7/24/2017 Ankaras largesse boosts Turkish growth despite political turmoil

Turkey
Ankaras largesse boosts Turkish growth despite political turmoil
Easy credit policy of Erdogans government boosts sales but will the relief last?

Turkeys buoyant economy has surprised analysts and boosted President Recep Tayyip Erdogan ahead of elections in 2019 Reuters

5 HOURS AGO by: Mehul Srivastava in Istanbul

For a sense of how Turkish government largesse has helped the countrys economy shine this year,
ask Hakan Bulgurlu, the chief executive of Arcelik, Turkeys biggest white goods manufacturer.

Last year was intensely challenging for the country: a faction of the army mounted a failed coup,
terrorists carried out a string of attacks, and the economy and the currency came under profound
strain.

But, Mr Bulgurlu said, customers kicked off 2017 by streaming into Arceliks 3,000 franchises
and loading up on fridges, washing machines and other household goods.

It added, up, the executive said, to a 39 per cent year-on-year sales growth in the first quarter of
this year, a surge he thinks has been boosted by temporary government pro-growth policies. Show
me another economy where numbers are this strong, he said of his companys sales figures.

A big government stimulus has helped gross domestic product recover from a 1.8 per cent
contraction in the third quarter of last year to 5 per cent growth in the first three months of 2017.

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7/24/2017 Ankaras largesse boosts Turkish growth despite political turmoil

The question is whether the Turkish governments easy credit policy that boosted sales has
provided anything more than temporary relief for Arcelik and the wider economy.

One part of the package was made up by tax holidays, including the temporary removal of a 6.7 per
cent consumption tax, a move that helped companies such as Arcelik, which is a subsidiary of Koc
group, Turkeys biggest conglomerate.

Another important component was a newly recapitalised credit guarantee fund, which allowed the
government to underwrite nearly $50bn in new credit to businesses and executives, while taking on
some of the risk of defaults from reluctant banks.

A big part of this 5 per cent growth is coming from that stimulus, Mr Bulgurlu said, although he
warned that consumption would slow as some taxes are reinstated.

He suggested that the buoyant economy, which has surprised analysts and pleased President Recep
Tayyip Erdogan ahead of 2019 elections, has drowned out investors concern about Turkeys
fraught politics.

Of the 22 fund managers he has recently met, none asked him about the state of emergency
imposed by Mr Erdogan in the wake of last years coup, which the president has no intention of
lifting. All of them asked him about growth potential

The end of the stimulus is now approaching: the tax holidays are due to lapse in September, and
the credit guarantee fund is down to $19bn.

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7/24/2017 Ankaras largesse boosts Turkish growth despite political turmoil

Arcelik has experienced a sales growth of 39% year-on-year in the rst quarter, says chief executive Hakan Bulgurlu Reuters
But Naci Agbal, Turkeys finance minister, says the package has succeeded in its purpose,
supporting growth at a time when local banks lacked the assets to provide more help.

If we hadnt done this kind of support, the Turkish economy would have become worse and
worse, Mr Agbal said in an interview. The tool is right: the programme is the effective and
efficient way of giving economic support.

Not everybody is convinced. The months of government support may have invigorated growth but
they have only deepened Turkeys dependence on cheap credit. In addition to the credit guarantee
fund, Turkey has pooled some $200bn of the governments stakes in blue-chip companies into a
sovereign wealth fund, so it can borrow more against them to support infrastructure projects.

At the same time, Mr Erdogan and his allies have railed against private banks for not lending more,
and warned them against competing for deposits.

The largest concern is about credit quality. By pledging to take on 7 per cent of possible defaults in
the new loans made under the fund, the government has in effect lowered lending standards. Banks
are taking on riskier loans and are not always fully clear what borrowers are doing with the money.

Mr Agbal said some 60 per cent of the loans were probably used for new investments, citing the
funds data, and that he was largely comfortable with the quality of the loans.

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7/24/2017 Ankaras largesse boosts Turkish growth despite political turmoil

Qualitys important, but quantity is also important, he said, adding that the government was
discussing whether it should prescribe that any new loans made ought to be specifically pegged to
new investments.

Up to now that has not always been the case.

If they hadnt done this, hundreds of companies would have gone bust, but we should be quite a
bit worried, says Atilla Yesilada, at GlobalSource Partners, a consultancy. Theres really no
accounting for where these loans are going to.

At a fish restaurant in Ankara, Serkan, who owns a high-end kitchen design shop and employs 160
people, said he took out a TL800,000 loan backed by the fund, to pay off more expensive loans.

His friend, the restaurant owner, bought dollars to hedge against the falling lira. Others in their
circle of young businessmen have used their loans to invest in the stock market, now at an all-time
high.

I know its not good, said Serkan, with a laugh. But at least today we are eating!

Mr Agbal suggested he was untroubled by such issues.

He said: I had to do all these actions to accelerate economic activity. I see we are successful in this
area, and Turkeys economic indicators are looking very good . . . What is more important than any
other thing is that everybodys happy now because theyve got finance in such a difficult time.

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7/24/2017 Ankaras largesse boosts Turkish growth despite political turmoil

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