Incumbent President Recep Tayyip Erdogan denies the country is facing an economic crisis, while attacking the opposition for making backroom deals with money lenders.
Keen to show off mega-projects ahead of crucial polls next month, President Recep Tayyip Erdogan opened a $3.4 billion financial center in Istanbul on Monday as he pledged a “new financial ecosystem” for economic crisis-hit Turkey.
“Istanbul Financial Center (IFC) will create a new ecosystem by linking three continents. It will increase the country’s potential to attract investment by facilitating international capital flows,” Erdogan told a large audience of ministers, economy bureaucrats and the public.
For many of its critics, the opening ceremony is no more than a political campaign or, worse, a sad reminder that Western investors have long fled Turkey’s big emerging market. “This is an old dream that is devoid of reality,” Erdal Saglam, a veteran economics columnist, said on the independent TV chain KRT. “Turkey, thanks to Erdogan’s economic policies, is far from becoming a financial center. This huge complex, at an earthquake zone, is an empty dream — figuratively and literally.”
Saglam pointed out that Istanbul had dropped 10 places on the 2023 Global Finance Center Index compared to 2022. The index ranks the competitiveness of financial centers based on assessments from an online questionnaire together with over 100 indices from organizations such as the World Bank, the Organization for Economic Co-operation and Development (OECD) and the Economist Intelligence Unit. The centers are assessed on infrastructure, technology, financial development, reputation, connectivity, corruption and regulatory enforcement, among other factors.
The IFC, which has been on the government agenda since 2009, comprises 1.5 million square meters of office space on the Asian side of Istanbul, Turkey’s economic capital. But the illustrious skyscrapers of shiny glass and steel are mostly vacant. Three state-run banks and some regulators have reluctantly moved there. Turkey’s central bank will transfer its main office from Ankara to Istanbul at a later stage.
The project accelerated after Turkey’s sovereign wealth fund took over in 2019, despite the lack of interest from future tenants. Around the same time, foreign funds started their outflow from Turkey, particularly after Erdogan named his son-in-law Berat Albayrak as his economic tsar. Foreign ownership of stocks fell to 29% during the same period from a historical average of 61%, Bloomberg reported. Erdogan’s insistence on lowering interest rates to stimulate economic growth sent inflation above 85% in 2022. In the last five years, the lira has shed 80% of its value against the dollar as Western investors largely fled the big emerging market, claiming instability and unpredictability.
The Turkish parliament approved last year a bill that bestows certain tax advantages to the IFC participants. The perks include tax exemption for banking and insurance transactions related to financial services carried out at the IFC and the payments received for these transactions. In addition, employees of the institutions in the IFC will get income tax exemptions if they have at least five years of professional experience abroad.
At the opening, Erdogan and his unpopular finance minister, Nurettin Nebati, drew a rosy picture of the hub and its contribution to the Turkish economy. “The IFC is expected to spike Turkey’s financial services exports by three times by 2036, and its contributions to the country’s gross domestic product may reach $130 billion within 15 years,” Nebati said.
“People say there is an economic crisis — there is none,” said Erdogan with bravado, portraying his government as one that has stood up to international financing institutions and “made Turkey an international player in global finance.” “We ousted the International Monetary Fund in 2013, [whereas] the opposition is busy making backroom deals with money lenders,” he said, in a jab against Kemal Kilicdaroglu, leader of the main opposition Republican People’s Party and main challenger to Erdogan, who visited with investors in London last November.
In political irony, Erdogan’s fiery speech about Turkey’s role as a regional financial hub coincides with last week’s prediction by JP Morgan bankers that the Turkish lira is likely to drop sharply and could near 30 to the dollar following Turkey’s tightly contested presidential and parliamentary elections on May 14. The analysts, quoted by Reuters, said that even in case of a “strong commitment” to more orthodox policies, the lira would initially fall to 24-25 to the dollar and to 26 by year-end compared to around 19 currently.
The opening of the financial center will be followed by half a dozen rollouts that range from the first pump of natural gas from the Black Sea to the launch of Turkey’s first nuclear power plant right up to the elections on May 14. On Saturday, Erdogan participated in the launch of Turkey’s first indigenous high-resolution Earth observation satellite, called IMECE, into space. “Turkey is reaping the benefits of its national technology move, aiming to rise to the top in the global tech league,” Erdogan said, underlining the overall message that his 20 years of rule brought a series of “firsts” in the country.
On Thursday, he will head to the northern town of Zonguldak for a mega-ceremony marking the start of natural gas production from the biggest field in the Black Sea. The production will start at 10 million cubic meters per day and increase to 40 million in the next five years, according to national oil company TPAO.
The president is expected to use the occasion to renew his promises of cheap or even free gas to some producers at home and export some of the gas abroad, particularly to the European Union countries that face energy shortages following the Russian invasion of Ukraine. At any rate, the Black Sea gas — the first time that TPAO developed a deepwater hydrocarbon field, particularly an ultra-deepwater one — provides options to Turkey’s energy export, which equals $97 billion annually. It also fuels Erdogan’s vision of Turkey as a geostrategically positioned energy hub where multiple sources of foreign and domestic gas are traded and sold.