Ballots, 'Sell Outs' and Sell Offs


Economic News

22 Jul 2010
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In a week of pregnant pauses, while the nation awaited the outcome of Sunday's local elections and a new round of negotiations on Cyprus, the government's privatisation strategy also looked to be imminent, if not yet actual. Delays in formulating strategies were compounded too by news that the body set up to sell off Turkey's state industries - thereby helping save the country from penury - was itself substantially in debt.

The local elections, due on March 28, have been unusual this year for a number of reasons. First and foremost though, what stands out in marked contrast to previous municipal ballots is the lack of any disagreement over the likely winners. Once again, it seems the ruling Justice and Development Party (AKP) has left little in doubt except the size of its majority. Opinion polls put its national standing at between 49 and 60%.

This is more even than the AKP scored at the November 2002 general election and comes after a year-and-a-half of AKP national government. It also comes after many years of the AKP - or its ancestors - occupying the town halls of the most important cities in the land: Istanbul and Ankara.

Yet instead of seeing its popularity eroded by office, the AKP has seen it increased - in itself, a first for any Turkish government anyone can remember. Meanwhile, the opposition, chiefly of the centre-left Republican People's Party (CHP), has failed to grasp the public's imagination and although it is widely slated to maintain its number two party status, with around 11-12%, many of its own supporters appear disillusioned with party leader Deniz Baykal. There has even been talk - denied all round - that Kemal Dervis, the CHP member who had flown in from the World Bank to save the previous government after the 2001 financial crisis, might be considering a leadership take-over.

As for the other parties, aside from the centre-right True Path Party (DYP) of Mehmet Agar, they seem ripe for extinction. The Motherland Party (ANAP) may hold some of its fiefdoms, but many analysts report that it is haemorrhaging much of its support to the DYP. Bulent Ecevit's Democratic Left Party (DSP) and even Devlet Bahceli's National Action Party (MHP), both swept to power five years ago on major vote swings, seem likely to cease to have any significant political role.

Whatever the case though, many analysts are now looking at what the potential effect of a massive AKP victory might be. The more pessimistic school of thought is that a hefty win will unleash a more pro-Islamist AKP upon the nation. The party's reluctance to have any of its local candidates interviewed by the media, alongside long-standing concerns among the country's secularists that the AKP is hiding its true nature, have added to this worry. Seeing a landslide win, the fear is that many of the party's old school, religiously hard-line members will feel confident to come more to the fore.

This would not be good for the country's, or the AKP's, image. Prime Minister Recep Tayyip Erdogan has spent a long time convincing Turkey's secularists and Western allies that his party is no different in essence from a conservative, European Christian democratic grouping. This is particularly important when it comes to Europe too, as the whole direction of the AKP has been fixed on EU membership. It is likely the case, optimists argue, that many of the AKP rank and file who will take up seats in local town halls after Sunday will have beliefs Erdogan would be embarrassed to see aired. However, that just places more of a burden on the prime minister to keep his party in hand. Naturally, this has longer-term repercussions for the AKP itself.

The AKP's support for the latest UN plan to reunify Cyprus has also failed to dent its support - despite increasingly desperate accusations from Baykal that Erdogan is "selling out". After a bumpy start, the second phase of talks got underway in Switzerland on March 25. Few expect any developments until Erdogan and Greek Prime Minister Costas Karamanlis join the talks on March 28. A referendum on the resulting plan - with, most likely, most of the final drafting done by the UN - will be held on both sides of the island on April 20.

Few dents in the AKP's armour have appeared in the economic field either. With inflation falling and a general mood of optimism in the markets, Erdogan's administration seems to have survived what otherwise could be some very damming unemployment figures. Squeezing out inflation by cutting employment is not usually a recipe for electoral success, but here it seems to be working.

Likewise, the lack of any real progress recently with the privatisation drive. On this score, officials announced March 24 what was becoming increasingly obvious - that there would be no new strategy for selling off state tobacco giant TEKEL this month. Instead, a new plan will be unveiled mid-April.

An attempt in November last year to privatise the tobacco arm of TEKEL had been cancelled as the bidding was well below expectations.

One aspect to the announcement widely considered positive though was that the government was considering alternatives to a repeat of the previous block sale. At the time, market watchers had suggested that the low price offered for TEKEL - the top bid was $1.15bn, while the general valuation was $3bn - may have been due to the fact that it was an all-or-nothing sale. If bidders had been allowed to make offers for sections of the company - say, individual cigarette brands - then they might have received more competitive bids. This could have also allowed one of the markets big players, Philip Morris, to enter the fray; it had been ruled out as a successful bid by the giant would have placed it in contravention of anti-trust laws.

Meanwhile, the privatisation authorities were also announcing that as of April 1, the country's electricity distribution companies would all be coming under their mandate. This is the first step towards a general sell off, with the dates for privatisation set between March 2005 and December 2006.

Good news for the government's strategy, yet it came alongside a less welcome revelation. The Privatisation Administration (OIB), set up to manage sell offs that would help combat the nation's debts, is itself some TL2 quadrillion ($155m) in debt.

Yet none of this seems likely to figure in next Sunday's voting. The AKP has been blessed with much good will - more than any other Turkish government in recent memory. Many, both within Turkey and without, hope it can make good use of this golden opportunity.

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