The interview series 2014/15 part 03 / Istanbul
The interview series 2014/15 part 03
Amid the many challenges facing Turkey’s economy – geopolitical tension, corruption and the urgent need for infrastructure spend – the country’s cool-headed finance minister remains ebullient.
Finance minister, Turkey
Mehmet Simsek is not your typical Turkish politician. For one thing, it is hard to find people who speak badly of him. Mention his name to anyone, from taxi drivers to journalists, and you will be inundated with accolades describing his honesty and intelligence. Given the challenges facing the Turkish economy, these are the types of qualities one would hope for in a finance minister.
Of those challenges, many observers believe corruption is the biggest. A series of damning allegations targeting president Recep Tayyip Erdogan and his closest associates have rocked the Turkish political spectrum. The lack of any formal investigation has led to many prominent regional journalists asking whether the rule of law remains intact in Turkey. Not the most encouraging debate for investors to see unfold in a delicate emerging market.
“Corruption in Turkey is not a negligible problem,” says Simsek over a modest cup of Nescafé in his carefully appointed office in Ankara. However, Simsek argues that the scale has been exaggerated. “Like many other countries, you may have corrupt elements but corruption has actually declined in the last decade.”
The allegations against Erdogan’s allies, including claims that business associates close to the president helped Iran avoid international sanctions, were “politically motivated”, says Simsek. “While it doesn’t mean that we are perfect or done with these types of issues… no, that is not the case.”
Despite the gravity of the allegations, Erdogan’s Justice and Development party (akp) won key municipal elections. Erdogan himself won the Turkish Republic’s first direct presidential election in August. In the subsequent cabinet reshuffle Simsek kept his post: a sign that Erdogan is happy with the way he is handling the economy, despite the recent fall in growth.
Born in the predominantly Kurdish town of Batman in eastern Turkey, Simsek is relaxed considering his position at the helm of the turbulent Turkish economy. Making light of the fact that the colours of his tie – muted navy blue and yellow – could be mistaken for support of Fenerbahce, one of Istanbul’s conservative football clubs, Simsek speaks with clarity about the various challenges facing his ministry.
Having previously worked as an economist and strategist for Merrill Lynch in London before his appointment as minister of finance in 2009, Simsek, along with deputy prime minister Ali Babacan, is widely regarded as one of the most adept politicians in Erdogan’s ruling party.
With the recent Isis advances in Iraq and Syria, the Turkish economy has been hit particularly hard by the aftermath of the Arab uprisings. “Geopolitical tension has had some negative impact on Turkish macro performance over the past couple of years,” says Simsek. “It has been more pronounced in 2014 simply because Iraq is our largest surplus market. Our trade surplus in Iraq is almost $12bn [€9.5bn] and at some point there was a significant disruption to trade routes following the Isis advances in central Iraq. Had there not been a disruption in Iraq, our trade gap and therefore our current-account deficit would probably have been a little narrower.”
Like other emerging markets, Turkey’s overstretched dependence on foreign capital makes the country particularly sensitive to changes in global liquidity. Throughout the interview, Simsek’s comments circle around the country’s current account deficit. In February, amid the fevered debate about regional instability, Turkey posted a higher-than-expected current-account deficit of $65bn (€51bn) for fiscal year 2013. One culprit of Turkey’s recent economic performance is its over- exposure to the whims of the US Federal Reserve. Turkey, along with other leading emerging markets, is facing a tough year ahead because of possible interest rate hikes by the Fed. Economic reforms will be crucial for Turkey to regain the impressive growth of the late 2000s. “We have identified more than 2,500 micro-level reforms that will help transform Turkey and boost long-term growth potential,” says Simsek. Some may be controversial but despite fresh elections scheduled for 2015, Simsek believes there is no time to waste. “My view – and the prime minister is on board with this – is that we should push some of these reforms through before the elections.”
One solution to Turkey’s delicate economic position and current-account deficit woes is the attraction of foreign investment through the creation of first-rate infrastructure. Turkey has invested heavily here – especially in the realm of transportation – over the past decade of Erdogan’s rule. “Good infrastructure is important for development. The amount of work that we have done over the past decade has sometimes been two or three times more than what was done in the previous 80 years of the Turkish Republic’s history,” says Simsek. “The third airport, for example, is not a luxury project: it is way overdue. We need it this year. In the late 1990s, when the existing airport in Istanbul was completed, we had about eight million passengers going through the facility; it was designed for 32 million passengers. This year, that airport will handle 60 million passengers. Between now and 2018, when the third airport is expected to start operating, we are really wondering how we will handle the traffic.
“Istanbul is a natural hub; 46 per cent of the passengers that Turkish Airlines carries are transits. We collect people in Africa and Asia and transfer them all over the world. This is very successful and we do make money from it. The least that we can do is provide the logistical base to maintain that and, therefore, these projects are essential.”