As Turkey’s government seeks to rally support by identifying culprits behind the unprecedented explosion of anger that erupted in recent weeks, one group has featured on almost every list: bankers.
Prime Minister Recep Tayyip Erdogan began blaming a so-called “interest-rates lobby” in the first week after anti-government protests spread nationwide on May 31. Economy Minister Zafer Caglayan said “blood-sucking” financiers, seeking to push Turkey’s interest rates back up, helped provoke the movement that ignited over a police crackdown against people opposed to development plans in Istanbul’s Taksim Square.
The rhetoric resonates in a majority Muslim country where many remember skyrocketing borrowing costs that undermined the economy in the pre-Erdogan decade. In 2001, the year before his party came to power, the government spent more on interest payments than it earned in tax income. In the last two years the Islamist-rooted Erdogan, 59, and his ministers have frequently accused a rates lobby of working to undermine the economy.
That’s “very divisive and unproductive language from a country trying to break through the middle-income trap,” Murat Ucer, a former official at Turkey’s central bank who now works at New York-based economic advisory firm GlobalSourcePartners, wrote in e-mailed comments on June 15. The Turkish economy, which grew 2.2 percent last year, “is having hard time gaining traction” even with record-low interest rates, he said.
Erdogan’s government has brought interest rates down as it reduced budget deficits and debt and lured record amounts of foreign investment. Last month, yields on two-year debt fell to a record low of 4.79 percent. In October 2002, the month before his Justice and Development Party or AKP won its first election, the government paid more than 70 percent on nine-month bonds.
Before the AKP “rich people made money without working, without producing anything, they just invested in interest and got even richer,” Mesut Kuzgun, 32, said at a rally of hundreds of thousands of ruling party supporters in Istanbul on June 16. “You can’t make that kind of money anymore, and who doesn’t like that? Of course the interest-rates people don’t like it, and they’re trying to get revenge on AKP at every chance.”
By blaming bankers, Erdogan is “following a strategic line that aims to mobilize his voter base,” said Murat Birdal, who teaches at Istanbul University’s economics faculty. “Pointing toward an interest rate lobby as the behind-the-scenes force in these protests,” like his announcement of redevelopment plans including a mosque in Taksim, “is a statement that minds the religious sensitivities of conservative circles.”
Bank regulator Mukim Oztekin, speaking in Istanbul yesterday, defined the rates lobby as people who want to bring back those days. They “want to get more than 50 percent rates, and see that this has been wrecked,” he said.
As Turkish rates came down from such levels, many investors have profited. While yields have jumped 74 basis points this month amid the unrest, reaching 6.81 percent yesterday, they’re still down from above 9 percent a year ago. That’s the biggest decline among major emerging markets according to data compiled by Bloomberg.
Foreigners held about $65 billion in Turkish government debt as of June 7, according to central bank data. Turkey has needed their cash to finance the economy’s growth, after its current-account deficit approached 10 percent of output in 2011, making it the world’s biggest in dollar terms after the U.S.
Erdogan says that lower rates are making some banks, both foreign and local, uncomfortable with the level of their earnings from the Turkish government.
“He is broadening out the counter-offensive to include some domestic banks and also to foreign investors,” said Tim Ash, chief economist for emerging markets at Standard Bank Group Plc in London, in an e-mailed note. “Actually the latter group are the very people who have bought into the AKP success story over the past decade, and have helped the party along the way by buying government debt and financing the country cheaply.”
Protesters have charged Erdogan’s government with imposing Islam-based rules on Turks with more secular habits, citing measures such as curbs on alcohol and increased religious lessons at schools.
The premier says he’s not targeting anybody’s lifestyle. He has embarked on a series of rallies, starting in Ankara and Istanbul last weekend, and hailed the turnout as proof that his supporters, rather than the demonstrators, represent the country. As he attacks financiers, Erdogan is also defending a record of economic growth averaging more than 5 percent a year under his rule.
“These guys are insatiable,” Erdogan told a meeting of mayors from his party on June 13, speaking about what he calls the rates lobby. He said that because of the drop in borrowing costs, 642 billion liras ($340 billion) has “stayed in the state’s pockets, and this makes them uncomfortable.” The lower interest burden has allowed Turkey to spend more on education, transportation and security, Erdogan said.
He pointed to rates reaching an all-time low in May, and the clearing of Turkey’s debt to the International Monetary Fund, as Turkish successes that some are trying to undermine.
Erdogan inherited $23.5 billion in IMF debt. On May 14 the country made its last payment and now has no outstanding debt to the fund for the first time since 1994.
Some protesters have accused Erdogan of being in league with the financial interests he’s now criticizing.
“Erdogan’s right that anyone who earns interest or defends it is not a Muslim and is against God,” Dogan Ozkan, the leader of a group called “Muslims Against Capitalism,” said in an interview in Gezi Park last week, where he was taking part in the protests. “But he’s won this much power with this interest lobby’s support. Those that brought him here are the banks, the people who got rich off interest, and the IMF.”
‘Mother of Evils’
Caglayan, the economy minister, described interest as the “mother of all evils” last month, and has frequently accused the central bank of being too slow in bringing rates down to bolster growth in the $780 billion economy.
The bank kept its benchmark rate at 4.5 percent yesterday after lowering it by 50 basis points in each of the previous two meetings.
Erdogan’s party has won three elections with a growing share of the vote, reaching 50 percent at the last elections in 2011. His popularity is such that many of his supporters are ready to believe in a foreign conspiracy behind the protest movement, as the premier charged in a speech in parliament yesterday, when he also blamed the opposition party and media as well as the interest-rate lobby for the unrest.
“I don’t understand politics or the interest-rates lobby or all this stuff about games by foreign powers,” Emrah Gungormus, 26, said in an interview at Erdogan’s Istanbul rally on June 16. “But if our prime minister says something, it’s because he knows something. He never lied and we trust him to the end.”