By THO Academic Liaison, Abdul Abbas
*This is an opinion piece and represents the views of Abdul Abbas and not THO in its entirety
There are few events guaranteed to occur in the financial world, and there are even fewer sequences of events guaranteed to occur. However, there is one sequence of events that’s certain to take place; there is always a boom after a recession, and Turkey’s latest economic activity is beginning to signal a boom in the wake of the COVID-19 global recession. Turkey gets to restart from an advantageous position, as the nation is one of the least affected countries by the pandemic in terms of employment and economic growth, according to Turkish treasury and finance minister, Berat Albayrak. Turkey’s economy is projected to improve as the country begins to reopen ahead of schedule. (TRT, 2020)
President Recep Tayyip Erdogan canceled plans to extend the country’s quarantine measures in major cities, as “It has been understood that the decision would lead to some social and economic consequences,” he said in a tweet. Prior to the outbreak of COVID-19 in late 2019, the Turkish economy was expected to grow 5% in 2020, as presented in the country's new economic program announced in September, displaying that Turkey’s economy was on a steady path of improvement before the pandemic.
In an interview with Anadolu, Minister Albayrak stated that Turkey still plans on closing out 2020 with positive economic growth, despite the economic damage caused by the virus. Moreover, this promise was made true as the Turkish economy grew 4.5% in its first quarter when comparing it to the year prior, according to the Turkish Statistical Institute (TurkStat, 2020), signaling that Turkey is emerging from the financial turmoil it’s been in over the past few years. Do keep in mind that Anadolu is a Turkish state/government-run, so it may be in their best interest to put a positive spin on some of these developments, but news organizations like BNN Bloomberg, Daily Sabah, Al Jazeera, Ernst and Young (admittedly not a news organization, but still trustworthy) all corroborate the above information.
In the same TurkStat article cited above, the author also mentions that activities “constituting gross domestic product (GDP)”, account for a 3% and a 6% growth in the agricultural sector and the (industrial) sector respectively, in the first quarter of 2020; construction dropped an understandable 1.5% nationwide. This information gives legitimacy to the claims made by the finance minister, which at first may seem implausible given the international circumstances surrounding COVID and its negative effects on global economies.
In a reactive measure to protect the Turkish economy and it’s corporations, the government unveiled its “Economic Stability Shield” in March to help companies withstand the financial turbulence caused by the virus, injecting in the neighborhood of 260 billion Turkish liras, which converts to $38 billion US dollars; an impressive protective measure (Daily Sabah, 2020). In layman terms, this program “shields” local businesses by suspending tax payments for 6 months, specific tax rates for air transportation are reduced from 18% to 1%, increasing minimum retirement salaries, loan and interest payments for businesses affected by the pandemic will be pushed at least 3 months, and much more (Ernst and Young, 2020). In the face of financial solvency, of which neither the Turkish government nor it’s people were responsible for, Turkish businesses are saved by the taxes they pay and those they voted into office.
In contrast to the American stimulus package, where checks were given to individual citizens and conglomerate corporations alike, the Turkish stimulus package provides aid directly to businesses which in turn assist the individual citizens, without going through the tiresome process of issuing checks for each eligible citizen. Issuing 159 million $1200 checks (CNBC, 2020) spreads the American financial response very thin, whereas Turkey took a top-down approach by focusing on their large and small businesses and keeping them stable, because if the employers are stable then so are the millions of Turkish workers they employ. Every country’s financial response to the epidemic varies greatly, but the countries whose responses have been considered successful are those who focused on efficient allocation of funds, and Turkey’s financial response can unequivocally be considered efficient; especially in comparison to the United State’s response.
In an effort to keep local companies afloat, Minister Albayrak is ensuring that any borrowing will be done with local currencies and that policies that stimulate local production are pursued. This is a substantive measure to not leave Turkey’s economic fate to foreign markets and/or investors, keeping Turkish money and investments within the country at a time when locals need it most. However, there are some issues that may arise soon that may require Albayrak’s intervention, as the government still faces financial worries. Namely, in the 2019 fiscal year, where Turkey posted its largest budget deficit in almost 10 years. As the trio of a nearly halted economy due to the pandemic, increase in government spending also due to the pandemic, and tax deferrals to soften the blow to local businesses, all chipped away at government reserves. (Reuters, 2020)
Moving away from financials, new infections in Turkey reached its lowest in late May, the lowest it’s been since the first case was identified on the 10th of March. As of June 17th, Turkey has reported a total of roughly 181,000 cases of COVID-19, 155,000 of which have recovered (World Health Organization, 2020), with infection rates slowly increasing as the economy begins to open back up. The same can be said for the American infection rate, as new infections in the States reached an all time low in late May, but began to spike due to the combination of some states reopening and nation-wide protests where social distancing policies are difficult to follow.
All in all, the Turkish economy seems to have turned a corner as the country begins to reopen its businesses, giving consumers a chance to catch up on 3-months’ worth of purchasing. The focus of those in power should now be on finding a way to balance a reopened economy and maintaining a high degree of caution, as increased interaction by consumers could undo the success of containing the spread of the virus. The Turkish people and their government should be proud of themselves, as they took the dangers of the virus seriously from the beginning and acted accordingly, averting a much higher infection rate in the process.