THE SICK MAN OF EUROPE
Turkey's woes have been caused by a desire to be respectable in the eyes
of Brussels, says Norman Stone Ankara FOR the past year and more, the IMF has regularly been in Ankara. Students of the subject will know that when the IMF appears, it is time to count the spoons: is there anywhere that has survived its ministrations? I should have known what to do, and changed my money into dollars before it was too late. I did in fact at least have some, immediately convertible, and so did not lose too substantially. But masses of small traders and ordinary people have, in the course of the last two months, seen their money cut in value by half. The Turkish lira had stood at one million to the pound. It is now not far from two million.
This has all happened almost entirely out of the blue, in a country that had been doing rather well. Turkey has its problems, of course, but the `real' economy is a success story — certainly if you compare it with conditions 20 years ago. Back then, Turkey exported little, mainly primary goods (nuts, in fact). Now it makes fax machines, cars, prize-winning aircraft, good furniture, tractors and pharmaceuticals. Large parts of the south and west, and of Ankara itself, have been prospering. Its foreign trade may, within a few years, be larger than Russia's, although Turkey has little in the way of raw materials. With one or two exceptions, Englishlanguage books do not make this point adequately; they are too busy being whimsical or moralising. The point appears, nevertheless, in a Russian book that has come my way, Turtsiya rnezhdu Evropoy i Aziey (Moscow, Academy of Sciences, 2001). If you come from Russia, Turkey appears to be a booming place, where people work well and live decently, and where the adult men live out their three score years and ten, unlike poor old Russians. My Russian experts recognise as much, and know what a long road Turkey has travelled since 1979, when the makers of the Five Year Plan assembled their statistics by candlelight. To recognise this is an essential start for any discussion of what, now, has gone wrong. The Russians note: public finance.
The country had gone through the 1990s with a weird system. There was, on the
face of things, 80 per cent price inflation every year. More than half the money stock was held in dollars, however. To keep inflation from hitting the stratosphere, interest rates were very high, and a crawling dollar peg was announced; you could convert at will. The dollar, generally, rose in value, but not quite at the same rate as the printing press produced paper money to pay the government's bills. If you moved in and out of Turkish money and dollars, you could, with proper timing, make a substantial gain, and that was how the Turkish educated classes survived. The system was hard on ordinary people, but there were consolations. A man could retire after 25 years' work, collect a pension and take a second job (there are countless small services on offer, and innumerable small shops, open until midnight). The pension would be vaguely linked to the dollar index, and every six months state salaries would be raised according to that as well. The state, meanwhile, occupied a substantial part of the economy, whether directly through the usual steel factories or indirectly through subsidies, e.g. to farmers, which take twice as large a fraction of the GDP as in Western Europe. The system, in its odd way, worked: in Turkey, you see far fewer beggars than in Western Europe; I have seen fewer in six years here than on a single afternoon in the middle of Oxford. There is also very little 'social' crime — petty theft, mugging and the like.
This system coexisted with a burgeoning private sector, based mainly in Istanbul, the west and the south. It has been doing well — very well indeed: a tenth of television sets now sold in England are Turkish-made (under licence, usually, from the Far East) and Turkey is moving well beyond the
shirt-making phase with which growing countries first establish an export trade. Istanbul now has a substantial service economy, and a successful enterprise, such as Nurol Holdings, produces optical glass and glass fibre, runs hotels and makes tanks. A friend has been seconded from Clarks Shoes in England to advise managers of a one-time military boot factory on how to turn it over to industrial footwear (he loves the country). These examples could be multiplied many times over.
When Turkey joined the European customs union back in 1995, it was a logical step; it has worked, on the whole, well. However, the Turks' trade deficit is substantial, and it would have been usual for the deficit on trade to be covered by foreign investment. And here was the rub. Turkey got about a tenth of what Hungary received — under £1,000 million — despite a huge disparity in size and potential. Why not more? The obvious answer was inflation. There were no doubt other problems such as bureaucratic bumbling and poor public relations (it is certainly extraordinary, as I go round London, to find even well-informed bankers automatically assuming that Kurds are being massacred and that the Greek Cypriots were innocent victims in 1974 — both statements being tosh which a proper public relations machine could deal with in its sleep). But the chief deterrent to foreign investment was the very same inflation that, in its way, underpinned the system. Of course there was something in it for the politicians as well. There were state banks: these banks could advance low-interest and long-term loans to politicians and their friends; the politicians could pass off favours in their constituencies. Meanwhile, the army, which is much respected, kept the politicians from getting out of order. The National Security Council sometimes rapped their knuckles.
It is a strange system for a country on its way to being the world's tenth largest economy. There were protests. These took the form, briefly, of an Islamic-led government, and the private sector took fright: it regards Islam much as Voltaire looked on the Catholic Church in the 18th century and said, ecrasez l'infame (as wire was strung along the main streets in the capital, preparatory to loud-speaker announcements of the type they have in villages, to announce the parochial news, such as Fetme marrying Hasan, little Mehmet having his circumcision and so forth). The Islamic government did blunder, and the National Security Council said that enough was enough: Turkey is a secular republic and the state must be above the religions. New elections resulted in a coalition of secular parties — Bfllent Ecevit, a one-time left-wing stalwart and translator of T.S. Eliot and Rabindranath Tagore, took office with a huge, even constitution-changing, majority, together with Nationalists and (for want of a better word) Thatcherites. In 1999 we all had great hopes of this government. It had American backing; the European Union at last allowed Turkey candidate status. For some months the press, and the educated Turks, were positively preening. If I asked them if they really knew what they were in for, they waved me aside: yes, Turkey, with nearly half of the population still working on the land, and the mainly Kurdish south-east still very poor, was not really ready for the European Union. But simply the attempt at union would give the politicians a real jolt: they would have to meet the Maastricht criteria, sort out inflation, bring in foreign investment and, above all, stop stealing. The crenellations of the acquis communautaire had to be studied; and the country had to go through various humiliations. Of course the Europeans do not really want Turkey at all — she is too big, too complicated and, for some, too proAmerican. It was quite easy to shift the goalposts, and to derail Turkey on the grounds that her human-rights record is defective. Swedes, whose grandparents were busy sterilising Lapps, would arrive in trouser-suits and offer money for education in Kurdish which, given that there are seven Kurdish languages, is not a practical possibility; ghastly junior diplomats would lecture dignified professors that they would never make Europe until they mended their ways. None of this mattered very much: the question became whether the inflation could be properly contained. As to that, secularised. Westernising Turks were united.
There was much to be said in their favour. Say in public that there is a solid European aspect to Turkey, and you get the usual Greek chirruping, but it is true. Since the reign of Selim III in the late 18th century, Ottoman rulers had recognised that they had to modernise. By a bizarre twist, the mother of the greatest such moderniser, Mahmut II, was a cousin of Napoleon's empress Josephine, who happened to be captured by Algerian pirates, was presented in the harem and made the welkin ring. One of her descendants, by her first marriage, is the present king of Sweden who is therefore an Ottoman cousin: he should shut up his preachers, or perhaps use that old Ottoman punishment and put them in a sack with ten specially starved cats. The most interesting historical debate about the Ottoman empire is the balance between Byzantine, Turkish and Islamic elements: the Greek historian, Dimitri Kitzikis (L 'empire ottoman) makes himself unpopular with Greek nationalists when he points out that Greek was the court language for some of the time, and that a Byzantine Comnenus conquered mainland Hellas for the Ottomans. And if the European anti-Turks claim that only Christians are allowed in, they then have some explaining to do: we might even define Europe as coming to an end at the last empty Gothic cathedral.
The Turkish Westernisers, although quite successful, had gone too far. Overwhelmed by a desire for respectability, and to get away from the ills of the old system, they tried to do too much too quickly. Severe limits on easy credit to and from the state banks were imposed. A larger German bank allowed them dollar credits and then, in effect, foreclosed (no doubt hoping to be able to buy them up cheap, once they had failed and been privatised). Back in February, there was an absurd row in the National Security Council, and when the Prime Minister walked out and
told the press about it, his deputy (and would-be successor) threw the statute book at the President, whose crime had been to protest that his investigations of corruption were being thwarted. At that, panic began; in fact, we now know that three days before, men with inside knowledge had been turning their Turkish money into dollars. A sauve-qui-peut followed, and within days the currency had lost half of its value.
A saviour appeared from Washington: Kemal Dervis, a Turkish official from the World Bank, well versed in the ways of the IMF, appeared. His programme was clear enough: the IMF 'package'. It involves privatisation, a straitjacket on state deficits, perhaps a new tax here and there, all with a view to currency stabilisation at last, This programme has been tried elsewhere. Unquestionably, it profits some locals, but it can also do great damage — harming small farmers, small traders and the small service-sector people who are the seedcorn of an economy. If only the EuroTurks, 18 months ago, had been able to persuade their friends and allies abroad that to turn a country's economic way around takes years, not months.... Margaret Thatcher was wise to take things in small jumps. Her method, however, is quite different: you slay the inflationary dragon at one fell swoop. That was tried in Russia, with the calamitous effects outlined by Peter Reddaway in an outstanding new book, Market Bolshevism. It was tried in Turkey, too, and led to the most severe crisis.in the republic's modern history. Medium-term, there is plenty of reason to hope that Turkey will get through it all: in modern times, she always has done so, in the end. But in the shorter term, much headshaking. This has been a sad and humiliating setback for a very decent people.
Norman Stone is professor of International Relations at Bilkent University, Ankara.
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