New World Politics
UPCOMING ELECTIONS IN TURKEY
UNDERSTANDING UPCOMING ELECTIONS IN TURKEY
President Tayyip Erdogan [ER-DOE-ONE], who has been the most dominant political figure in Turkey for the last 16 years, suddenly announced in April that the general elections scheduled for November 2019 was rescheduled for June 24 of this year. His announcement of the upcoming elections is regarded by several experts as an “ambush” election, as opposed to an “early” one. He has been gradually pushing the Turkish nation to turn the country’s British-styled multiparty parliamentary democracy into his self-described executive presidential republic.
Turkey has a political tradition of pluralistic representative democracy going back to mid-1800s. After declaration of independence in 1923, the republican form of government structure became unitary with executive, legislative, and judicial branches. The British-style representative democracy is a legislation-centric system where the executive branch comes out of the legislative branch. The party that wins elections get the largest number of seats in the national assembly based on the national vote, and its chairman becomes prime minister as the head of the government. Presidents, on the other hand, used to be appointed from the legislative branch only as non-partisan heads of the state with veto power over the prime minister. The constitutional referendum of 2010, replaced the appointment clause with election. In 2014, Erdogan was elected president with 52% of the vote. Therefore, he became the nation’s first partisan head of state.
Then, the constitutional referendum of April 2017 granting extensive powers to the office of the president, was approved by a slight margin. The extensive powers granted to the executive branch will be put in practice after the upcoming elections, which is both presidential and congressional. The Turks will go to polls to decide whether to remain as a parliamentary democracy or to become an executive presidential republic. In order to understand the significance of the upcoming elections, three factors that play pivotal role in Turkish politics need to be analyzed prior to mentioning political parties in Turkey.
Three Factors That Play Pivotal Role on Politics in Turkey
The economy, corruption in politics and business, accession to the EU, and human rights have always been major issues. Nevertheless, religion, military, and the Kurdish minority play pivotal roles in Turkish politics.
Turkey is a secular state with a 99% Muslim population; over 90% of whom are Sunnis. Using religious rhetoric has always been favorable for secular rightwing parties to snatch a piece of the popular vote. While urban centers were secularized, rural towns and villages remained religious. Yet, Islamists have been a marginal voice even in the countryside. They kept softening their radicalism over the years in order to become more appealing to the general public and compete against secular parties. Political Islam in Turkey was led by the National Outlook movement. One after another, National Outlook parties ended up being disbanded by the Constitutional Court. However, Islamists gradually gained popularity because rural migration to the cities shifted the numerical balance against secular urbanites. As an outspoken Islamist candidate, Erdogan became the mayor of Istanbul in 1994 with the support of religious conservative poor in shantytowns. Eventually, he became popular enough to leave the National Outlook movement and form his own party, the Justice and Development Party.
In addition to religion, the military is and will always be an important factor in Turkish politics, which makes Turkey a quasi-democratic state. It is true that Turkey has several flaws in its democratic system. However, it is also far from being a failed state. Despite occasional human rights violations and biased justice system that often favors existing political authority, the courts and other bureaucratic institutions continue to be functional. Undoubtedly, military coups in 1960, 1971, and 1980, did overthrow elected governments, disbanded political parties by force, rewrote constitutions, and impaired civil society. Nevertheless, the armed forces preferred custodianship instead of dictatorship. Therefore, the return to normalcy was quick, and elections were taking place in full speed while de facto military tutelage was felt by all factions in the political arena.
Finally, the third major element that shapes Turkish politics is the Kurdish electorates. Kurds constitute more than 20% of the population. Kurds also live in northern Syria, northern Iraq, and western Iran. There were numerous Kurdish rebellions against the state during the early decades of the republic. Kurds were considered as “mountain Turks,” and the use of Kurdish language in public was prohibited. Turkey’s Kurdish Question remained unresolved, which inevitably contributed to the birth of PKK separatism in 1978. Kurdish electorates have the capacity to swing elections, but the PKK violence directly affects the entire public opinion by inflaming nationalist fervor that also grants the military an excuse to interfere in civilian affairs. At that crucial point, the Justice and Development Party emerged triumphant in favor of the ones who wanted military out of politics against the ones who wanted religion out of politics.
Justice and Development Party (Adalet ve Kalkınma Partisi – AKP)
Throughout 1990s, Turkey was ruled under several unstable and short-lived coalition governments. Turkish military’s interference in politics was frequent. The ban on girls to ware Islamic head dresses in universities and in public buildings was advocated by staunchly secular judiciary and endorsed by the military. The ban on Islamic head dresses gave birth to a peculiar civil rights movement for religious conservatives; Turkish and Kurdish alike. Moreover, the economic melt down in 2001 led to a major devaluation of Turkish lira. Angry voters cast their ballots against all major parties, and Justice and Development Party came to power in November 2002 with 34% of the national vote (The party is also known by its nick name as Ak Parti, for ak meaning white, clean, pure in Turkish).
As Prime Minister, Erdogan immediately lifted the ban on Islamic head dresses. He took significant political steps to fasten Turkey’s membership with the EU, and developed friendly relations with Israel, Iran, and the Arab world, with Syria in particular. Also, single-party administration under his leadership proved to be effective in domestic affairs in terms of providing political and economic stability. Due to major improvements in public services, especially in healthcare and infrastructure, Erdogan has been winning every local and general election by large margins, giving him enough power to lead referendums and push for changes in the constitution. Public support for Justice and Development Party has jumped to 47% in 2007 elections, and to 49% in 2011 elections. No other political party in Turkish history ever enjoyed such a wide spread popular support. Justice and Development Party gets most of its votes from major urban centers as well as the countryside, except the Kurdish southeast. Yet, Erdogan’s consecutive electoral victories turned him into an authoritarian president from a “religious conservative democrat” prime minister, especially after the unsuccessful coup attempt in 2016.
The Gulen Congregation or FETO
The Gulen Congregation was Erdogan’s closest ally. It is an Islamic congregation led by the preacher and author named Fethullah Gulen [GOOL-EN]. Islamic cults and congregations have always intended to take over the government and establish a theocratic regime in Turkey. Unlike other traditional Islamic cults, members of his congregation were moderate, pro-Western, well dressed, and soft spoken. They called him Honorable Master Preacher. Gulen opened hundreds of private schools and colleges in Turkey and around the world. The graduates were able get well paying jobs and high ranking positions. Although he received positive reactions from secular rightwing and leftwing politicians during 1980s and 1990s, religious conservative advocacy groups had to defend him with media campaigns against secular groups who were accusing his congregation of cronyism and infiltration. Several members of the congregation who were detected by the National Intelligence Agency were kicked out of the army, police force, and judiciary. State Security Court filed an arrest warrant against Fethullah Gulen himself. He left Turkey in 1999 and began to reside in Pennsylvania.
The Gulen Congregation continue to grow with Erdogan’s election victories. Erdogan hired several members of the congregation into his administration, who were professional political campaigners, media propagandists, academics, community organizers, activists, businessmen, and merchants. Secular republicans and the military were highly concerned about the popularity of moderate Islamism and the spread of Gulenists in government. A memorandum published on General Chiefs of Staff website in April 2007 sparked major republican rallies across the nation calling for Erdogan’s resignation. However, republican rallies backfired and Erdogan was reelected with 47% of the national vote in July 2007. Following Erdogan’s reelection, series of trials were filed against several military officers, lawmakers, and journalists for plotting a coup. Political alliance between Erdogan and the congregation has reached it’s peak. Having easy access to classified documents, the Gulenists abused their power with dirty tricks, such as stealing exist exams to to grab key positions into military, police force, judiciary, and government ministries. Power struggle between Erdogan and the congregation erupted in 2013. Major corruption scandal against Erdogan broke out. Erdogan accused the congregation of espionage against sovereignty of the state. Since then, the Gulen Congregation is called the Fethullahist Terrorist Organization (FETO) and known as Parallel State Structure. FETO and its affiliates waged an unsuccessful coup in July 15, 2016. Erdogan declared state of emergency, shot down military academies, and tens of thousands of people were arrested including 124 generals in the army. The main opposition party blamed Erdogan for allowing FETO to branch out and accused him for manipulating the political atmosphere to advance his dictatorial goals.
Republican People’s Party (Cumhuriyet Halk Partisi – CHP)
The main opposition party, the center left Republican People’s Party had ruled Turkey under one-party system until 1946. The party is proud to be founded by Mustafa Kemal ATATURK (Father of all Turks), Turkey’s national hero and its first president from 1923 to 1938. The six arrows on the party flag symbolizes the principles of Kemalism and represent several impressive radical reforms Kemal Ataturk implemented in 1920s and 1930s that westernized Turkish society. Among them, declaration of national independence as a secular republic which separated religion from politics; abolition of caliphate, sharia law, madrasas, Islamic cults and lodges; declaration of universal suffrage; introduction of modern marriage law, modern dress code, and modern last names; replacement of Arabic alphabet with Roman alphabet; replacement of lunar calendar and Islamic measurements with solar calendar and modern measurements, are some of Ataturk’s radical reforms.
Religious fundamentalists violently protested against secularization, and Kurdish tribes in eastern Turkey rebelled against the state. Islamic fundamentalist uprisings and Kurdish rebellions were suppressed by the military. Those who responsible were sent to trial in State Security Courts for subversion and treason. They were executed or sentenced to life imprisonment. Turkish military and judiciary became watchdogs of the secular nation-state.
One-party era ended in 1950, and multiparty era began. The rightwing Demokrat Parti dominated three consecutive elections throughout 1950s until it was overthrown by a military coup in 1960. Republican People’s Party participated in several coalition governments both as a major and a minor partner. Since 2002, consecutive electoral defeats inflicted by Erdogan humbled the party, but also solidified its secular republican base. Turkey’s secular republican block consists of urban middle classes, intellectuals, social democrats, socialists, as well as the heterodox Shiite minority known as the Alevis (or Bektashis). The Republican People’s Party leads elections in Turkey’s coastal cities in the Aegean and in western Marmara region.
Nationalist Action Party (Milliyetçi Hareket Partisi – MHP)
The third major political party, the rightwing Nationalist Action Party has been the leading voice of ultranationalism. The triple crescent in its party flag symbolizes Turkish Islamic nationalism. The party fiercely opposes Kurdish seperatism and stands against any peace deal with the Kurdish PKK militants. Its youth organization, the Greywolves, have been active in violent anti-leftist street clashes during 1960s and 1970s. Viewed by the left as extremists, the Greywolf ideology is a sythesis of Pan-Turkism and Sunni Islamic conservatism. They enjoy strong following from voters who identify themselves as nationalist conservatives. Up until the emergence of Justice and Development Party, the Nationalist Action Party was leading elections in Central Anatolian inlands and eastern Black Sea provinces. Many soldiers who were martyred in numerous skirmishes against the PKK came from central and northeastern regions.
The PKK Militancy
In 1984, the PKK (Kurdistan Workers Party) has launched a guerilla war against the state and pro-Turkey Kurdish tribes in order to establish an independent Kurdistan. Turkey considers the PKK as a terrorist organization and the most dangerous national security threat against its sovereignty. Turkish Armed Forces, the second largest army in the NATO, waged relentless military operations to root out the PKK. Its leader Abdullah Ocalan [OJALAN] resided in Syria until his capture in 1999. Ocalan was put on trial in a glass cage, found guilty on all accounts of treason, sentenced to death, but the sentence was commuted to aggravated life imprisonment in the Imrali island outside Istanbul. The fight against the PKK cost nearly 40,000 lives, 25,000 of whom were Kurdish lives. Yet, due to harsh treatment often received by the military, the locals distanced themselves from the state. Many Kurdish peasants left their villages and migrated to major cities, primarily to Istanbul, Izmir, Mersin, and Ankara, the nation’s capital.
Kurdish Political Movement
Under these circumstances and apart from pro-Turkey conservative Kurds, a dissident Kurdish political movement have emerged by those who call for Kurdish ethnic and cultural rights, regional autonomy, and legalization of Kurdish language. The movement is leftist in origin. It also promotes Kurdish regionalism and cultural nationalism. Dissident Kurds, many of whom did have connections to the PKK, formed political parties from 1991 and onwards. One after another, Kurdish parties ended up being disbanded by the Constitutional Court for igniting subversion. These parties were; People’s Labor, Freedom and Democracy, the Democracy, People’s Democracy, Democratic People’s, Democratic Society, and Peace and Democracy parties respectively.
The Constitutional Court has also issued the Ten Percent Threshold rule for national elections preventing smaller parties from winning seats in the national assembly. While the Ten Percent bar knocked out almost all major parties in 2002, Kurdish politicians shifted their attention to local administration. They dominated mayoral elections in the southeast with a solid majority. In 2007, they were able to win seats in the national assembly by running individually from their own electoral districts as independent candidates. This tactic enabled them to bypass the Ten Percent Threshold despite receiving less than 10% of the national vote as a whole party. In order to represent Kurdish votes in major cities, the movement had to expand its constituency to the greater Turkish public. To achieve this difficult task, Peace and Democracy Party transformed itself into Peoples’ Democratic Party (or Democratic Party of the Peoples).
Peoples’ Democratic Party (Halkların Demokratik Partisi – HDP)
Literally translated as Democratic Party of the Peoples, is a social democratic Kurdish party. egalitarian, liberitarian
Erdogan also formed and dissolved de facto alliances. His immediate alliance was with the Islamic congregation led by the preacher named Fettullah Gulen. The Gulen congregation provided financial, political, and media support
CUBA and IRAN: A History of Income Distribution, Poverty, Inequality
Economic independence of Cuba and Iran has not been thought of together in a study. Both countries are more than 7,500 miles away from each other. Their histories are incomparably different and they both belong to very different regions. Political, social, cultural, and religious norms in the Caribbean are very different from that of the Middle East. The size of the two countries, both by landmass and by population are different. Yet, despite various and obvious differences, they both have gone through radical changes. Moreover, both are mono-cultural economies. 85% of Cuban and Iranian exports is a single product; that product is sugar in Cuba, and oil and natural gas in Iran. Both Cuban and Iranian economies suffer due to sanctions imposed by the United States, and both countries stand still in the midst of globalization presenting their own models for economic development. At least rhetorically, Cuba still proclaims to be a socialist economy, while Iran claims its own Islamic economics as the proper way to eradicate poverty and income inequality. In this research, I will mention the economic models they have taken and analyze their struggle for economic independence not by looking at their GDP rates, but by providing empirical data in regards to healthcare, education, rural, and urban poverty statistics. Knowing that the money accumulated in Iran is significantly larger than that of Cuba, it would be more accurate to consider healthcare, education, and income distribution related issues since both claim to be alternatives to the dominant global order. How they perform in their caretaker role for their people will be what I will try to discover.
Brief History of Cuba
Originally inhabited by the Arawak speaking Taino Indians, the island of Cuba entered the middle ages with a genocide committed by Galician conquistadors Nicolas de Ovando and Pánfilo de Narváez. What has driven the Spaniards to discover the Americas was a quick profit-making motive, which was embodied in gold and silver. Tainos, who used to live in communalistic tribal economy, were wiped out within a few decades aftermath of forceful transition to feudal slavery, the encomienda system. African slave trade across the Atlantic was rationalized when Bartolomeo De Las Casas accepted the solution proposed by the Dominican monks in an approach to the king in 1511, to the effect that, “as the labor of one Negro was more valuable than that of four Indians, every effort should be made to bring to the Caribbean many negroes from Guinea.” Trading African slaves was legalized in 1513, and it reached its height after the sugar boom in the mid 1600s.
Although other islands were under attack from pirates -the agents of early free trade in the Caribbean, Spain was able to hold on to Cuba and monopolize its sugar trade until the British occupation of Havana in 1762-63, during the Seven Years’ War. Cuban sugar reached British colonies in America, and Cuban planters further profited from the slave revolution in Haiti, which removed that supplier off the market. What made slavery on tropical plantations unusual was the master’s total freedom of control over his slaves. Sugar plantations resembled modern factories in a modern capitalist society. To meet the demands of the world market, the owner and his agents had to manage all methods of production. From 1774 to 1861, the island’s population leaped from 171,620 to 1,396,530; 30% of whom were of African descent. By 1820, the first series of technological innovations began to transform the character of the sugar industry where mill owners had to invest heavily in steam operated machinery in order to compete with beet sugar. Number of mills increased from 1,000 in 1827 to 2,000 in 1860. Discontent grew among slaves and free blacks. They rebelled in 1810, 1812, and 1844. Wealthy creoles also became resentful of the corrupt Spanish officials. They had growing economic ties with the United States, and began to build bigger mills, known as centrales. Economic downturn in 1868 sparked The Ten Years’ War, led by black leaders who wanted abolition of slavery. The civil war decimated the creole landowning class, hindering the formation of a traditional landed elite on the island. Entrepreneurs from the US came to fill the vacuum created by the ruin of creole aristocracy. Elite Spaniards and white supremacists dominated socio-economic and political life, and denied Afro-Cubans healthcare and education.
Another economic downturn yet again taking place in the 1890s sparked a revolutionary movement under the leadership of Jose Marti. Cuba became independent from Spain in 1898 only to come under American occupation a year later. Cuba was absorbed into the economic sphere of influence of the US. The Platt Amendment of 1903 cut the tariff on Cuban sugar exported to the US by 20%, developed latifundio by concentration of land and mills and proletarianized the sugar workers. The expansion of the latifundio reduced the purchasing power of masses. By 1919, approximately half the island’s mills were owned by American companies. Sugar prices soared after WWI, but with the Great Depression prices went further down to pre-war levels. The country suffered under the Machado presidency and Batista dictatorship. Fidel Castro led a revolution under the basis of reinstituting the Constitution of 1940, a constitution which abolished latifundios. Until Castro, the Cuban economy had followed a neoclassical model based heavily on semi-colonial trade relations with the US. After Castro, the model shifted to a semi-socialist semi-Keynesian structure that focused on poverty reduction and social welfare.
Brief History of Iran
Much different than Cuba, Iran has a much older background and a much more complex society. Achaemenid Persia, acknowledged by historians as the first global empire, has absorbed previous ancient civilizations in the Near East under a single political establishment built upon agriculture and trade surplus. In order to carry on further enhancement of economic development, the ancient Persians invested on a grand transportation project known as “the royal highway,” delighting Babylonian as well as Phoenician merchants. It was them who enthusiastically financed Persian military adventures against ancient Athenians. Under the Parthians and the Sassanids, Iran was challenging Rome over the control of the Silk Road. The Arab conquests introduced Islam to Persians (636 AD), who later joined the Shiite sect under the Safavids. During the Safavid period (1501-1722) trade with Europe, primarily with the Dutch, brought surplus in the beginning. Yet, revenues declined as trade routes gradually shifted away. This shift continued throughout the 18th century. Eventually, under the Qajar rule (1796-1925) Iran found itself politically weak, militarily defeated, and economically underdeveloped.
The volume of foreign trade grew tenfold in the 1800s. Iran followed the classical economic model, which was the dominant economic thought at that time. Yet, the country was weak and unable to respond accordingly to changes in the global economy. The government had come to a point of realization that there was no alternative other than giving concessions to colonial powers that kept Iran under pressure. Among the most important of all concessions was the one given to William Knox D’Arcy in 1901 to “explore, exploit, transport, and sell petroleum, natural gas, asphalt and mineral waxes in Persia.” This concession, however, gave birth to Iran’s oil industry. Oil was discovered in 1908, and by 1912 the first cargo of crude oil was exported from the giant refinery in Abadan by Anglo-Iranian Oil Company (AIOC). AIOC became the single largest employer in the country. It already employed over a thousand workers. While many Iranian merchants put themselves under the protection of foreigners, others with more traditional orientation and social ties to the religious leaders sought the protection of the clergy, or the ulama. The ulama had led a boycott against the tobacco concession of 1890. Alliance of the ulama, the bazaar merchants, and the western educated elites led to the Constitutional Revolution in 1906. Economically speaking, the constitutional revolution was a joint political operation of Iran’s national capital and intelligentsia against the incursion of foreign capital.
Under Reza Shah Pahlavi, Iran’s priority shifted from free trade to modern nation-state building. He spent extensively on basic infrastructure projects. The Iranian economy has gone through state-controlled modernization. The state capitalist structure was further enhanced during his son Mohammad Reza’s rule. The Iranian economy was at the hands of pro-Western Keynesian technocrats until 1979; only with an exception of Mossadegh’s short-lived administration (1950-1953), who had nationalized the AIOC. The Shah launched a controversial “agrarian reform” in 1962. Oil revenues quadrupled after the 1973 crisis. However, problems with income distribution sparked an Islamic revolution.
Economic policies of the early Islamic Republic have been non-communist and distinctively Keynesian in structure. While government intervention was seen as essential, private enterprise was protected in the basis of serving the national economy as well as the religion. This Islamic Keynesian attitude changed towards liberalization with presidents Ali Akbar Hashemi Rafsanjani, Mohammad Khatami, and Mahmud Ahmadinejad. Similar to Cuba, Islamic Republic of Iran suffers from the trade embargo imposed by the United States. And similar to Cuba, the Iranian economy is dependent heavily on oil prices in the global market.
The First Steps
Economic independence of Cuba is strongly correlated to the political history of Cuba. One of the immediate decisions taken by both revolutionary governments was to nationalize major foreign interests. The Cubans called upon American companies to refine Soviet crude oil. When the US Treasury Department refused, the Cubans nationalized foreign refineries. In retaliation, the United States cut down the sugar quota. Cuba in return, nationalized all US properties, which led to the beginning of the American embargo on Cuba in October 1960.
In Iran, the 1979 revolution nationalized its oil industry and overthrew the Shah. The US government granted the deposed Shah permission to enter the US soil for medical treatment. This contributed to the excitement and fear among some university students about a possible American coup. Iranian students took over the American embassy, and with that, US sanctions on Iran began. Unsurprisingly, the United States reacted negatively towards the nationalizations of Cuban oil refineries and sugar and Iran’s oil and natural gas. It turned out to be easier for the US to cut all relations with Cuba all at once (January 3, 1961), but new sanctions on Iran were added over time.
Subsidies, Employment, Literacy
Another immediate result was the implementation of food subsidies and full employment. “More than 40% of the Cuban workforce in 1958 was either unemployed or underemployed. Schools for blacks and mulattoes were vastly inferior to those for whites. Afro-Cubans had the worst living conditions and held the lowest paid jobs.” With the 1961 literacy campaign, illiteracy rate was reduced immensely within a year, and though there was some disagreement as to the quality of the literacy that was achieved, illiteracy was almost wiped out in a few years. This was done at a relatively low cost with strong motivated volunteers. Anti-racist stands of the revolutionary government put black Cubans and all women, including children into the workforce. “An army of 100,000 teenagers were sent out to every corner of the country to teach nearly a million Cubans, three quarters of the population, how to read and write.” Batista had left behind 700,000 unemployed and 300,000 underemployed men. By 1964, full employment was achieved not only for men, but also for women. Night schools and boarding schools were set up for the large number of women who had been domestic servants or prostitutes; by 1958, there were 15,000 prostitutes in Havana only. These institutions functioned until women learned new jobs, becoming typists, secretaries, bank tellers, and bus drivers.
The Islamic revolution did subsidize basic food and oil consumption, but full employment has never taken place. Many unemployed youth joined the army as either new recruits for the military or as Revolutionary Guards, Pasdaran, but women did not entirely join the workforce. According to the 2001 World Development Indicator, female labor out of total females was 19.7% by 1975. By 1980, it was 20.4% and it slightly went up only to 26% by 1998. Women’s literacy rate, on the other hand, increased. Perhaps in an attempt to copy Castro’s achievement, by 1962, the Shah issued a “White Revolution” (Engelâb-e Sefid) in which the literacy campaign had a significant part. More than half of Iranians did not know how to read and write at the time. However, his campaign had slow progress. By 1976, the Shah left Iran with 71% male and 42% female literacy for ages 15 to 24. This was mainly due to opposition of the Shiite clergy because they viewed the Shah’s literacy campaign as an agent of westernization. After 1979, however, Ayatollah Khomeini’s jihad brought millions of men as well as women into mosques to learn how to read and write. Though they did not enjoy the social status that their Cuban counterparts did (1974 Family Law), and were told by their leader to sit back home, Iranian women played a crucial economic role during the war with Iraq. They adopted strategies to economies, lessen waste, and provided food for everyone. Many raised money to set up local charity funds (waqfs) to help the community by bringing sources together, and provided care for the poor, the sick, and those families whose husbands were at war. Though these charity funds were Islamic ideology, they were socialist in structure.
Agrarian Reforms and The Question Ownership
Perhaps the most important factor of socioeconomic change in Cuba took the place of the Law of Agrarian Reform that Castro decreed in May 1959. This law restricted the size of landholdings, and the government the right to expropriate private holdings in excess of stated limits. The owners would be indemnified depending on the assessed value of the property tax services. The government distributed the expropriated land in small plots or established cooperatives. They were administered by the Institution of Agrarian Reform (INRA). 85% of all Cuban farms fell under the jurisdiction of the reform law because land ownership had been so highly concentrated under the old regime. Although the process was slow, its tempo accelerated in response to internal and external pressures. Estates of Batista government officials were seized, followed by take-overs of the great castle estates when their owners resisted Castro’s policies. Eventually, all agrarian holdings became granjas del pueblo (state farms) administered by INRA, which employed the same workers but paid better wages and offered improved working conditions.
The character of Cuba’s rural population promised to make the process of the socialist land reform easier than it had been in Russia. Since the sugar industry had proletarianized much of the agricultural workforce, farm workers did not demand thrown land but sought to improve working conditions and increase wages. Bolshevik land reform, on the other hand, has distributed land to the landless peasants. This led massive numbers of peasants to join the communist rank against counter-revolutionaries during the civil war era and later against Nazi invaders because failure of the Bolshevik revolution simply meant the return of serfdom. Russian land reform has redistributed large feudal estates to the private ownership of millions of former serfs. As the Soviet power firmly established in upcoming years, the structure of agriculture in Russia came under government control. Thus, the structure of the industry became state-capitalist rather than socialist. This was also true for all other industries, and Castro followed the same example. Therefore, it should be concluded that the Cuban economy under Fidel Castro has been state capitalist with socialist inclinations.
It has to be remembered that the British economist John Maynard Keynes insisted that government intervention was necessary not to hinder capitalism but rather to protect and sustain it by assisting the weak parts of the economy where the private sector is insufficient. According to Keynes, the government should provide full employment for the national capital to exploit, thus make the economy keep going and promote a balance between public and private sectors in order to protect the national bourgeoisie. It makes neoliberals unhappy since the government sits in the driving seat in several economic decisions. In other words, the government becomes the boss that collects capital, then distributes wealth unevenly, and sometimes redistributes more evenly. In Lenin’s Russia and in Castro’s Cuba, the government sits in the driving seat with further power to make decisions in economic matters. The same is true for Mussolini’s Italy and Hitler’s Germany. The difference is ideological. Russian and Cuban governments intended towards providing social welfare while Italian and German governments merged with gran bourgeoisie to promote corporate welfare/social injustice. Merger between the corporate elite and the governing elite by definition is fascism.
Whether they were “socialist” or “communist” or “fascist” in political and ideological terms, in the end, they were all Keynesian in economic terms. However, proletarianization of Cuba’s agricultural workers puts Cuba into a different category because the government worked in partnership with the farm cooperatives established by INRA. These cooperatives directly participated in every part of the production. They had an equal say with INRA over how to distribute what they have produced. Later, Cuban farmers lost this peculiar semi-independence and from 1970 to the collapse of the Soviet Union, the Cuban government was the sole decision maker in every sector of the economy. The liberalization began in 1989, and helped the economy survive the worst years of the “Special Period,” (1989-1994). The use of the US dollar was de-penalized, self-employment, new economic activities, as well as exports were promoted, and most importantly farmers’ markets were legalized. President Raul Castro privatized more farmlands to those farmers who used to work and live on them.
In Iran, land reform launched by the Shah was intended not to empower the peasantry but to weaken the absentee landlords. From 1962 to 1968, landowners were required by law to sell excess land to smallholders and tenants. Government purchased the land and sold it to the peasants with a 30% discount of a given market price and with a very low fixed rate loan to be paid back in 25 years. Because of evasion, not as much was distributed as had officially been proposed. The new owners lacked the capital, the technology, the cooperative organizations, and the government extension services necessary to maintain and increase productivity. Landless laborers, the Ranjbar, lacking the sources to farm or to pay for the land, received nothing. Having lost their employment in the countryside, they migrated to the cities. Subsequent redistributions benefited the peasants in ownership and tenancy rights, but did not provide adequate lands for subsistence.
In fact, the major drive of the agricultural programs was the creation of large-scale, state-sponsored farm corporations and private agribusinesses. These farm corporations basically required peasants to pool their lands and take shares in the larger venture, often with the result that farms were mechanized and cultivators driven from the land. Private agribusinesses with heavy foreign investment also favored capital-intensive mechanized farming. Not surprisingly, the state favored capital-intensive agriculture in a country with surplus labor. Nomads were forced into sedentary life, pastoral livestock herding was replaced with mechanized meat and dairy farms. It sounds all good but why did these farms fail?
Smallholders faced increased demand for cash income to pay the services and the machinery provided by the state as the prominence of production of commodity crops grew. Since population pressure was high and land plots were small, the new land tenure system has created uncertainties about future access to farmland. The idea to turn peasants into rural capitalists on their own was impractical because entrepreneurship requires risk taking, yet peasants incline towards risk aversion. Based on their perception of risk, they used their own traditional surviving methods. The opportunity cost of money for the peasants was usually high; that of labor and traditional skills, however, was low. Peasants facing financial risks decided to move to the cities. As a result, per capita agricultural production declined, and Iran became more dependent upon food imports and industrial development. Some landlords who sold their lands to the state also moved to the cities and invested their money in industrial sectors. After 1973, the inflow of petrodollars quadrupled and helped the GNP to increase. Iranian industry, however, was still inefficient to compete in international markets due to lack of skilled management and labor. On top of that, rural migration to the cities increased the “reserved army of unemployed.” Wages went down, and that played into the hands of employers which also paved the way for “the new rich” to turn the corner. Coming from humble origins, these new businessmen contributed less to the national economy. They deposited their profits to international banks. Huge influx of money with no jobs in the job market soared inflation. The cost of living went up.
Inflation hit the traditional core, which was heavily rural in origin. Iran’s traditional merchants are known as the town-dwelling bazaaris. In the absence of modern industry, the bazaar becomes the most significant element in the domestic economy. Merchants, shopkeepers, and artisans dominated wholesale, retail, and franchise businesses. The French word “bourgeois” was derived from Persian words “bazaar,” “bazergan,” “bazergan-e bozorg.” As the economic outcomes of the Shah’s land reform worked against their favor, the bazaaris joined the ranks of the ulama and financed the fundamentalists. After the revolution, the interests of the bazaar merchants, as the new national capital, had been well preserved by the Islamic government up until the Ahmadinejad administration.
On the question of land ownership oversee the equitable distribution among landless peasants, the first majlis (parliament) of the Islamic republic got into a dispute over large tracts of lands (324,000 acres), whose owners were already executed or had fled the country. Some high-ranking clergymen opposed the Land Reform Bill. Khomeini stopped the plan and sent it to the Guardian Council for decision. In January 1983, the Guardian Council called the program non-Islamic and rejected the Land Reform Bill in its entirety. The bill died and never introduced again.
Inequality in Income, Health, and Education
Cuban society enjoyed a relative balance between its most and least affluent. In a speech he made in the mid-1970s, Castro acknowledged that Cuban society was still far from imperfect to achieve the desired income equality. At a time when most citizens have become government employees, a high ranking government official and a college professor received a salary of 700 pesos, while a bus driver received 85 pesos. Therefore, the approximate average ratio between the maximum and the minimum wage was 8:1. This gap is now in a complicated stage in today’s Cuba.
“The collapse of the Soviet Union deprived Cuba of $6 billion of its annual income almost overnight. In less than a year, Cuba lost 80% of its overseas trade and its GDP fell by 50%, many people were forced to rely on financial support coming from relatives exiled to the United States. 97% of Cuban Americans consider themselves to be whites. So, the overwhelming majority of the remittances sent every year, ended up in the hands of those who consider themselves white. That, in itself, creates social and economic differences… Since the fall of the Berlin wall, two currencies emerged: peso and the CUC. CUC is worth 25 times more than the peso. This two-tier currency turned Cuba’s economic structure upside down. While professors and doctors being paid in pesos earn $20/month, a waiter being paid in CUCs an earn $20 in a day.”
Unfortunately, there is no available detailed empirical data in regards to income distribution in Cuba.
In 2000, the UNDP inequality measure between the richest and the poorest 20% was 4:1 in Norway. The share of income or consumption for the poorest 10% of Norwegians was 3.9%, the poorest 20% was 9.6%, the richest 20% was 37.2%, and the richest 10% was 23.4%. In Iran, however, the share of income for the poorest 10% of Iranians in 2000 was 2%, the poorest 20% was 5.1%, the richest 20% was 49.9%, the richest 10% was 33.7%. Norway was and still is at the highest HDI (Human Development Index) rank in the top of UNDP high human development list, while Iran is at the 99th place. There has been little change from the figure taken in 1996: while the top 10% of the population enjoyed 40% share in total income, the bottom 50% had to struggle for a share of 16.7%.
In healthcare, Cuba has made remarkable achievements compared to most of the other latin American countries. By 1970, nearly 90% of the children between ages 6 to 12 have been enrolled in school. That number went up to 98% by 1986. Within a 30-year period, life expectancy in Cuba jumped from 58 years in pre-revolutionary times to 75 years right before the Special Period. Havana has a major bio-tech center. It accepts students from other countries, including the United States. After the Soviet economic assistance to Cuba ended, however, there was a serious decline in GDP, and that directly affected the quality of education and death services. The government that was able to provide free education up to university graduation now can provide free education up to the 9th grade. Although high school and college education are still relatively cheap, due to tough economic conditions, many young people drop out of school. University enrollments also decline.
Iran, however, continued to increase the quality in education and healthcare. Increase in women’s participation in economic life is a major part for the success. Also, the Constitution of the Islamic Republic states that the Iranian economy has three major sectors: public, private, and cooperative. The cooperative. The cooperative sector is mainly about the bonyads (foundations) or charitable trusts. There are bonyads for the poor, the needy, and the families of the martyred soldiers. They provide housing, food, clothing and work for millions of poor Iranians that are registered under a bonyad. The goal is to provide “Islamic” social justice. However, 20% to 30% of Iran’s budget is being spent on bonyads. Bonyads are tax exempt. Many reformists complain about corruption that goes around bonyads. They are originally intended to protect the section of the society that cannot make the ends meet. However, employees do not provide adequate service and often collect checks from the government for doing basically nothing. Imams, hojas, and other members of the clergy in charge of supervising bonyads also receive government checks. Nepotism, political favoritism, and conning are rampant. This is also true for the reformist camp who complain about the very corruption in bonyads. Yet, at the macro level, Iranian society continues to get healthier and more educated, despite having not a good record in its Gini index. When Iran suffered similar economic shortages in the 1980s as Cuba did in the 1990s, Iran produced and exported millions of barrels of crude oil each year. Oil and natural gas did compensate for survival in Iran’s worst days. Cuba, on the other hand, had to wait for closer diplomatic and commercial relations with Venezuela in the 2000s. Cuba’s closer tie with Venezuela is largely due to “oil for doctors” exchange.
Orlando Perez and Angela Haddad analyze the positive and the negative outcomes of the “oil for doctors” plan in their insightful article “Cuba’s New Export Commodity: A Framework.” The article is important to observe macroeconomic and microeconomic results that directly affect inequality, poverty, and income distribution in Cuba through healthcare.
“In 2000, the two leaders signed an accord in which Chavez agreed to provide Cuba with 53,000 barrels of oil a day at preferential prices. In exchange, Castro pledged to supply Venezuela with 20,000 medical professionals and educators. In August 2004, Chavez expanded the agreement up to 90,000 barrels a day with 40,000 Cuban medical professionals… According to the Pan American Health Organization, since 2003, the Cuban medical mission has performed over 150 million consultations and saved over over 18,000 lives… however, only 20% of the proposed modules had been built by August 2007. Moreover, the Venezuelan Medical Federation has repeatedly complained about the qualifications of the Cuban health professionals.”
Workloads and responsibilities of Cubans exceeded their capacity. In addition, “63 Cuban health professionals sought asylum in Colombia in 2006, and an estimated 500 Cuban doctors worldwide have applied to US sponsored programs to help medical personnel seek asylum in the US. However, Cuban doctors would like to take foreign assignments, which allow them to get paid a lot more than in Cuba.” While families of those doctors increase the quality of their lives, patients in remote parts of the country become unable to receive direct medical help. Due to these facts, it can be concluded that inequality in Cuba is rising. Its Gini index of income inequality rose from 0.24 in 1986 to 0.38 in 2000.
Both Cuba and Iran work tirelessly to become economically independent despite the dominant global order. To accomplish economic well being, they implemented policies to eradicate poverty and inequality, and provide just distribution of income. These policies were implemented in various forms of economic models. Instead of looking at statistics on how much wealth the both countries accumulate, I decided to look at the outcome of their policies in healthcare and education. It is clear that Cuba is changing. Yet, this change does have consequences. The revolutionary government in Cuba is promoting private ownership at a slow pace. I do believe that the pace should be slow. It will be better to analyze the upcoming poverty growth and it would be better to see whether the Cuban economy -together with its healthcare and education statistics- is getting better or worse. Cuba may go forward or backwards. In a sudden change, however, the country may go back to the inequality level of 50 years earlier or to the inequality level of 500 years earlier. In other words, faster pace of integration into the global economy may result with the foreign-dominated 1950s economy. Much faster pace of economic integration may result with a recreation of a social structure resembling that of the 1500s where a section of Cubans become a conquistador to the other section of Cubans. The shift in economic policy is necessary for Cuba. Poverty, inequality, and discrimination in income distribution were high when Cuba was following a neoclassical model up until the revolution. After the revolution, the Cuban economy was semi-Keynesian and semi-socialist. During the 1970s and 1980s, it became totally Keynesian and highly protectionist. Liberalization is necessary to generate more money for healthcare and education. Following a 30-year period of relative wealth, it has been more than 23 years of “Special Period” and that needs to come to an end. However, the expected imbalances of liberalization should also be checked through some protectionist policies for the sake of healthcare and education of the country. Once it is achieved, I am sure the charts and graphs will illustrate better statistics for the future.
Cuba’s new phase of economics should not undervalue the old phase. Today Cuba generates much less wealth than Iran even though Iran went through eight years of war destruction of many of its oil refineries. Yet, Iranian revolutionaries always relied on the prominence of oil and natural gas the way Cuban revolutionaries relied on Soviet assistance. Even when there were no sanctions and Iranian relations with the US was at its best, A Batista type administration headed by the Shah, failed to implement its own land reform. Iran’s Islamists whose revolution had been a microeconomic as well as macroeconomic outcome of the failure, also failed to implement their own land reform. In addition, they prevented any reform in the agricultural industry. What has increased the quality of healthcare and education in Iran was partly due to the Islamic revolutionary discourse of social justice under theocratic democracy via the creation of bonyads, and partly due to the increasing number of women’s participation in economic life. Women’s participation in economic life was consequential in Iran, but voluntary in Cuba. While the Castro regime opened job training centers for women, the mullahs attempted to take women away from the job market. However, the war with Iraq and indoctrination of the society required women to do more than what they had originally planned for them. They labored for the benefit of the larger section of the society in a collective and cooperative manner. In return, Iran has benefitted through the rise in the quality of healthcare and education.
The collapse of the Soviet Union was a great loss for Cuba. Unlike Cuba, the war with Iraq was a loss for Iran. Iran lost the war, and then the reconstruction era began through liberalization. Both countries had started economic liberalization almost at the same time. While Cuba intends to take more liberal steps, Ahmadinejad fully implemented the IMF plan to lift all food and oil subsidies. It may increase the influx of petrodollars into the country but it will not help to balance the gap in income distribution. It would be easy for Cuba to carry out poverty reduction if the regime had to have the same access to oil. The interesting key here is Venezuela, which has friendly relations with both nations on the basis of oil. Open trade among these nations hopefully will be beneficial for all parties to generate money in neoliberal way (business mergers), provide capital for the national economies in Keynesian way (protectionist policies) and distribute the benefits to their masses in Marxian way (providing quality in healthcare, education, and other services to every individual).
Banks and Turkey’s Financial Development
Unlike other national economies and the global economy as a whole, banks are inevitable parts of the Turkish economy and its financial sectors development. This has been true especially after 2001. Whether it is public or private, strong and reputable banks help to reduce risk, provide services for much larger amounts of people, and encourage technological advancement.
Yet, struggle for survival has not been easy for Turkish banks. The problems in Turkey’s development made it difficult for both state and private banks to function effectively up until recently. Numerous private banks went bankrupt in the face of frequent economic and financial crises. In order to help us see the structure of the banking system in Turkey, it will be necessary to look closely at the emergence of Turkish banks within a historical frame.
It is also necessary to mention the difficulties its financial system faced over periods of time and the measures that were taken to cope with major downturns. This will help us to discuss the structure of the Turkish banking system and it will allow us to analyze the significance of banks for financial sectors development in Turkey.
Brief History of Banking and Finance in Turkey
The land of Asia Minor has contributed to the discovery of coin money in its west during the time of the Lydians (700 BC) and practiced banking at first hand in its east under the Babylonians. Temples of the ancient times provided the wealthy a safe ground to preserve their wealth. The prohibition of usury by both Christianity and Islam prevented the development of banking sector in Asia Minor for centuries. Influence of both religions in the region has almost equal weight in terms of time. Christianity has been dominant in the Anatolian peninsula for more than seven centuries (325-1075), and Islam, over eight centuries (1071-1924).
As opposed to its colonial counterparts in the west, which intervened in the social interactions of their subjects, the Ottoman Empire can be considered as a “financial empire of community of nations” that did not micromanaged the lives of its multiethnic and multi-religious subjects as long as it collected taxes from them.
Taxes were pooled into the treasury, and it was strictly managed by the central government. A huge sum of capital was concentrated at the hands of the government. Other than the Ottoman army, the central government invested more in architectural works in general, and in the infrastructure of the Balkans in particular.
During the period of decline, however, which coincided with the modernization of Europe, the central government spent money on military expeditions to recover the lost territories and suppressing various nationalist movements. Wealthy individuals’ properties, and in some cases their lives, had to be confiscated in order to pay deficit in public accounts. Confiscations hindered the possible development of banking by the means of the country’s own national capital, and it also taught an important lesson to the rich of the upcoming decades.
Up until the first banks in the empire emerged with British and French joint ventures, all commercial banking activities in the empire was conducted by the bazaar merchants of Istanbul.
In 1881, the Düyun-u Umumiye (Administration of General Debts) was established “as a declaration of the bankruptcy of the Ottoman Treasury and external control over finances. It was the end of banking and finance in the Ottoman Empire even though Istanbul Bankası (Bank of Istanbul) was not to be established until 1911”.
It was not until the foundation of modern Turkey that modern banks began to flourish.
From State Banking to Captive Banking
The foundation of the modern secular republic in 1923 led to two important developments. The first was the end of the Düyun-u Umumiye. Turkey continued to pay the heavy Ottoman debts. Yet, it completed the payment in 1954. Secondly, it ended the millennia-old influence of Islam over banking and finance by legalizing interest; the very activity of paying interest to depositors by charging more interest on the creditors. Modern Turkey’s first banks were all state-owned:
Türkiye İş Bankası (Business Bank of Turkey) for national capital accumulation (1924)
Ziraat Bank for agriculture (1924)
The Industrial Bank for manufacturing (1925)
The Real Estate & Orphanage Bank for construction (1927)
The Central Bank as a bank of last resort (1930)
Sümerbank for textiles (1933)
Etibank for mining (1935)
Denizbank for maritime development (1938)
Halkbank (People’s Bank) for subsidizing small business (1938)
During the Great Depression, Turkey balanced its budget and was able to continue its financial growth despite 20 local banks that provided regional development went bankrupt.
A process of industrialization began in 1937, leading to the production and export boom of iron & steel, as Turkey began to supply the increasing European demand for airline industry. Turkey’s rapid industrialization was cut short by the outbreak of WWII. The already scarce resources were directed to defense, and for basic needs of the public. After the war, however, private banks, such as Vakıfbank, Yapı ve Kredi (Structure and Credit Bank), Akbank, and Garanti began to flourish.
Turkey shifted its overall economic policy in 1950 from protection of industrial structure to attracting foreign capital. Agricultural goods were exported and manufactured goods were imported. Because the demand in the world market for agricultural goods and raw materials declined in late 1950s, agricultural production in Turkey declined and led to a foreign exchange crisis (1958). Thus, the economic policy was shifted to import substitution industrialization (ISI).
The two decades of ISI that had a full-fledged start after the coup in May 27, 1960, and ended with the coup in September 12, 1980. This period is particularly important because it allowed the nation’s captive banking system to emerge. During this period, the State Economic Enterprises were heavily financed and a public company was created for almost every imported consumer product.
Banks funded the Five Year Plans, and “selective central bank credits to planned investment projects with preferential rates and credit preference to the public sector, especially heavy agri-credits supported strong growth in the early years. With controlled interest and foreign exchange rates, branch banking became a norm without any pressure of competition and “holding banking” dominated the decade encouraged by tax intensives. Industrial conglomerates had no choice but to try to have a bank in order to finance their potential investments as most of the deposit base of the financial system was strictly channeled to ‘planned’ investments.”
Today, Turkish private banks are subsidiaries of major corporations, and insurance companies are subsidiaries of major banks. Some of the major and several of the medium size corporations in the country are construction companies. Agriculture and construction have always been major driving forces of the economy.
Nonetheless, the founder of Turkey’s first and the largest conglomerate, Vehbi Koç [coch], started his business as a bazaar merchant and later began to supply construction materials. Tracing both paternal and maternal background to a leading 13th century Sunni scholar, the Koç family comes from a merchant background, possibly as cattle traders. In 1938, Koç Ticaret Anonim Şirketi (Koç Business Incorporated) was founded and became the first Turkish company operating in the U.S. under the name of Ram Commercial Corporation in 1945. Since 1963, the Koç Holding operates in the fields of construction, energy, consumer durables, automotive, retail, shipping, defense, information technology, food, and finance. Their main productions and subsidiaries include, Ford Otosan, Otokar, TOFAŞ (Turkish Automobile Factories Incorporated), Arçelik (household appliances manufacturer), Aygaz (natural gas & electricity), Tüpraş (Turkish Petroleum Refineries Incorporated), and Yapı Kredi Bank.
Another financial giant, the Doğuş [Doe-oosh] Holding Incorporated, started as a construction company in 1951 by Ayhan Şahenk. The Doğuş Group has several television and radio stations, hotels and resorts including Hyatt International Ltd, provides merchandising of several automobile manufacturers including Volkswagen, Audi, and Porsche, heavily operating in the fields of construction and real estate, and holds the largest shares of the largest private bank in the country, the Garanti.
Known by its logo “SA”, the Sabancı (Plowman) Holding began as a textile company that expanded to construction industry through cement production. The Sabanci corporation owns: the two largest cement makers, the Akçansa and the Çimsa; one of the largest producers of electricity, the Enerjisa (in partnership with Germany’s E.ON); the largest producer of tires, the Brisa (in partnership with Bridgestone); several industrial and textile goods, several retail products, as well as Akbank and Aksigorta. These three giants are a few, yet an important example of Turkey’s national capital that developed into an industrial bourgeoisie under import substitution industrialization, a gran bourgeoisie that holds a large stake in the country’s financial sector today.
The Switch to Export-led Growth Strategy
The economic problems created by ISI emerged as a foreign exchange crisis. Turkish industrialists were depended on the imported intermediate and capital goods to produce consumer durables for the domestic market. Due to protectionism, the industrialists made easy profits in the domestic market, which was impossible to achieve in the international markets. They did not incline towards exporting, consequently hindering inflow of foreign exchange. Turkey’s exports under ISI were mainly agricultural goods. Also, the foreign exchange that flowed in through remittances coming from Turkish workers abroad disappeared quickly as it helped the continuation of accumulation by accelerating consumer durables production. The need for foreign exchange went through the roof by the end of the 1970s. Industrialists were prepared to abandon ISI to become junior partners of international corporations.
The government passed a structural adjustment program on January 24, 1980. Following the military coup in September, the program began to be fully implemented. Turkish banking system was completely liberalized for the first time.
“Financial liberalization opened doors for competitors and bankers armed with certificate of deposits began to challenge the dominance of banks in the financial system. However, lack of adequate supervision and regulation coupled with ponzi style games created a systematic risk and there was a Bankers’ crisis and a loss of confidence in 1983. Banks such as Istanbul Bank went bust”. Its board of director, Özer Çiller, was also the head of Marsan Marmara Holding, a construction and tourism company. His wife Tansu Çiller became prime minister in 1993.
The early set backs from ponzi schemes led to revision of the Banking Law. The right measures taken in the country’s financial system complimented the economic growth. The government encouraged private capital to specialize in manufacture of selected export products that could compete in the international markets. To further encourage exports, the government devaluated the Turkish lira and cut wages.
Under the export-led growth strategy, Turkey’s average annual growth rate from 1981 to 1988 was 5.8%, and the increase in its industrial production was 8.1%. Assets of banks jumped from $18.5 billion in early 1980s to $134 billion by 2000. Market share of state banks went down from 44% to 35%, and that of private banks went up from 41% to 50% during the same period. However, in 1988, the government changed its current account-based policy to disinflationary efforts, such as deficit financing by encouraging short-term borrowing. Short-term borrowing increased interest rates and increased short-term capital flow into the economy. Banks moved away from direct loan extensions and inclined towards purchasing more government securities, which created short positions and make the banks more vulnerable . The economic growth also slowed down after 1988.
The 1994 Crisis
Throughout 1990s, interest rates were kept high to attract inflow of short-term foreign capital. The rising inflow of short-term foreign capital led to the overvaluation of the lira. With appreciation of the lira, it became more appealing for banks to collect funds from the international financial markets through borrowing and to invest these funds into overvalued public securities or to issue a credit in the domestic market. The short positions of Turkish banks have reached up to $5 billion.
In 1993, a coalition government led by Madam Prime Minister Çiller declared that the interest rates were too high and began working towards lowering them. The government began to inject liquidity into the economy. Policymakers in Ankara assumed that by selling off high value foreign exchange reserves they would constrain the high demand on foreign exchange and the money that accumulates in the market would be channeled to the Istanbul Stock Exchange. However, the trade volume of the Istanbul Stock Exchange was only $52 million at the time, which was too small to handle the markets. Also, the big banks expected a devaluation of the lira because the injection of high liquidity rate and the high interest rates that are already expected to go down increased the demand for foreign exchange. While the value of foreign exchange appreciated, the foreign exchange reserves began to melt down due to foreign capital outflow. A major devaluation occurred:
As of January 1994: $1=19,000 lira; Central Bank FE reserves=$7 billion
As of April 1994: $1=38,000 lira, Central Bank FE reserves=$3 billion
In May, policymakers decided to issue government securities with 400% interest rate in order to pay public debts. Devaluation of the currency led to a decline in real wages and an increase in unemployment . Many banks, including Marmarabank, Impexbank, TYT Bank went bankrupt.
The 2001 Crisis and After
Financial vulnerability of the banking sector led to a major financial crisis in 2001. Based on the disinflationary plans approved by the IMF, foreign exchange rates were stabilized. This development prompted the banks to increase their short-term external debts in foreign currencies, mainly in dollars and in euros, and to purchase government bonds and securities in order to get a higher rate of return. Therefore, many banks and other financial institutions had a very large amount of short positions. However, the lira appreciated immensely in the year 2000. When the sustainability of the stabilized foreign exchange regime became questionable, huge amounts of capital flight took place. The crisis reached its worst point when interest rates skyrocketed to 15,000% over night, breaking the record in Germany during the 1929 crash. Moreover, the inevitable cancellation of the stabilized foreign exchange regime was followed by a major devaluation of the lira. The devaluation was a terrible hit on the banks and other financial institutions. Although exaggerated, even the ability of the Treasury to pay all its debts was speculated. In 2001, the nation’s GDP declined at a rate of 7.6% and led to a further rise on the credit losses.
During the crisis, several banks went out of business including Etibank (privatized in 1998), Imar Bank, Pamukbank. The case of Imar Bank was especially scandalous. It was owned by the Uzan family who had several TV & radio stations. The bank was taken over by the government. The payments received from the Uzan family reached over $6.9 billion in 2007. This amount is equivalent to 1.7% of the nation’s GDP, and nearly 40% of public fixed-capital investments! The Uzans have been sued by the AT&T and Nokia as well. The purpose of Imar Bank turned out to be their desire to buy off another major competitor in the media sector: the Çukurova (Lowlands) Holding. It is a major mining corporation operating mainly in Turkey’s lowlands in the south where there is an abundance of minerals and cotton fields. The holding’s chairman and the country’s former richest man, Mehmet Emin Karamehmet, owed Pamukbank $2.7 billion and Yapı Kredi $2.3 billion. After Pamukbank’s takeover, he agreed to pay back a total of $6.2 billion within 15 years. Uzan family’s media properties were bought off by the Doğan Holding.
Nevertheless, the devaluation had a galvanizing effect on exports. With the political stability due to election victories of the neo-liberal Islamic conservative Justice and Development Party in three consecutive terms, Turkish economy got out of the 2001 crisis quicker than expected.
Since 2001, the Banking Regulation and Supervision Agency (Bankacılık Düzenleme ve Denetleme Kurumu-BDDK) makes necessary legal changes. The Agency made Turkish banks’ balance sheets transparent and made sure the balance sheets were compatible to the international standards for financial reporting. Turkey signed the Basel II agreement in 2002. The foreign exchange availability/position rate to the actual equity capital of a bank was required to have a maximum 20%. At the same time, banks were required to have 8% minimum capital efficiency rate. The banks that did not meet these requirements were taken over by the Savings Deposit Insurance Fund (Tasarruf Mevduatı Sigorta Fonu-TMSF).
In the meantime, the 100% protection guarantee given by the government back in 1994 to savings deposits was lowered to 50,000 liras. In 2009, the capital availability ratios of Turkish banks were 20%, much higher than the minimum requirement. The free equity rate reached 79.4% of the actual equity capital.
Major Involvement of Foreign Capital
In February 2005, the French BNP Paribas bought half of the 84.25% of shares of Türk Ekonomi Bankası Financial Investments, which is slightly over 42%. BNP Paribas purchased 9 billion and 50 million shares for $216.8 million. It also has equal amounts of shares at TEB subsidiaries, such as TEB Investment, TEB Leasing, TEB Factoring, TEB Insurance, TEB Portfolio as well as a Dutch bank named The Economy Bank NV. TEB Financial Investments has 150 branches in Turkey, and provides services mainly to small and medium size businesses and retail banking.
In April 2005, Fortis Bank bought 89.3% of the seventh largest bank in Turkey, the Dışbank (Exterior Bank). The merger also includes its subsidiaries such as Dış Investment, Dış Leasing, Dis Portfolio, Dış Factoring, Dışbank Malta, and Doğan Pension Funds. Dışbank was first founded in 1964 as American-Turkish Foreign Exchange Bank. The İş Bankası sold Dışbank in 1994 to Lapis Holding, a jewelry, carpet, and souvenir company. Because of tax evasion and embezzlement charges, Turkish Savings Deposit Insurance Fund seized the bank and sold it to Doğan Holding. Fortis, on the other hand, is a leading bank in Benelux nations. As one of the largest banks in Europe, it had 52,000 employees by the time of the merger with Dışbank. Its active size is 571 billion euros and its market value is 28.6 billion euros. It was founded as a merger between the Dutch AMEV/VSB and the Belgian AG Group . Both were already leading insurance and retail companies. Fortis expanded by buying other banks:
1993: more than 50% of shares of ASLK-CGER (Belgium),
1997: MeesPierson merchant and investment bank (Netherlands),
1998: Generale Bank (Belgium),
2000: ASLK-CGER, VSB Bank, Generale Bank, MeesPierson were integrated into Fortis, and increased its shares in Banque Generale du Luxemburg to 97.73%,
2001: merged with AMEV ASR (Netherlands)
2002: bought Intertrust Group (Switzerland), made partnerships with La Caxia (Spain)
Maybank (largest financial services company in Malaysia, China Insurance Group,
Haitong Securities (Shanghai),
2004: made partnerships with Muang Thai (Thailand) and Banco Comercial Portugues (BCP).
Fortis Bank’s stock market value in 1990 was 2.5 billion euros and had 20,000 employees. It went up to 31 billion euros in market value and increased its number of employees to 56,000.
In May 2005, the Çukurova Holding, the Koç Financial Services, and the Koçbank Nederland NV signed an agreement to sell 57.4% of shares of Yapı Kredi Bank to the Koç-UniCredito partnership. The Banking Regulation and Supervision Agency approved the trading. Yapı Kredi shares totaled 2.6 billion euros, and Koç-UniCredito paid 1.8 billion euros. Several subsidiaries such as Yapı Kredi Deutschland, Yapı Kredi Moscow, Yapı Kredi Netherland, Banque de Commerce et de Placements, Digital Platform Communications Services, Fintur Technologies, and the Turkcell Holding were also bought. 50% of the 57.4% of the shares belongs to the Italian UniCredito. The trading of shares made Yapı Kredi the fourth largest bank in Turkey after Ziraat, İş Bankası, and Akbank.
In August 2005, 25.5% of Garanti Bank’s shares were sold to General Electric Consumer Finance for $1.556 billion. Total shares of Garanti were $6.1 billion at the time of trading. The Doğuş Group and the GE Consumer Finance declared to operate in an equal partnership status. 5 members of Doğus and 4 members of GECF in the board would decide the chair. General Electric has been active in Turkey since 1948. GECF’s expansion in the nation’s domestic market fits into its strategy to expand into Eastern Europe since Garanti operates in Netherlands, Russia and Romania, and it works closely with Turkish construction companies that obtained contracts in Albania, Northern Iraq, and Syria. At the time of the merger, the active size of GE has reached $675 billion and its market value reached $350 billion.
In August 2005, a possible merger took place between Şekerbank (Sugarbank) and Rabobank International Holding whose 100% of shares are owned by Rabobank Nederland. The Banking Regulation and Supervision Agency approved the merger, and 51% of Sekerbank shares were sold to Rabobank. Sekerbank was first founded in 1953 to finance sugar producers. With over 3,000 employees, it currently operates in retail banking, provides mortgage credits, and finances small and medium size business enterprises. However, the bank’s main partner, the Munzam Sosyal Güvenlik Vakfı (the Supplemental Social Security Charitable Foundation) has not agreed the deal with Rabobank.
In the following year, the largest Greek bank, the National Bank of Greece (NBG) acquisitioned Turkey’s eighth largest bank, Finansbank. NBG bought 46% Finansbank shares for 2.3 billion euros. NGB agreed on the value of the bank as 5 billion euros. This merger has been the largest commercial agreement ever between Turkey and Greece. Finansbank is a subsidiary of the Fiba Holding, founded by Hüseyin Özyeğin. “The Fiba Group’s investments in the financial services industry are in banking, leasing, factoring, insurance, NPL management, and private equity fund. Its non-financial investments are in aviation, retailing, real estate, energy, ship building and port management.”
National Bank of Greece is the oldest bank in Greece. It used to print money prior to the establishment of the Central Bank of Greece. Its shares are traded in the New York Stock Exchange since 1999. Similar to many other corporations, NBG operates in construction and tourism sectors, other than banking and finance. Its market value was $16 billion during the time of the merger.
The Current State of Islamic Banking
2005 has also been important for Islamic banking, as well. Since the early 1980s, they were known as “special finance agencies.” The Banking Act of 2005 introduces the term “participation banking” (katılım bankacılığı) allowing Islamic banks to have an equal status with other modern banks. But, the Act also categorizes them separately.
According to Section 9, Articles 79, 80, and 81 of the Act, the participation banks can only operate within the field of Islamic banking and it is not legal for them to offer interest to their depositors, which is prohibited in Islam. Therefore, the “non-Islamic” modern banks are obliged to operate within the field of modern banking only, and it is unlawful for them not to offer interest to their depositors. Both modern and participation banks can operate and provide services to same customers. However, merger between the two is not permitted by law.
Albaraka Turk, Bank Asya, Kuveyt Turk Participation Bank, and Turkiye Finans Participation are the only participation banks currently operating in Turkey. Islamic banks do not guarantee profit to their depositors. They transfer funds to an investment, which has a risk of loss. If the investment brings a profit, then the bank takes 20% of the profits and transfer 80% of the “profit share” to its depositors. If the investment brings a negative, however, the loss is distributed based on the capital shares. Any request for change in the profit margin of a participation bank is subjected to the permission of the Central Bank.
Since the birth of the modern republic, banks have gone through several ups and downs, a mirror image of Turkey’s economy, politics, and society. During the early decades, each sector had its own state-owned bank to finance its development. As the state created its national bourgeoisie and turned it into industrial conglomerates, private banking began to be dominated by the richest families and their corporations. Captive banking helped these families to finance their businesses, but it also contributed to Turkey’s development process. The problems arose when effective government oversight became absolutely necessary to regulate the micromanagement of several other private banks established or purchased by wealthy businessmen who made their fortunes in the 1980s.
Turkish state and its people had a long experience with financial crises. Turkey has not been seriously affected by the current global crisis. The reason is that Turkey had its own crisis back in 2001 and has been taking necessary measures ever since. Because the European markets got hit from the current crisis, it affected Turkish exports negatively. Though, there are investment opportunities in other markets, such as East Asia and more recently, Africa. In addition, mergers between Turkish banks with some of the largest global banks strengthened the nation’s financial sector. The financial sector declared a $13.5 billion profit in 2008.
Today, banks do 90% of all financial operations in Turkey. Although half the nation does not receive banking services, there is a significant potential in sale of cards that would allow prepayments and mobile payments. Turkey appears to be on the forefront especially for the spread of NFC (near field communication) technologies. Currently, there are 60,000 work places that has POS systems and many banks are encouraging payments through NFCs. Nearly 2.5 million people prefer mobile payments. Therefore, there is a potential for further penetration of mobile payment appliances into a country with a lot of young people. Banks embrace the idea to reach the masses that do not have access to these technologies. Moreover, political stability and improvements in the financial sector compliment one another. Medium and small size companies that are affiliated with major banks are expanding to Turkey’s Kurdish east, the least developed region in the nation and even to Northern Iraq where Ziraat, İş Bankası, and Vakıfbank opened branches in 2011.
These examples show the significance of banks in Turkey’s financial system and its development. Providing better services -both in transparency and in quality- fastens capital accumulation, reduces risk, introduces latest technology to masses that lack access, and consequently, protects the economy from crisis.
Us & Canada
THE MURDER OF GEORGE FLOYD
He was on the floor hand cuffed. While one officer was keeping the screaming onlookers at bay, three officers were on top of him. One of the officers put his knee on the victim and kept it for 8 minutes and 46 seconds. The victim, George Floyd, died slowly; he was killed slowly.
The tragedy that happened in Minneapolis on memorial day was not a typical case of police brutality. Officer Derek Chauvin got into the deepest end of people’s nerves by evoking few centuries-old horrors of slavery and lynchings. He brought those memories back into life.
Police brutality is a serious problem in the world because all police forces all around the world share one thing in common: they all tend to use their power excessively. The excessive use of force by the police does not always occur. However, police forces in every country do incline towards using excessive force. Citizens may get light injury, serious injury – temporary or permanent alike, or death. The types of excessive use of force committed by police include forceful arrests, beatings, or shootings. Forceful arrests usually cause temporary or permanent injuries to the arrested. In the case of Eric Garner, however, it caused death. Eric Garner’s last words “I can’t breath” became a slogan.