In Turkey, a New Crisis Every Day
By Michael Kuser
Since setting up a publishing business in Turkey three years ago, my wife and I have weathered an earthquake, numerous government crises, and an International Monetary Fund bailout. And that was before the nation slid into its worst economic crisis.
I moved to Istanbul with my Turkish wife, Esra, several years ago. We decided that the country needed an English-language business magazine. Perhaps you don't realize it, but hundreds of foreign companies have invested in Turkey, including many of the top multinationals: BP, Goodyear, Ford Motor, Siemens, and Toyota. Before we came along, there was no publication addressing the international business community. Our experience has made me appreciate what the companies we cover must be going through, albeit on a much grander scale.
CHEAP AND EASY.
It was easy to get started. We had to pay around $60 for permits and business-name registration and voilà: Turkish Business World was born. It was nothing compared to the red tape I had to cut through while working in Italy, where it costs about $1,600 to open a business. Since our easy start, however, we've had to deal with one crisis after another. Each new setback worse than the one before. We're hoping that finally, the worst is behind us.
We published our first monthly issue in October, 1998, just in time to absorb the shock waves from the Russian crisis. We weathered that storm and slowly found our footing. Our main challenge was keeping expenses low. We had a cheap office -- $100 a month -- and did everything ourselves, except the actual printing, which costs about $4,000 per issue.
Lucky thing we were tightfisted. The Russian crisis and the one that followed in East Asia were quick to drag down Turkey and other emerging markets. In November, 1998, the government in Ankara was forced out in a corruption scandal. Balent Ecevit was appointed Interim Prime Minister until elections were held in May, 1999. The change in administrations was good for us. The government announced sweeping economic reforms in line with a program developed with the IMF. We provided coverage, and the month following the elections was our best ever financially.
Little did we know that disaster was about to strike. In the middle of the night of Aug. 17, 1999, a devastating earthquake struck the industrial area about 100 miles east of Istanbul. Damage was severe and nearly 20,000 people died. We knew the country had taken a bad economic hit.
Before long, the IMF stepped in and agreed to a multibillion-dollar loan program. Ad business picked up again. Then Ankara started dragging its feet. The IMF started sending warnings that the pace of reform needed to pick up.
Disaster hit again -- this time man-made. Last February, the Prime Minister had an argument with the President about the earnestness of the campaign to root out state corruption and announced to the press that there was a "crisis" in the government. All hell broke loose. The Central Bank, after losing $7 billion in a day, could no longer defend the Turkish lira. It went on the free float and immediately lost 40% of its value (it's now down some 50%).
Within three weeks, we lost 90% of our advertising. Companies panicked. In that kind of environment, nobody negotiates the terms of contracts. We managed to pick up a few new ads, but with strings attached. For example, we signed up a large oil company to take a page at $3,500, but when we sent an invoice they replied with a fax that the company "only pays 985,000 TL to the dollar." We received that payment on a day when the actual exchange rate was 1,310,000 TL per U.S. dollar. That's a cool 25% break on the contract. I felt like going to one of their gas stations and saying, "Michael Kuser only pays 50 cents a liter."
This July, the IMF delayed a tranche of its loans because of slow action by the government on privatizing Turkish banks and changing the board of Turk Telekom. The Prime Minister had to appear in public to assure people that he wasn't dead, as had been reported. The government finally backed down and agreed to reforms. Again, a modest upswing started. Merrill Lynch reports that the Istanbul Stock exchange was the best performing bourse in the world in the second quarter of this year -- up some 40%.
That has been about the only bright news out of Istanbul in months. I met with the chairman of the biggest brokerage firm here the other week. He said no one knows what is going to happen in August. The only sure thing is that Turkey can't move forward with the economic reform program while interest rates remain in the range of 70% to 100%.
Now, with new elections seeming likely, no one can say when or how Turkey will emerge from its current economic crisis. Meanwhile, purse snatching is on the rise and the country is in a collective funk. According to a newspaper report, 97% of companies in Turkey are losing money. The Central Bank said it will issue a new bank note to ease cash transactions: 20 million TL, which has to be one of the most ridiculous bits of currency in history.
There are, however, faintly positive signs. Analysts say it's time to stop crying and start buying shares, citing companies trading on the Istanbul Stock Exchange at very low price-to-earnings ratios. But one of our advertisers cancelled his contract and said, "What does it matter, anyway? Foreign investors aren't interested in Turkey these days."
Not true. HSBC just bought one of the Turkish banks, and another of Turkey's more successful banks is set to announce a deal with Intesa Spc of Italy very soon. Still, things have grown so bad that, in late July, a government worker called us recently to say that courier fees for picking up magazines from us were a bit much for it to pay under the current austerity program. If they forwarded the addresses, would we mind sending the magazines for a couple months? We said we would mind. We continue to publish, but we have to draw the line at paying the postage for the Turkish government.
Kuser is a freelancer living in Istanbul
Edited by Thane Peterson