FURKAN – ‘Turkey stalls EU reforms, investors worry about rule of law’

‘Turkey stalls EU reforms, investors worry about rule of law’The government has failed to implement reforms that are required by Turkeyand#39s membership process in the European Union, and thus scared investors who seek macroeconomic stability as well as the rule of law, a prominent businessman and board member of Global Investment Holdings, Adnan Nas, said on Saturday.Asked about the possible reasons for the decreasing volume of foreign direct investment into Turkey in recent years compared to other emerging markets, Nas told Todayand#39s Zaman: andldquoThere are two essentials that global capital looks for: Macroeconomic stability and the rule of law.

The rule of law doesnand#39t exist in Turkey. We have never managed it.

We have evaded the EU reforms and the [accession] process has slowed down. Our willingness [to pass reforms] through the EU [accession process] has become questionable.

andrdquoThe volume of foreign direct investments into Turkey plummeted from $20.1 billion in 2006 to $12.

3 billion in 2013. Nonetheless, it surged from $18.

8 billion to $64 billion in Brazil, increased from $20.9 billion to $42.

1 billion in Mexico and rose from $5 billion to $18.4 billion in Indonesia in the same period.

The investments into Turkey shrank further to $12.1 billion in 2014.

andldquoRegarding stability, it has been damaged due to a lack of reforms and the [2008] global crisis. We also create crises on our own, as seen in the recent developments,andrdquo Nas said in an apparent reference to the deep fluctuations in lira-dollar parity which have depleted the country for over a month, with President Recep Tayyip ErdoIan and his supporters showing their distaste for the central bankand#39s current stance at every occasion and accusing those who defend high interest rates of treason.

In addition to technical justification for higher rates, opposition figures, on the other hand, keep quarreling with ErdoIan and his backers and support the independence of the central bank.Deputy Prime Minister Ali Babacan on Friday also lamented the arguments between politicians and bureaucrats regarding the bankand#39s monetary policy however, his remarks also failed to prevent the lira from falling to a fresh low of TL 2649 against the US dollar on the same day.

andldquoInvestors, in general, do not feel sure [about the rule of law] when they come to Turkey. They feel [they might] be treated unfairly [by the courts].

This is the fundamental problem Our courts [can] rule for dissimilar decisions in the same cases on different occasions,andrdquo Nas said.Being global finance hub a fantasy for TurkeyNas also took the floor during one of the side meetings of the UludaI Economy Summit where Ahmet Erdem, the head of the International Investors Association of Turkey (YASED) and Tankut TurnaoIlu, the vice chairman of YASED and CEO of P Turkey along with Nas and a few businessmen discussed the potential for Turkey to be a finance hub.

Highlighting that Turkey cannot be a global finance center, Nas said the country must fulfill certain requirements to even be a regional hub. Nas noted the limited number of traded companies on Turkeyand#39s stock exchange, Borsa Istanbul (BIST), observing that most of the companies are foreign.

Nas maintained: andldquoA more realistic strategy, in my opinion, could be [to establish] a finance center which may focus on more specific fields, such as gold, commodity exchange or project financing.andrdquoandldquoMy personal opinion is [that it is better] to focus on a field [in which] Turkey has a competitive aantage.

I donand#39t speak to demoralize you. There are two global indices regarding this issue: the Financial Development Index and the Global Finance Centers Index.

Frankly speaking, Turkeyand#39s status is not very good by these rankings. The Financial Development Index gauges, for example, countriesand#39 corporate structure, business environment and banking transactions as well as financial stability.

South Korea, China, Russia and Saudi Arabia are ahead of Turkey in this index,andrdquo he said. andldquoTurkey ranks 47th out of 83 centers in the Global Finance Centers Index.

Our current performance is not so good but we have potentialandhellip We cannot compete with London but we can compete with Moscow.andrdquoNas also underlined the importance of the autonomy of universities which may cooperate with the industrial sector and encourage productivity.

YASED President Erdem also said during the panel that Turkey needs to take managerial and judicial steps that may comply with international standards in order to become a regional finance hub.He said Turkey attracts only 1 percent of global foreign direct investment flows, while the 10th largest economy takes just above 3 percent of all global foreign direct investment.

The government stresses that it would like to transform Turkey into one of the 10 largest economies in the world by 2023. Turkey, which in 2013 was the 17th-largest economy in the world, is currently 19th according to the Centre for Economic and Business Research (CEBR) World Economic League Table.

TurnaoIlu, in the meantime, remarked that Turkey should improve itself in four areas: political competence, including stability and the rule of law economic competence that includes ease of doing business social policies and qualified human resources.Minister, TuSIAD champion independence of central bankFinance Minister Mehmet IimIek and Turkish Industrialists and Businessmenand#39s Association (TuSIAD)hairwoman Cansen BaIaran Symes shared their remarks in support of the independence of the central bank.

Speaking at the closing ceremony of the summit, IimIek said: andldquoIt [independence] is needed to strengthen the central bankand#39s hand. We should boost the credibility of the bankandhellip One of the critical issues that shape the future of a country is the quality of its institutions, and so the independence of the central bank is crucial.

andrdquoDuring his presentation, IimIek also said Turkey has not reached the desired level in the corruption perception index and stated that the government will submit a draft bill aimed at combating corruption to Parliament soon.Symes, in the meantime, noted: andldquoWhat we need today is collaboration and coordination.

To tell you the truth, as the business world it would be better to ask ourselves how much we [engage in] cooperation with each other, without accusing certain institutions.andrdquoSince ErdoIan has been accusing those who defend higher interest rates of treason, some business unions and leading firms in the Turkish private sector have begun criticizing the bank, arguing that high inflation is a result of high interest rates, in contrast with basic economic principles that say otherwise.

Regarding the growth targets of the government, Symes warned of unfair income distribution and said, andldquoRegardless of high or low growth rates, if certain segments are left out, this growth, unfortunately, will not bring prosperity.andrdquoSymes also said TuSIAD is happy with Turkeyand#39s G-20 agenda, which prioritizes the fight against corruption.

SOURCE: Today’s Zaman