N. Y. ULCHENKO, PhD in Economics Institute of Oriental Studies, Russian Academy of Sciences

Keywords: Turkey, anti-government protests, interest lobby, foreign capital inflow (outflow)

What is the economic background of the anti-government protests in Turkey that took place in June 2013? The riots were provoked, according to Prime Minister R. T. Erdogan, by the so-called interest lobby. But the real problems of the country lie in the high degree of dependence of economic growth on external sources of financing and, as a result,on fluctuations in the global financial market.

The protests broke out against the backdrop of a decline in GDP growth: in 2012, they slightly exceeded 2%, and by the end of 2013 (presumably, at the time of writing, they have not yet been summed up) they will amount to only 3.6%, while in 2010 and 2011, the Turkish economy, which relatively painlessly survived the first wave of the global crisis, showed The economy is growing at a very high rate - about 9/6^%.

Meanwhile, the risk of a slowdown for emerging (in other words, fast-growing) markets, including the Turkish economy, is high. According to some analysts, such economies are like cyclists who do not fall while they are moving. A recession is dangerous for these countries and threatens to turn out to be the threshold of a large-scale not only economic, but also socio-political crisis.

Were the June protests just an episode provoked by the "evil will" of forces hostile to the current regime, or can they be considered the first signs of Turkey's entry into a less prosperous period of economic development?

Predictably adhering to the version of provocations from ill-wishers, Prime Minister R. T. Erdogan pointed to the" percentage lobby "as an" influence group " interested in riots. The logical question is: is it possible to reduce the current situation to the actions of this "lobby", if it actually exists?

HOW THE "PERCENTAGE LOBBY" APPEARED...

The very concept of "interest lobby" implies the presence of economic groups in the country that are interested in raising interest rates on bank loans. This kind of interest must have motives. Turkey's recent economic past suggests their existence.

The fact is that in the late 1980s, the Turkish elite chose to pursue the so-called "expansionary" fiscal policy, i.e., in favor of a policy of budget deficits to revive domestic demand and maintain economic growth. Due to the peculiarities of the country's internal political development, it turned out to be a difficult task to abandon this choice and switch to a balanced budget policy, the solution of which was delayed until the early 2000s.

Thus, for more than 10 years, Turkey has had to find ways to finance its growing budget deficit. For this purpose, the new opportunities opened up by the liberalization of the national financial market at the same time - in the late 1980s-were also used. As a result, the state's increased appetite for borrowing, while maintaining high interest rates in the Turkish market, was satisfied not only and not so much at the expense of local investors, but also at the expense of short-term capital inflows from abroad.

Agency functions to attract it to Turkey and then use it to purchase government debt obligations were performed by Turkish banks. For them, as the Financial Times figuratively put it, the most favorable period of making win-win bets on the treasury bond market2 has come.

The attention of Turkish banks to operations with this instrument, which for some time (before the onset of the next financial crisis) showed a unique combination of reliability and high profitability, was evidenced by the fact that, as of 1996, the banking sector held over 80% of government debt securities issued for placement on ^the domestic market3.

As for the income of the "interest-bearing (banking) lobby", the Turkish expert said. The author, convinced of its existence by the sheer scale of government debt servicing costs, cites the following data: in the period from 1980 to 2004, the total interest payments of the state on domestic and foreign debts exceeded $450 billion. "The main problem of this country is the interest rate - politics-economy link, which is the object of manipulation," Bulut ⁴ sums up.

The existing system of attracting banks to finance the budget deficit had costs in the form of the emergence of a large number of weak players in the market, unable to survive outside the specific conjuncture of that period. Turkish banks paid for the easy profits of the 1990s with a difficult transition to normal banking operations as the country entered a period of financial stabilization that began at the turn of the 1990s and 2000s.

At that time, the management of a number of banking institutions was transferred to the Agency for Control and Regulation of Banks ' Activities, which was specially created in 2000, and large-scale mergers and mergers took place in ^the banking system5. In other words, the benefits of a period of easy banking profits more than paid off during the difficult period of banking system restructuring, seemingly revealing a clear preference for banks to continue operating in a more or less stable developing economy. So, today their interest in raising interest rates is far from obvious. Note that all the most prominent statistics are-

The critical "revelations" of the above-mentioned Bulut date back to the middle of the first decade of the 2000s at the latest.

...AND HOW DID IT REMIND YOU OF ITSELF AGAIN

However, in January 2012, Prime Minister Recep Tayyip Erdogan once again recalled the "interest rate lobby", emphasizing that it will not be able to continue to exist as calmly, since the "scissors" between the lending rate and the market interest rate will be reduced. ⁶ The Prime Minister's statement caused confusion among bankers and economists.

At that time, they did not even think of identifying themselves with the "interest rate lobby", rightly believing that the main reasons for maintaining relatively high interest rates are not internal, but external. The fact is that the fairly successful economic development of Turkey in the 2000s, which resulted in a reduction in the budget deficit and a decrease in inflation, took place against the background of an increase in the current account deficit of the balance of payments, i.e., a steadily increasing lag in the country's foreign exchange earnings from its expenditures.

In 2002, when the ruling Justice and Development Party (AKP) came to power, the budget deficit was more than modest-about $1.5 billion. Rising throughout the 2000s, it amounted to $42 billion in 2008. Having declined in the crisis of 2009, the deficit reached its historical maximum in 2011 - $77 billion. (more than 10% of the country's GDP)⁷.

At the end of 2012, the current account deficit of the balance of payments decreased to $66 billion. However, this seemingly positive shift occurred against the backdrop of a decline in GDP growth to 2%⁸.

Thus, the main structural imbalance in the country's development is still not overcome: economic growth occurs with increasing dependence on external sources of financing. However, now that Turkey has managed to significantly reduce the budget deficit, their main consumer, unlike in the 1990s, is the private sector. The reduction in external financing is tightly linked to a slowdown in economic growth.

Part of the country's external sources of financing come in the form of foreign direct investment (FDI), which Turkey has also been very successful in attracting in recent years. However, the maximum inflow of $22 billion was observed in the pre-crisis period of 2007. In all subsequent years, it was below this level. So, in 2012, Turkey was able to attract only $12 billion. FDI ⁹.

It is obvious that the main part of the necessary external financing comes to Turkey through the system of portfolio investments, in the structure of which various debt securities have steadily dominated since the 2009 crisis, as well as in the form of other forms of credit loans from the international financial market. As a result, the Turkish financial market, primarily the private sector, which now holds about 70% of the country's external debt, is strongly linked to the interest rates of the international market and their changes. Moreover, a significant part of the borrowed funds is attracted in the form of short-term loans: in 2012, they accounted for about 40% of the total private sector debt.¹⁰

"BUTTER FOR THE BREAD OF MONEY HOLDERS"

As for the internal factors of high interest rates, the policy of the Central Bank of the Republic of Turkey (CBTR) plays a special role among them. Before the crisis of 2009, the country's authorities sought to combine high interest rates with a high exchange rate of the national currency. The Central Bank of Russia considered the high cost of loans as the main tool for controlling inflation and financial stabilization. Thus, in 2005, with an inflation rate of 8%, the rate on long-term loans in Turkey was 16%, while in the EU countries it did not exceed 1-2% ¹¹. At the same time, the attractiveness of the Turkish market as a highly profitable one for foreign investors was ensured.

As one of the Turkish journalists noted,"...The central bank's policy of high interest rates spread butter on the bread of hot money holders, and the country became a "paradise for their investments" ¹². High-income speculative short-term capital willingly entered the Turkish market, ensuring that the Turkish lira's exchange rate against the dollar remained at a comparatively high level: from 1.5 lira to $1 in 2002 city of it rose to 1.3 lira by 200713

The favorable (from the point of view of foreign investors) "interest rate policy", which Turkey managed to adhere to even after the crisis as an economy that quickly entered the recovery phase, was supplemented by the stagnation of the largest Western markets. In the context of their sluggish dynamics, international capital in search of higher investment income willingly came to the growing Turkish market.

The availability of funds from foreign markets has led to a boom in consumer lending in Turkey amid a decline in the national economy's savings rate, which fell short of ¹⁵% of GDP in 2011 and 201214. In 2009, the volume of consumer loans issued by Turkish banks, including mortgage loans, amounted to 93 billion tur. In 2011, it reached 172 billion liras, or almost doubled. At the same time, while in 2002 the share of consumer loans in the total volume of bank loans was 5%, in recent years it has remained at a level close to 25% ¹⁵.

It should be recognized that in the conditions of sluggish foreign markets (Turkish exports were able to reach the pre - crisis level of 2008 - $140 billion). - only in 201116) expanding the capacity of the domestic market, although at the cost of actively using external borrowing, became a fairly successful alternative development model, which allowed Turkey to demonstrate good growth rates in the post-crisis years. Thus, in 2010, the weighted contribution of household consumption to GDP growth of 9% was estimated at 4.7%, and in 2011, with GDP growth of 8.7%, it was estimated at 5.3% ^17.

However, the obvious costs of the chosen growth model and the increased risks associated with its use have forced Turkey to gradually move away from its current economic policy. The country's development program for 2013 noted: "... The Central Bank had to take into account the main trends in the global economy in its monetary policy, as the decisions taken by the central banks of developed countries at the end of 2010 resulted in the appreciation of the Turkish lira and a significant expansion of the loan supply in the domestic market, causing a rapid increase in the deficit balance of payments"¹⁸.

2012 was marked by a cooling of the national consumer market: the contribution of household consumption to the reduced economic growth turned out to be negative (-0.5%)¹⁹ "...as a result of measures taken by the Government of the Russian Federation to reduce the share of domestic consumption in the economy.-

to stabilize domestic and external demand " ²⁰.

The change in priorities in the model of economic development, obviously, forced R. T. Erdogan to pay attention to the increase in interest rates as a negative factor in the practice of applying this model.

Meanwhile, considering the objective reasons for maintaining interest rates in the country at a relatively high level, Turkish banks continued to exist undisturbed until the end of the first decade of June 2013, when the Prime Minister directly accused them, saying that in some banks the "interest rate lobby", which he referred to, is engaged in stock speculation:"So, I draw the line... This "interest rate lobby" is trying to threaten us through stock speculation. This should be well understood. We do not intend to feed them what they have earned through the nation's way of life."²¹.

Thus, Erdogan expressed his displeasure at the massive dumping of Turkish securities by foreign investors that has begun.²² Capital outflows and a decline in the money supply were followed by an increase in interest rates. For example, the weighted average interest rate on deposits denominated in Turkish liras increased from 5.29 in May 2013 to 5.97 in June and 6.46 in July ²³.

Behind the anti-government protests that scared investors, according to the Prime Minister, there was a "percentage lobby": "Young people, you are all being used as ordinary volunteers in someone else's game without your own knowledge. Those who came out under the slogan "We are the soldiers of Mustafa Kemal" turned out to be ordinary members of the"percentage lobby" ²⁴.

FOREIGN CAPITAL IN BANKS-GOOD OR BAD?

Banks had to go to the defense and explain that higher interest rates on loans are not so profitable, since at the same time they imply an increase in deposit rates. As a result, if the bank margin (the difference in interest between commercial loans and one - year deposits) in April 2013 was 4.38 percentage points, then in June it was only 1.69%. Nevertheless, on June 22, the assistant to the Prime Minister who oversees economic development issues, A. Bababcan, made a statement that 35 out of 45 Turkish banks are involved in foreign capital, and in 18 banks the share of participation is more than significant - 99-100% ^.26

Thus, the personal characteristics of the" interest lobby " were further specified - these are supposedly "unpatriotic" banks with foreign participation.

Commenting on Babacan's statement, representatives of the opposition Republican People's Party said: "Dear Prime Minister, I am concerned about finding the address of the interest lobby, which has been declared a secret enemy. So let Ali Babajan give the answer. The answer is the position of Turkish banks that have broken profit records. " ²⁷

Meanwhile, at the end of June 2013, the Capital Market Council sent out instructions to the intermediary organizations operating on the stock exchange to prepare detailed information about the personnel who worked during the period from May 20 to June 19, and the operations performed by them at the request of foreign clients. According to one of the bank employees, " ... this is the most ambitious request that he has met during his practice. Since the information is concentrated around foreign operations, it is intended to lead to a version called "interest lobby" ²⁸.

But if the outflow of foreign capital is really the reason for the stock exchange's decline, then perhaps the prime minister is right, and there really is an "interest lobby" represented by, if not all, then at least those banks with significant foreign participation in their capital.

As an objection, one should cite the arguments that have already been repeated many times by Turkish economists and summarized by the Turkish journalist M. Songur: "Economic growth and economic stabilization in Turkey are a bubble, since they are based not so much on the growth of production as on foreign capital. The influx of "hot money" and short-term investments can provide a short-term positive effect, including high growth rates, but in the long run the economy comes to a standstill. Therefore, we should not rely on foreign capital, but on the development of national production, in which the state should participate itself and support the private sector." In conclusion, M. Songur noted: "Now that foreign capital has started to leave the country due to the Gezi Park events, the government is complaining." ²⁹

It seems that opponents of Erdogan's economic course are right, because the decline in the availability of external financing, and therefore the increase in the interest rate in the domestic market, is likely to turn into a long-term trend due to changes in the international financial situation.

It is still difficult to say how thoroughly Turkey has managed to prepare for the upcoming changes. In May 2013, emerging markets, including Turkey, experienced the first wave of massive outflows of funds, caused by information that the Federal Reserve (FRS) may reduce purchases of US Treasury bonds, i.e. go down the path of reducing the growth rate of the money supply.

In the Turkish press, there were calls to stop searching for a non-existent "interest rate lobby" and pay attention to the activities of the Fed ³⁰. Professor, Dean of the Faculty of Economics and Management of Okan University (Istanbul) T. Berksoy on the question of the newspaper "Milliyet" - " Interest lobby, who is it?" he answered confidently: "The head of the US Federal Reserve raises interest rates," adding that, in his opinion, there is no "interest lobby" at all that could be identified.³¹

REASONS FOR THE" FRAGILITY " OF THE TURKISH ECONOMY

The rating agency Morgan Staley included the Turkish economy in the group of so-called five "fragile" economies, which also included the economies of Brazil, India, South Africa and Indonesia.³² All of them shared a high degree of dependence on short-term foreign capital inflows. They reacted to its outflow with a rapid and noticeable devaluation of the national currency. Thus, by September 2013, the Turkish lira lost 10% of its value year-on-year.

At the same time, the Economist magazine calculated the value of the so-called "capital freeze index" for emerging markets, which reflects the degree of vulnerability of the national market in the event of a stop in the flow of external financing. Turkey was assigned the highest index value (about 18 at the limit value of the country's GDP).

20), indicating the maximum level of risk among emerging (growing) markets.

The group of high-risk countries, in addition to Turkey, also includes Romania, Poland, Mexico, Colombia, Peru, Argentina, Indonesia and Chile with index values from 12 to 14 ³³. So Turkey will have to go through very unfavorable changes in the international financial environment, which may turn out to be a serious test for the country's economy to maintain its previously acquired achievements.

As follows from the text of the" Medium - term Development Program of Turkey for 2014-2016", adopted as part of the implementation of the new X five-year development plan of Turkey, the country's leadership is aware of the severity of the problem of the balance of payments deficit and the need to take measures to solve it.

To this end, it is planned to increase the level of savings of the national economy, gradually reduce the high level of dependence of national production on imports and increase exports. According to the program, the size of the deficit will decrease from the estimated 7.1% of GDP by the end of 2013 to 5.5% by the end of its ^operation period34. However, the opposition did not fail to note that, while not providing for deep structural changes, the program is aimed at reducing the balance of payments deficit while increasing the economic growth rate.

Indeed, according to the program, the growth rate should reach 4% in 2014, and ⁵% in 2015 and 201635. As noted above, for the current Turkish growth model, these goals are mutually exclusive. "If these goals are achieved, our economic elite will demonstrate success that will be included in the world economic literature," says A. Sezer ³⁶, responsible for the economic development of the Democratic Party of Turkey.

In fairness, it should be said that the country's leadership has planned and even started implementing certain structural changes. Thus, the goal of reducing the country's economy's dependence on imports is based on an extensive program to support investments that are import-substituting in nature. But it is also true that most of the measures provided for in the program are aimed at extracting additional foreign exchange earnings within the existing commodity structure of exports by improving the system of its organization and expanding the geography ^of exports. In the context of recent statements of an economic nature, this thesis has more inertia of repetition than a real basis. A favorable factor for Turkey may be the growth of demand for its export goods in Western Europe.

So, the main threat to the stable economic development of Turkey is the strong binding of the currently used model to external sources of financing, which means that the national economy is also sensitive to market fluctuations in the international financial market. The upcoming possible changes in this area will certainly be a serious challenge for the Turkish economy. Is its potential sufficient and will it be able to use it effectively to withstand changes in the market environment and maintain its ability to grow?

It is not yet possible to give an answer to this question. Probably, the appeal to the hostile image of the "interest lobby" was an involuntary manifestation of the Prime Minister's own uncertainty about the strength of the country's economic achievements. Then this image appeared very timely to help the government find an explanation for the causes of not only past, but also future troubles.

¹ Ekonomik Rapor 2012 (Economic Report of the Union of Chambers and Exchanges of Turkey-2012). Ankara, TOVV, 2013, s. 206; Orta Vadeli Program (2014-2016) (Medium-term program (2014-2016) of the Ministry of Economic Development of Turkey). Ankara, T.C. Kalkinma Bakanhgi. 2013, s. 5 -http://www.bumko.gov.tr/TR,42/orta-vadeli-program.hln)l

² Financial Times, 12.12.1997.

³ Forum. Ankara. 1996, s. 10.

⁴ 'Faiz lobisi masaldir diyenler, iyi okuyun lutfen! (Let those who claim that the percentage lobby is an invention carefully read it) / / Star Gazetesi, 02.09.2012.

⁵ See for more details: Ulchenko N. Yu.). Turkish Economy in the context of Liberalization, Moscow, 2002, pp. 74-86.

^{Songur M.} 6 Kim bu Basbakan'in hedefindeki ' Faiz lobisi "(Who is the "percentage lobby" targeted by the Prime Minister)- http://www.odatv.com/n.php?n-kim-bu-b&shakanin-hedefindekt-faiz-lobisi-0906131200

⁷ Ekonomik Rapor 2003. Ankara, ТОВВ, 2004, s. 109; Ekonomik Rapor 2010.., 2011, s. 14; Ekonomik Rapor 2012.., s. 207.

⁸ Ekonomik Rapor 2012.., s. 206, 207. ⁹ Ibidem.

¹⁰ Ibid., s. 171.

¹¹ Calculated by: Dilekli S.. Eraslan T. AB uyesi ulkelerde ve aday ulkelerde ekonomik gebsmeler (Economic development in the EU and candidate countries). Ankara. 2007 - www.dpt.gov.tr

¹² Faiz lobisini buldum galiba (I may have found a percentage lobby) / / Milliyet, 24.06.2013.

¹³ Составлено но: Ekonomik Rapor 2006.., 2007, s. 102; Ekonomik Rapor 2008.., 2009, s. 133.

¹⁴ 2013 Yih Programs (Annual Development Program of Turkey for 2013, adopted by the Council of Ministers on October 4, 2012). Ankara. 2012, s. 22 - http://www.resmigazete.gov.li/c.skilcr/2013/01/20130112 M1-1. _hlm

¹⁵ Bankalanmiz 2009 (Pasha Banks 2009). Ankara, TCBB, 2010, s. 1 - 39; Banks in Turkey 2010. Ankara. The Banks Association of Turkey. 2011 p. 1 - 39; Banks in Turkey 2011.., 2012, p. 1 - 41.

¹⁶ Ekonomik Rapor 2012.., s. 207.

¹⁷ Ibid., s. 60.

¹⁸ 2013 Yih Program.., s. 42.

¹⁹ Ekonomik Rapor 2012.., s. 60.

²⁰ Orta Vadeli Program.., s. 4.

^{Songur M.} 21 Op. cil.

²² SPK'dan lobiye incelenme (Research of the Lobby Council of the capital market) / / Milliyet, 26.06.2013.

²³ http://www.temb.gov.tr/

²⁴ Faiz lobisini buldum...

²⁵ Ibidem.

²⁶ Ali Babacan: 49bankanin 35'inde yabanci hissesi var (Ali Babacan: 35 out of 49 banks have foreign shareholders) / / Milliyet, 22.06.2013.

²⁷ Ibidem.

²⁸ SPK'dan lobiye incelenniesi...

^{Songur M.} 29 Op. cit.

³⁰ См., например: "Faiz lobisini" birak, Fed'in haraeketine bak! (Leave the "interest lobby" and look at the Fed's actions) / / Milliyet, 05.07.2013.

³¹ Gercek faiz lobisi FED Baskani Ben Bernanke (The real interest lobby is the head of the Federal Reserve Ben Bernanke) / / Milliyel, 01.07.2013.

³² Morgan Stanley Presents: 'The Fragile Five' -The Most Troubled Currencies In Emerging Markets/Business Insider, 24.09.2013 -http://www.businessinsider.com/morgan-stanley-fragtle-5-einerging-iuarkcts-2013 - 9?op"1#ixzz2ijwWTpu(); hltp://www.busincssinsidcr. com/morgan-stanley-tragile-5-emerging- markets-20 13 - 9?pundils_on]v-0&get_all_coiiiinents-l&no_replv_filler-1#cominenl-524feddecad04fa1b8b1 574.

³³ The capital-freeze index, again. This spreadsheet is different. An error, an apology and a revision // The Economist, 21/09/2013 -http://Ib-stage.economist.com/news/finance-and-eeonomics/215865fi9-error-apology-and-re vision-sprcadsheet-different

³⁴ Orta Vadeli Program.., s. 10.

³⁵ Ibid., s. 9.

^{Sezer A.} 36 Hedeflerin tamami lyimser (Goals are completely optimistic). DP Basin Merkezi. 10.10.2013 - http://avdinsczcr.us1.list-inanage1.com/track/clickVu-d9H669145faaa34ecaK06a5f9&id-73a db1ff ca&e-ad420c7a25

³⁷ Orta Vadeli Program.., s. 19 - 20.

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