Turkish Parliament gives government more control over judiciary, while such acts impact badly on economy

Turkey’s Parliament approved a law giving the government more control over the appointment of judges and prosecutors on Saturday, after heated debate and a brawl in which an opposition member of Parliament was hospitalized.

The decision to approve the law came after a night of heated debate and a brawl that left one opposition members of Parliament with a bloody nose. Media reported that Ali ihsan Kökturk, a deputy for the main opposition Republican People’s Party (CHP), was hospitalized with a broken nose.

On Friday, the ruling Justice and Development Party (AK Party) government reintroduced to Parliament its plans to restructure the Supreme Board of Judges and Prosecutors (HSYK), the country’s key judicial body that is responsible for the appointments and promotions of judges and prosecutors. A bill drafted by the ruling party to this end was opened to a vote in Parliament in January. However, after 21 if its articles were approved by Parliament, the bill was suspended on Jan. 24. The AK Party said it had a mandate to bring the bill back onto Parliament’s agenda whenever it deemed it necessary.

The HSYK bill has been vehemently criticized by opposition parties, who claim that the bill, which gives the executive a much tighter grip on the judiciary, would do away with judicial independence. If enacted, the bill also allows the justice minister to initiate disciplinary procedures for HSYK members and envisages the firing of all administrative staff, including the secretary-general and his deputies.

The change represents a major step back from a government-backed constitutional referendum in 2010 which brought a more democratic and pluralistic structure to the HSYK, in which most members are elected by their own community of some 12,000 judges and prosecutors.

The main opposition Republican People’s Party (CHP) announced on Friday that it will appeal the HSYK bill at the Constitutional Court if it is approved in Parliament. The party said it will not wait for the legislation to make its way into the Official Gazette for its appeal.

And, there are now growing concerns over how much damage Erdoğan’s policies caused in Turkish economy.

Here is a report by Today’s Zaman:

The single-party rule of the Justice and Development Party (AK Party) since 2002 has played a vital role in Turkey’s economic achievements in the past decade, particularly healing the wounds of the 2001 economic crisis while building up confidence in the markets and the currency.
But corruption allegations, the alteration of the government’s discourse from an inclusive to a discriminatory one and Prime Minister Recep Tayyip Erdoğan’s growing authoritarian tendencies have now become destabilizing factors.

Turkey is already passing through troubled waters amid escalating domestic political tensions and the reduced global liquidity arising from the US Federal Reserve’s gradual winding down of its stimulus measures.

These, of course, should not receive all the blame for the deterioration in the economic outlook and the loss of confidence. The Turkish economy still has a dynamic private sector, a well-regulated healthy banking sector and highly skilled labor while it enjoys a strong position as a regional hub.

But the weaknesses are also manifold. Along with the government’s authoritarian ruling, insufficient domestic savings and hence excessive dependence on foreign capital to propel growth are endemic problems for the Turkish economy. The private sector debts, especially to the foreign lenders raising their exposure to currency risk, should also be deemed a source of trouble for the economy. The sluggish process of negotiations with the EU and the settlement process with the Kurds in southeastern Anatolia are two political risk factors that investors usually pay attention to while assessing Turkey. Under these conditions, what Turkey needs the least is the adoption of eliminative rhetoric by the government.

In an article titled “Turkey’s Economy and Erdoğan’s Shame,” a day after the central bank’s decision to radically raise the interest rates, Bloomberg editors evaluated the bank’s move as finally breaking Erdoğan’s spell over monetary policy. Indeed, Erdoğan has been a staunch supporter of the low interest rates, and his sharp comments in favor of this opinion have been deemed as an indirect pressure over the bank, stymieing its autonomous structure. The government cannot directly impose any policy decision on the central bank, whose only mission is to use monetary policy tools to keep inflation tamed, but it has the right to remove the bank’s head and assign someone else instead. After the bank’s sweeping rate hike, Erdoğan explicitly let his discontent be known and told the press that if the bank’s step proves wrong, it will bear consequences for this, adding that his government will surely implement plans B and C, without elaborating on what these plans are. Investors immediately thought of capital controls to defend the lira, but the economy-related ministers in Cabinet quickly ruled out this option.

To Bloomberg, the rapid depreciation of the lira in the past months — over 20 percent since the corruption probe started — should be seen as the perception of rising political risk, “largely caused by Erdoğan’s destabilizing responses to last summer’s popular protests and to the more recent corruption allegations against his government, as well as his distortions of monetary policy.”

“To shore up growth, Erdoğan will have to restore faith in his stewardship of the Turkish economy. That means ending the persecution of businesses associated with Erdoğan’s political opponents; calling-off a purge of the judiciary and police forces that is undermining the rule of law; halting political interference in the conduct of monetary policy; and reviving membership talks with the European Union, for the sake of the economic and institutional reforms that go with them,” wrote the editors.

Lira wounded

In the time since the Fed announced easing of its bond-buying spree in last year’s May, Turkey’s currency has been the hardest hit, along with the South African rand by the capital outflows. The central bank adamantly refused to hike the benchmark interest rates, despite the fact that the rates were already a lot higher in the markets. It was only late in January that the bank finally stepped up to adjust the rates upwards dramatically, raising them as high as 110 percent.

Turkey’s economy has proven to be resilient to external shocks so far, as it was relatively more successful in thwarting the serious adversities of the global economic crisis that has been rocking the global economy since 2008. There is almost unanimity among the economists that the existence of excess liquidity was the major reason for this pliability. However, that it is now highly vulnerable to external shocks is no secret.

As the Moody’s Investors Service’s report “QE Tapering: Impact Differs Amongst Emerging Markets” put it recently, the Fed’s tapering of its quantitative easing policy is making an impact on economies in varying degrees, but the countries with the highest external imbalances will likely be the ones to sustain the hardest blows. Turkey’s buffers are not many to cope with the hurdles of this new situation: Its foreign currency reserves are limited and maybe worse and it has a persistent current account deficit over 7 percent of the gross domestic product (GDP). The most recent data, released on Thursday by Turkey’s Central Bank show the CAD to have risen 33.7 percent year on year, or $16.5 billion, to $65.4 billion in 2013. Only 2011’s CAD of $75 billion topped 2013’s figure.

Rating agency assessments

The recent comments by credit rating agencies point to the political risks. Standard & Poor’s lowered Turkey’s appearance to negative from stable on its unsolicited “BB+” long-term foreign currency and “BBB” long-term local currency ratings, citing risks of a hard economic landing and that the country’s policy environment was becoming less predictable as the reasons for its decision. “Turkey appears to have suffered an unanticipated erosion of institutional checks and balances and governance standards,” Standard & Poor’s said in a statement.

However, Moody’s, which raised Turkey’s sovereign credit rating to investment grade last May, said in a note after the eruption of the graft scandal that the political tensions were already inserted in its latest risk assessments about the country, signaling that there won’t be any change in the credit appearance of Turkey in the short run. “We consider that domestic political risk represents a material risk in Turkey … which is embedded in the current rating of Baa3/stable outlook,” it said in a note a couple of weeks ago. Yet it said it wasn’t likely to consider cranking it up a notch, too, blaming the balance of payment factor and the external uncertainties. “A decrease in political risk in Turkey would not be enough to push the country’s credit rating upward if no other improvements are attained,” it added.

Fitch also released an assessment statement about Turkey, highlighting the political tension as a risk over the economic outlook of the country. Fitch has “BBB-“ sovereign rating for Turkey, meaning the country is investible. Its statement said it doesn’t expect immediate impact of the crisis over the economy but “if the corruption scandal drags on, it could weaken the government and undermine its ability to take timely policy measures that would maintain economic stability.” Like S&P, however, Fitch also noted tensions between the government and judiciary had strained institutions.

‘Erdoğan becoming a systemic risk’

The Wall Street Journal also drew attention to the government’s problematic handling of the political crisis in a recent article titled “Turkey’s Tribulations.” The end of the Fed-sponsored carry trade was definitely a factor that pushed Turkey into trouble, it said, adding, however, that most of Turkey’s problems are homegrown. The graft scandal shook confidence in the Turkish economy, but it was hit harder by the prime minister’s reaction to the scandal, the daily asserted. “In addition to blaming unnamed foreign plotters for the allegations, Mr. Erdoğan has aggressively pushed out judges and police who were pressing the investigations,” it said.

“To close observers of Turkey, all of this was part of a longstanding pattern with Mr. Erdoğan. Nonetheless, markets reacted as if they had suddenly discovered that Turkey was more tinpot dictatorship than modern market economy. The Prime Minister’s scorched-earth response to the investigators has left investors worried that they’d be no safer than the judges if they ran afoul of the AKP [the Justice and Development Party],” the article asserted.

The Wall Street Journal’s article admitted Erdoğan’s commitment to the economy during the past decade, noting, though, that his “political thuggishness and fondness for conspiracy theory” seems now to be throwing all these achievements into risk. “Turkey’s economy can survive the bursting of a bubble. But a Prime Minister who trashes the rule of law and treats his political rivals as enemies of the state is, to borrow a financial term, a systemic risk.”



About yavuzbaydar

Yavuz Baydar has been an award-winning Turkish journalist, whose professional activity spans nearly four decades. In December 2013, Baydar co-founded the independent media platform, P24, Punto24, to monitor the media sector of Turkey, as well as organizing surveys, and training workshops. Baydar wrote opinion columns, in Turkish, liberal daily Ozgur Dusunce and news site Haberdar, and in English, daily Today's Zaman, on domestic and foreign policy issues related to Turkey, and media matters, until all had to cease publications due to growing political oppression. Currently, he writes regular chronicles for Die Süddeutsche Zeitung, and opinion columns for the Arab Weekly, as well as analysis for Index on Censorship. Baydar blogs with the Huffington Post, sharing his his analysis and views on Turkish politics, the Middle East, Balkans, Europe, U.S-Turkish relations, human rights, free speech, press freedom, history, etc. His opinion articles appeared at the New York Times, the Guardian, El Pais, Svenska Dagbladet, and Al Jazeera English online. Turkey’s first news ombudsman, beginning at Milliyet daily in 1999, Baydar worked in the same role as reader representative until 2014. His work included reader complaints with content, and commentary on media ethics. Working in a tough professional climate had its costs: he was twice forced to leave his job, after his self-critical columns on journalistic flaws and fabricated news stories. Baydar worked as producer and news presenter in Swedish Radio &TV Corp. (SR) Stockholm, Sweden between 1979-1991; as correspondent for Scandinavia and Baltics for Turkish daily Cumhuriyet between 1980-1992, and the BBC World Service, in early 1990's. Returning to Turkey in 1994, he worked as reporter and ediytor for various outlets in print, as well as hosting debate porogrammes in public and private TV channels. Baydar studied informatics, cybernetics and, later, had his journalism ediucatiob in the University of Stockholm. Baydar served as president of the U.S. based International Organizaton of News Ombudsmen (ONO) in 2003. He was a Knight-Wallace Fellow at University of Michigan in 2004. Baydar was given the Special Award of the European Press Prize (EPP), for 'excellence in journalism', along with the Guardian and Der Spiegel in 2014. He won the Umbria Journalism Award in March 2014 and Caravella/Mare Nostrum Prize in 2015; both in Italy. Baydar completed an extensive research on self-censorship, corruption in media, and growing threats over journalism in Turkey as a Shorenstein Fellow at the Kennedy School of Government at Harvard.
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