[OPINION] A new consensus on Turkey’s need for reform

Meanwhile the driver’s wife, up on the street, tried to remind both men that finding gas for the car might be the problem to solve first.

Like the rest of the world, Turkey faces an economic crisis unprecedented in modern times. How to escape this nightmare? Expert opinion is not divided so much as splintered. Economic indicators we’ve relied upon for decades point in crazy, inconsistent directions. Interest rates in some countries are zero or close to it, yet demand for credit doesn’t budge. The United States is spending billions of dollars in stimulus monies in a too-big-to-fail bank rescue/public works spending program that tests Keynesianism as never before, but unemployment creeps upward. But we all know consumers must be helped to invest and spend, and unemployment must be brought down. At the same time, monetarists insist all this is exactly wrong, and what’s needed are massive tax cuts and deficit reduction. The paradox is that both Keynesians and monetarists share the common goal of economic growth that helps everyone. We face a fundamental weakness in aggregate demand. This is the gas needed to get that car at least capable of leaving the ditch. The question is, can we find a consensus to pursue at least some means of bringing demand back? Because a car with gas, or an economy with demand, can move despite temporary inertia.

The American Business Forum in Turkey (ABFT) completed a flash poll among American businesses with substantial operations in Turkey. As an affiliate of the US Chamber of Commerce, the ABFT wanted to be sure the US Treasury secretary, and his delegation, had up-to-the-minute data prior to the International Monetary Fund (IMF)-World Bank annual meetings in early October.

The ABFT survey showed agreement on resumed Turkish growth by 2010 and confidence in the Turkish Central Bank’s ability to create positive change, but no consensus at all regarding Keynesian versus monetarist measures or whether Turkey should accept the IMF loan package.

On the other hand, the “Strategy and Action Plan for Istanbul International Financial Center (IFC-Istanbul),” which was again released in early October, detailed a roadmap to an expanded financial sector. IFC-Istanbul is predicated on better laws and enforcement, along with a mix of Keynesian and monetarist initiatives. Still, even if an agreement on means eludes American companies, for Turkish financiers and the Turkish government, agreement about ends is possible. This potential consensus may well extend to the Turkish business community as a whole, domestic and foreign.

Another survey, again conducted by the ABFT in September among the executives of the American companies operating in Turkey, showed an agreement on goals, near-unanimity on at least one measure of progress but no agreement at all on increased government spending (to reduce unemployment and stimulate aggregate demand) versus tax cuts and deficit reduction (to make credit more available and encourage new investment).

This is not surprising, considering the diversity of companies and sectors with different, sometimes competing priorities. Some companies, for instance, may want to benefit directly from public spending in a kind of Keynesian program. Capital-intensive industries, on the other hand, might wish for nothing more than tax reduction and easier access to loans. Consensus about economics is rare.

Nonetheless, the ABFT Survey on the Business and Investment Climate in Turkey showed surprising agreement on top priorities. These include a consistent application of and adherence to the rule of law; greater ease in obtaining visas for skilled technology workers, site permits and other necessary documents; expedited customs processes, so stock doesn’t rot on docks; and a demand for greater transparency, particularly regarding permissions and the selection of vendors.

The IFC-Istanbul plan could not have come at a better time. Turkey may wind up benefiting from the current global economic chaos by leveraging disaster into opportunity and making İstanbul the 21st-century financial capital of Turkey the nation needs. While announcing the IFC report, Economy Minister Ali Babacan stressed the need for İstanbul and Turkey to establish a legal and regulatory infrastructure harmonized with Europe, the US and the rest of the industrialized world. He further alluded to increased diversity of financial products and services, a simpler and more effective tax system, improved transportation and technological infrastructures, better development of human capital and establishing IFC-Istanbul organizational structures.

Taken as a whole, these three reports point to regulatory harmonization, legal protection and expedience in commerce, improved infrastructure and financial modernization as critical goals. All this will require effort and significant public expenditure. We’re excited about the analytical thinking and vision expressed in the Babacan report and can only hope its enthusiasm is matched in public investment over the period of implementation.

What Turkey needs first and foremost is no different from what the world financial system needs: reform. The essence of this reform is transparency. Risk assessment of investments and investing itself must serve shareholders no less than managers and traders. Profitability cannot come at the expense of service and quality. The corruption that in recent years has accompanied the imprudent use of high-risk financial instruments must end, with performance incentives refocused on the long term health of the business. In general, there must be a consistent system of valuation applied to assets, with any bundling of valued assets retaining the original, discrete valuations in clear form. Finally profitability, and efficiency in operations, cannot involve collusion.

It’s the government’s job to create the right mix of regulations and incentives to achieve these ends. Industry’s job is to continue its focus on shareholder return but with an equivalent adherence to ethical standards. As Turkey and the US are strategic partners, the Turkish government and American industry are colleagues with shared imperatives. We can leave the two men to continue to argue next to the car stuck in the mud or stop wasting time and start fixing the obvious problems we do agree on. It is time for Turkey and American industry in Turkey to leave old bickering behind and complete the fundamental reforms, such as keeping to the rule of law, required for any possible recovery.

We’ve lost some time. The zeal for reform of three or four years ago has been lost. Now is the moment we must begin anew and get the Turkish economy moving again.

* Rahşan Cebe is the head of the American Business Forum in Turkey (ABFT)