A Turkish model for Egypt? Maybe not

Michael Gunn, Sunday 19 Jun 2011

Turkey's Islamist-inspired government is often cited by Egyptians as a model for post-Mubarak rule. But the AK Party's economic track record might give them pause for thought

Turkey
Last temptation for Egyptians: Economic liberalisation. (Photo Reuters)

In September 1980 the Turkish military rolled out the tanks and seized control of a country wracked by student and labour protests, bitter political divisions and mass insecurity. The economy was floundering amid large-scale unemployment and a chronic foreign trade deficit. 

As the generals retreated to the barracks and a fresh constitution was battered out, a newly elected leader faced the challenge of restructuring a stagnant, statist economy rife with corruption into one that would generate growth yet answer calls for social justice.

Sound familiar?

Thirty years on, Prime Minister Recep Tayyip Erdogan has sailed to victory in Turkey’s 17th general election, his AK Party (Justice and Development Party) riding a wave of unprecedented prosperity. Already the world's 16th largest economy, Turkey's leaders have promised top 10 ranking by the Republic's centenary in 2023.

A robust and heavily regulated financial sector escaped the worst of 2008's global crisis while steady flows of foreign investment and tourism have been complemented by healthy domestic industries. GDP grew 8.9 per cent in 2010, among Europe’s best and outpacing worldwide recovery. 

It's not all good: grinding poverty still exists, particularly in the Kurdish-majority southeast, and graft remains. Unemployment for March was at 11.5 per cent, down from the year before but still high by global standards. Recent concerns about 'hot money' have also spooked foreign investors and fed fears of a return to the bad old days of boom and bust.

Put it next to beleaguered Egypt, however, and Turkey looks like a veritable beacon -- especially for those citing Erdogan's Islamist-leaning AKP as proof that a religiously inspired political party can win democratic support and pioneer a successful economic programme. 

Ordinary citizens have seen concrete benefits. A minimum wage introduced in 2007 was widely welcomed and mean incomes appear to have risen steadily although statistics are scarce. Per capita earnings have doubled since the AKP won power in 2002, reaching $10,079 dollars in 2010. The goal for 2023 is around $25,000.

"If a significant segment of the middle class supports the AKP, it is not because the party promotes Muslim values, but because it represents stability," says Turkish economist Ahmet Insel. "The number of poor people has dropped considerably over the past decade." 

So could Turkey, forged from the remnants of the Ottoman Empire that once held sway over the Nile, serve as an economic model for the new Egypt? Some think so. 

"Egypt should select what is suitable from the Turkish model and fits [Egypt's] characteristics," Yomn El-Hamaki, head of economics at Ain Shams University, told reporters on Sunday, pointing to the success of Turkish small and medium-size enterprises as something worth emulating.

She isn’t alone. The AK Party’s business-friendly policies led The Economist to dub its reign Turkey's "most successful in half a century" in 2007. Under Erdogan’s watch, FDI laws established a liberal investment environment, streamlining company registration and opening up most sectors – barring oil – to foreign-owned firms.

These measures' success can be found in places like Manisa near the Aegean coast, tipped by the Financial Times as Europe's best investment city in 2005. Here, tax-breaks and an export-friendly location have attracted electrical appliance firms from Germany and Italy, along with Turkish giant Vestel. The province exported $3.7 billion worth of goods in 2010, making it a showpiece for a reformed, investment-friendly Turkey.

Introducing measures to attract foreign investment may be fairly uncontentious for Egypt -- the difficulty right now is convincing investors the country is safe. But following the other routes by which Turkey reached its current prosperity may prove much trickier.

Turkey’s post-1980 economic resurgence was a decades-long process of forwards and backwards steps, its most recent stage involving measures seemingly opposed to current Egyptian sentiments: large-scale privatisation, tax and spending cuts and rigid adherence to foreign instructions.

The 1990s - characterised by one economist as 'a lost decade' for Turkey -- saw coalition governments stumble over the economy, unwilling to bear the social consequences of hard-edged neo-liberal policies while facing southeastern unrest that sapped foreign investor confidence. Populist policies arguably fuelled a succession of economic crises in 1994, 2000 then 2001.

An IMF management programme was begun in April 2001 but by the AKP's electoral victory with Abdullah Gul at the helm in 2002, Turkey had the dubious distinction of being the all-time greatest recipient of IMF loans – some $31 billion. Domestic and foreign debts together totalled $206 billion with debt servicing payments equaling nearly half of GNP. The Turkish lira lost almost half its value, devastating the savings and incomes of 95 per cent of the population.

With Turkey's economy backed into a corner, there’s debate over how much policy choice the AK Party actually had in its initial years in power. Just last week the World Bank's director in Turkey, Ulrich Zachau, praised the heavily prescribed moves Turkey took: fiscal consolidation, modern debt management, inflation targeting and establishing a floating exchange rate. The toll, though, was heavy. Wages froze, the prices of necessities rose incessantly.

In 2003, Turkey listed fifth on the list of countries with the worst income distribution. Turning the corner took several years.

There is a case – say skeptics – for believing most single-party governments would have taken much the same action as Erdogan, knuckling down to IMF instructions and undertaking EU-friendly social reforms to take advantage of much-needed pre-ascension funding.

What Erdogan managed, though, was to balance Turkish compliance with just enough social spending to suggest his government was a partner, not a subject, of international institutions -- what academic Marcie J. Patton, who studied the AK's negotiations, called a "double discourse... attempt[ing] to balance the alarmist fears of investors and international lenders with the welfare concerns of Turkish voters".

Debt conditionals like those are what irk some Egyptian economists – and a suspicious public – today. Egypt’s Finance Minister Samir Radwan has stressed that recent World Bank loans are non-binding but a look at the wording used by the institution, to say nothing of its history, suggest certain redlines when it comes to policy. An Egypt looking to make its own way and already wary of outside influence is likely to chafe against excessive guidelines.

The fear of Turkish-style shock treatment is real.

Replicating Erdogan’s tax-cuts would be troublesome too; Egypt’s 2011-12 budget raised the maximum levy on income tax to 25 per cent, in a move welcomed by both the public and much of Cairo’s business elite, at least officially. Egypt’s landscape of screaming inequality isn’t exactly fertile ground for higher-band tax-slashing, no matter the claims that could be made for a broader economic good.

Another clash may come with privatisation. Successive Turkish governments have brought over $42 billion to the treasury since 1985 by selling off state-owned assets. In recent years their pace has quickened with revenue from sell-offs in 2010 alone reaching almost $3.9 billion.

As of May 2011, 25 state assets were being privatised with several ports, highways and main bridges soon to follow 'given the right market conditions'.

Egypt, meanwhile, smarting from the illegal cut-price sell-offs of state resources during the Mubarak era seems to be moving in the opposite direction; workers' syndicates are demanding key industries be re-nationalised. Egyptian retail institution, Omar Effendi, was returned to public ownership in April.

But perhaps the biggest obstacle to a full AK Party-style restructuring will come from the political process itself.

It took three decades for the neo-liberal plans of Turgat Ozal, Turkey’s early 1980s Prime Minister, to meet anything near popular approval in a country split on most key issues.

Erdogan and his followers were the first non-coalition government with the populist touch -- and perhaps the moral authority -- to sell economic tough-love. As Egypt struggles to orient itself after the fall of Mubarak, it may be a long time before it sees a freely elected leader willing to risk his newfound political capital and popularity by making similar moves.

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