Unpaid debts and stuttering construction sector ignored as Turkish police raid onion depots

News About Turkey - NAT
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By: Zulfikar Dogan

The latest figures released by the Banks Association of Turkey (TBB)’s Risk Centre reveal a grave situation as the flow of cash and payments on the markets dries up and debtors find it increasingly difficult to make payments.

The data shows that from January to October this year 17 million cheques were written, amounting to a total value of 771 billion lira ($146 billion) – an 18 percent increase over the figures from the same period in 2017. A full 12 percent of those cheques have gone unpaid, resulting in legal action. The value of those unpaid cheques – 21 billion lira – is 50 percent higher than the value of bounced cheques in the first 10 months of 2017.

A similar situation is seen in installment payments, another of the major sources of debt on Turkish markets. The TBB’s January-September figures showed that the number of protested bills in this area dropped by 5 percent since last year to 668,000. However, the value of those bills, 12.8 billion lira, was a full 39 percent higher than the previous year’s figures.

In other words, the value of goods sold that sellers were unable to recover rose by almost 40 percent, leaving companies and manufacturers with no recourse but to take the matter to court.

One of the most striking points from these statistics is that the highest number of unpaid cheques have come from five provinces – Osmaniye, Mardin, Bingöl, Muş and Artvin – all far from Turkey’s economic heartlands, and three of which are in the southeast. Going by these figures, the economic downturn will hit Turkey’s east and southeastern provinces harder than the rest of the country.

While these figures demonstrate the serious cash flow problems businesses are likely to face as it becomes more difficult to recover payments, the situation is no less severe for individuals. The number of people unable to make payments on personal credit and credit cards rose to 1.56 million from January to September last year, and the number of people facing legal action due to unpaid debts has risen by 18 percent.

With economic figures like these on display, Turkish President Recep Tayyip Erdoğan’s insistence that the economy is back on track, that interest rates are falling and the lira strengthening, simply demonstrates how divorced from reality the government’s take on economic matters is.

“We have every reason to be hopeful about the future of our economy,” Erdoğan told a conference of local representatives on Nov. 11, before going on to lambast Turks who bought foreign rather than locally produced goods for what he called their lack of national sentiment.

The president went on to give a stark threat to traders he said were stockpiling supplies of staple foods such as potatoes and onions and blamed them for the huge increases in food prices this year. “From now on, we will raid any warehouses where we hear reports that stockpiling is occurring,” he said.

Erdoğan has escalated his battle against inflation, firstly getting municipal police involved, then calling on provincial governors to enter the fray, and now ordering raids on fruit and vegetable depots. Will this turn into raids on the banks and others involved in the explosion of unpaid debts? Apparently in the coming days our economic problems will be solved not through measures at a structural or institutional level, but by calling in the police.

Meanwhile, Treasury and Finance Minister Berat Albayrak has joined Erdoğan, his father-in-law, in talking up the current state of Turkey’s economy, telling a forum organised by one of Turkey’s largest business forums this week that the country had overcome the currency woes that brought the lira to over 7 against the dollar in the summer.

The speed of the recovery since then, which has brought the lira back to around 5.3 to the dollar, has shocked many in the business world, Albayrak said.

The minister was also enthusiastic about Turkey’s current account surplus, which he said could amount to an all-time-record high when the latest figures are released. “Turkey continues to raise investor confidence,” Albayrak went on to say.

The most recent data on construction permits published by the Statistical Institute of Turkey, however, paints a far less rosy picture than Albayrak’s. The figures show that the construction sector – an employer of more than 2 million people that alongside the automotive industry is one of the two key drivers of the Turkish economy – is on the verge of collapse.

The number of new building permits given by councils between January and September this year has dropped by 41.4 percent since last year, amounting to a 55.1 percent decrease in acreage, a 44.7 percent decrease in the value of new building projects, and a 58.6 decrease in the number of new apartments.

Seen in light of these figures, while the current account surplus may be a logical and realistic approach to the economy, it is not in the slightest something to celebrate.

The statistics show that the Turkish construction sector has halved in size, and has entered a slump it is unlikely to emerge from for a long time to come. The banks association figures, meanwhile, show a great increase in the unpaid debt.

Another critical point is raised in recent figures on industrial goods manufacturing, which accounts for more than 80 percent of Turkish exports. Manufacturers in this field import around 65 percent of the materials they use, but this figure dropped for the first time since 2016 by about 2.7 percent. This fall explains why imports have fallen, why the foreign trade deficit has decreased and in turn why Turkey has moved to a current account surplus.

As Turkey’s weakened lira makes raw materials, intermediate goods and machinery more expensive, imports of these goods drops and so does production capacity. The logical progression from this is decreased employment and the beginning of mass lay-offs.

The latest sales figures again clearly show Turkey swiftly entering a dire situation. In September, although the volume of sales fell by 3.4 percent, turnover actually increased by 22.5 percent. In other words, despite a fall in sales and domestic demand, the high inflation and price rises have driven turnover upwards, and this situation is likely to worsen in by the end of the year.

At the same time, despite Albayrak’s assurances that international investors are ready to flock back to Turkey, signs of the politicisation of the judiciary, which many fear is no longer independent or objective, continue to scare off foreign capital.

Erdoğan’s recent rejection of a European Court of Human Rights (ECHR) ruling demanding the release of opposition politician Selahattin Demirtaş is the latest sign of this.

It was preceded by arrests of German, French and U.S. citizens on terrorism charges, including U.S. pastor Andrew Brunson, whose long detention sparked a diplomatic feud with the United States and accelerated the lira’s slide earlier this year.

The Turkish government has made efforts to rebuild bridges by releasing Brunson and other detainees. Yet the refusal to abide by the ECHR’s decision on Demirtaş could trigger yet a repeat of the Brunson saga, and the response of the Council of Europe and European Parliament is bound to have economic ramifications.

All this spells trouble for Turkey, as countless economic analysts have warned. The government’s decision to avoid addressing pressing economic problems and insistence instead on raiding food warehouses and other populist measures ahead of local elections next March have brought the oft-repeated warnings of recession, stagflation and slumpflation a step closer to becoming reality.

Source: Ahval News

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