Restoring Confidence

While a string of healthy-looking economic results has left a sense of relief in Ankara in recent days, the launch of a new World Bank report on the country's progress has highlighted the need for continued restraint. If Turkey is to achieve its stability and growth targets, the Bank says, it must do more to restore investor confidence. It's a point the government too seems anxious to make, with the troubled privatisation programme likely to be an important proving ground.



With the latest, third quarter 2003 figures from the State Institute of Statistics (DIE) showing industrial production up by 9.4% y-o-y, and most analysts agreeing that Turkey will more-or-less meet its end of year growth and inflation targets, there is something for the government to feel cheery about these days.



Meanwhile, it seems likely too that the International Monetary Fund will approve the next USD500m loan tranche for Turkey before its Christmas break, with Economy Minister Ali Babacan telling reporters December 12 that, "We expect the [IMF] board to meet most probably before Christmas, on December 18 or 19, according to the schedule."



Babacan was also confident that the board would approve the loan, given that parliament recently passed a new banking law - one of the key hold ups in delaying previous approval - which had originally been scheduled for October.



The new law strengthens the Banking Regulation and Supervision Agency (BDDK), Turkey's main banking watchdog, while also removing the Savings Deposit Insurance Fund (TSMF) from the BDDK's control. From now on, the government will appoint the management of the TSMF, which is the facility used to provide a 100% guarantee on bank deposits. This was originally designed to encourage Turks to put their money into the banking system. However, since a string of banking collapses in 2000-1, there has been growing pressure for a reform of the fund, including suggestions that the 100% guarantee be ended.



The TSMF will also now have the authorisation to track down the receivables of failed banks, along with the power to inspect the assets of the failed bank owners and their families. This, it is hoped, will strengthen the legal armoury available for dealing with bank collapses, and with those held responsible for them.



The recently passed new petroleum market law, the progress of which had been holding up the privatisation of state refineries, Tupras, is also of note.



The new law brings together the refining, processing and transmission of petroleum products along with their distribution. This means that refinery license owners will also be able to process, store and transport oil to nearby plants via pipelines, and then distribute the by-products after setting up a separate company. It also enables Tupras to set up a distribution company, or become a partner to other distribution companies, opening up the refineries to the opportunity for competition.



Finance Minister Kemal Unakitan said December 10 that he hoped the Tupras tender would be concluded this month, but the Privatisation Administration (OIB) saw the process as taking a little longer. Announcing the two bidders for the refineries as Efremov Kautschuk GMBH and Turkish Anadolu Ortak Girisim Grubu, a statement from the OIB December 12 said that negotiations with the two would be concluded on January 13.



While this represents some commendable progress, elsewhere in the privatisation programme results have been a lot more troublesome - although even with Tupras, the sell off is several years late.



Last month saw the privatisation of state alcohol and tobacco company TEKEL hit the rocks, with a winning bid for the tobacco arm considered far too low, causing the cancellation of the sale, while that for the alcohol section was frozen, thanks to a legal challenge.



Earlier, the attempted sell off of petrochemicals firm Petkim also came unstuck as the winning bidder was a company owned by the Uzan family, most of whom are now largely on the run from the Turkish police over accusations of massive fraud.



Putting the privatisation programme back on track is therefore a must if the government is to maintain investor confidence - as the World Bank report pointed out.



Aware of this, the government hastened to officially announce on December 12 that the privatisation of a 51% stake in Turk Telekom (TT) would be concluded by May 31, 2004. TT has been something of a cause celebre in Turkey's sell-off campaign, being advanced for privatisation, only to be withdrawn, on several occasions. Each time, too, the price expected has fallen as the global telecoms market has deflated.



TT has also enjoyed a monopoly on fixed lines in the past, though this is set to change on January 1, 2004, when the market opens up to competition. Prime Minister Recip Tayyip Erdogan told reporters he was confident that TT would cope with this, however, saying that "Turk Telekom increased its profitability by 27% and its revenues by 25% in the first 10 months of this year. It's among the institutions that paid the highest corporate tax."



A success with the TT sell off would be a bonus for the government, which had targeted USD4bn of cumulative revenues from its 2003 sell-off plan. It is unlikely to get even a fraction of this, given the failures with TEKEL and Petkim, along with the delays over Tupras.



However, analysts point to some other, unexpected jewels in the privatisation crown - one of which is the state lottery. "The feeling on the market is that this could raise a considerable sum," an analyst with Garanti Securities told OBG.



There are many investors hoping it will - and that the government can regain the confidence of the market via a sell-off programme that is being pursued seriously. Suspicion that the government will not want to push privatisations that may create hardship for voters in key areas also needs to be addressed. As Babacan said December 15 to the World Bank, "Neither Turkey nor the government has the luxury of populism."