif Şafak wrote recently in The International New YorkTimes  that “at the same time, this warped mentality (of the past) no longer entices. Times have changed. The youth are far more open to the world than the previous generations, and the people are ahead of their politicians . . . As much as we tend to buy into conspiracy theories we Turks have also grown very, very tired of them.

Rather than accept that times have changed the Turkish government remains fearful of this development and is doing everything in its power to make sure the winds of change do not blow too hard. Ultimately, this approach will fail, just as it has failed in so many other countries. It is rather like using a fork to stop the tide from rising. It doesn’t work.  

The good news is that this change is inevitable. The bad news is that a great deal of damage can be done trying to block the inevitable.