In September 1981, on the first anniversary of the military coup, the Economist summarized the succession of events that set Turkey’s critically ailing economy of-the late 1970s on its new course.
The first step was an economic package announced on January 24, 1980. Designed by the government of Süleyman Demirel, it was the brainchild of his finance minister Turgut Özal. The second step was the freeing of interest rates on July 1, 1980. And the third was a series of measures introduced after the military takeover on September 12, 1980. [1]
The consequences just a year later seemed barely short of miraculous. Inflation was down from over 100 percent to under 40 percent; exports had shot up by a dramatic 62 percent despite a deepening world recession; foreign investors were returning to the country. Euromoney called it “a program to make capitalism work.” [2]
Turkish corporate executives responded with a media campaign in the Western press that reflected the masterly touch of prestigious US consulting firms.
1980 may well be remembered by historians of modern Turkey as the year the nation came of age. It was the year the Republic began to settle the great internal conflicts of its 57-year history, reexamined its political and economic structures and moved energetically to restore stability and [to] revitalize the economy.
So began a special advertising section in Time magazine, contracted to Arthur D. Little, Inc., and underwritten by a group of Turkish construction companies.
Today, in the fourth year of military rule, predictions of how the historians will view the 1980 coup are more restrained. The contradictions and tensions which the generals intended to demolish are still present. This is especially true at the level of the economy, where longstanding problems have proved quite resistant to the free-market formulas of the generals.
Cycles and Crises
The post-war Turkish economy went through three major cycles. Foreign exchange crises of 1958, 1970 and 1977 marked tail ends of periods of approximately seven years of unabated accumulation. In each case, transition to the next growth cycle involved a political crisis culminating in the military interventions of May 27, 1960, March 12, 1971, and September 12, 1980.
Some fundamental distinctions set the experience of the 1950s apart from the events that followed. [3] In the 1950s, agriculture fueled accumulation, in accordance with the role prescribed for Turkey in the Marshall Plan. Landed capitalists amassed huge fortunes, particularly during the boom years accompanying the Korean War. A second group of urban capitalists — who had set out as distributors and retail outlets for imported goods — were able to reestablish links with foreign capital which had been severed during the depression and war years. These two segments of capital later engaged in fierce struggles over the orientation of economic policies, exacerbating the political deadlocks which precipitated the military interventions.
The second half of the 1950s set the stage for the first of these rounds of intra-capitalist struggle. Following the collapse of the world market for Turkey’s agricultural commodities and raw materials, resources (in the form of import licenses and credit) were diverted away from agriculture and toward industry, alienating the landed capitalists. In this period, foreign aid alone clearly could not sustain the economy, and attempts to attract foreign capital failed to generate an inflow of the desired magnitude. The government resorted to deficit financing, setting off inflation and shortages and culminating in a severe balance of payments problem that brought accumulation to a halt in 1958. The International Monetary Fund (IMF) moved in that summer to oversee debt rescheduling operations and “stabilization” measures involving a de facto devaluation, [4] curbs on government spending, and decontrol of foreign trade and capital flows. The first military intervention took place during this recession, which marked the transition to the next cycle.
The 1950s were extremely important for other reasons as well. Through a series of political ties, including membership in NATO, Turkey became firmly entrenched in the global capitalist economy. [5] The Democrat Party’s (DP) successful campaign against the inheritors of the Kemalist legacy, the Republican People’s Party (RPP), marked the national bourgeoisie’s rise to political power and was part of this process. This also was a time which signaled the acceleration of the urbanization process. The aid programs of the Marshall Plan induced mechanization and commercialization in agriculture, uprooted the peasantry and triggered the rural exodus. In this way it provided the impetus for the early stages of industrialization, by allowing the transfer of surplus investable from agriculture. This process set in motion forces that would increasingly define the lines of class demarcation between the major social and political contestants.
In the political arena, by the spring of 1960, the ruling Democrat Party could no longer rely on the internal and external consensus that had brought it to power. The government tried to compensate for this erosion of its political base with increasing doses of arbitrary repression. This cycle of opposition and repression threatened to explode, and precipitated the military intervention of May 27, 1960. The reform-minded officers shared the reigning populist ideology that had infused both the Republican People’s Party and the Democrat Party. They sponsored a new constitution (1961) that established an elaborate system of checks and balances. This new framework allowed the legalization of strikes in 1963, as a result of the legislative efforts of a young labor affairs minister, Bülent Ecevit. The prevailing populism was also reflected in the five-year development plan that became effective in 1963. Industry received increasing attention under the direction of the state, and a new phase of accumulation gathered full force by fall 1965. Following the elections of that year, the alliance of the bourgeoisie was back in power under the leadership of Süleyman Demirel and the conservative Justice Party (JP), which inherited the rural base of the now outlawed Democrat Party.
Transition of Turkish Capital
From the early 1960s until 1977, Turkey implemented a policy of import substitution industrialization with cheap credits, protectionism, and state intervention in infrastructure development. Industrial output increased at an average rate of 10 percent per year. Reflecting the improvement in middle class living standards, construction registered approximately seven percent annual growth. Structurally, this phase signaled a smooth transition from the non-durable consumer goods stage to the durable goods stage: Some capital deepening took place, [6] accompanied by a gradual strengthening of the industrial bourgeoisie vis-à-vis the other segments of capital — landowners, merchants and small producers.
During this time, industrial employment grew at an average annual rate of 4 percent, but this was insufficient to keep pace with urbanization. Some 1.8 million workers had secured jobs in industry as of 1977. More than one million others emigrated to Western Europe. But that left some one million rural migrants swelling the ranks of the marginal sector. An increasingly volatile political climate began to shape up in the cities, featuring unionized militant workers on the one hand and the marginally employed and the unemployed on the other. Between 1960 and 1970, while exports grew at an annual rate of 5.9 percent, imports increased at an annual rate of 6.7 percent. This imbalance required increasing amounts of external financing. Agricultural commodities and raw materials still accounted for some 70 percent of export earnings, which meant that the Turkish economy in 1970 was not on much sounder footing in the world market than it had been a decade earlier. Inflation crept towards the double digits that would characterize the 1970s. The economy demonstrated a steadily growing need for primary and intermediate goods to sustain the course of import-substitution industrialization, and the import bill continued to rise. The foreign trade deficit reached an all-time high in 1970, its significance partially disguised by a healthy dose of workers’ remittances coming from Western Europe. Turkey’s external debt surpassed the $2 billion mark and the government came under increasing pressure from the international financial institutions during the summer of 1970. The IMF moved in for the second time. The 1970 “stabilization” package included a 65 percent devaluation and further liberalization measures, along the lines of the 1958 recipe.
This period also marked a turning point of sorts in the history of class struggle in Turkey. Politically, growing labor awareness and militancy, along with the struggle for hegemony within the ranks of the bourgeoisie precipitated the crisis that led to the “coup by memorandum” of March 12, 1971. (In 1970, commercial and agrarian capital made one last stand against industrial capital from within the ranks of Demirel’s Justice Party. The ensuing split created a shaky parliamentary balance which would be reproduced in the form of divided right-wing representation throughout the 1970s.) During the two years that followed, the benefits of military-bureaucratic authoritarianism, in the form of suspended union activity and general repression, were demonstrated to the industrial bourgeoisie. [7] These political preconditions, combined with export incentives and favorable conditions in the world market, allowed Turkey to increase its sales abroad by 124 percent between 1970 and 1973, compared with a 117 percent increase from 1958-1969. Less favorable was the average annual inflation rate of 18 percent over the 1970-1973 period, but workers’ remittances, non-existent in 1958, shot up from about $250,000 in 1970 to $1.2 million in 1973, allowing for accumulation of foreign exchange reserves of $2 billion by the end of 1973.
Two developments brought this golden age to a close. Internally, democratic forces were able to regain parliamentary control. This followed an impasse in presidential elections which exposed the rifts in the military-bureaucratic alliance. [8] As a result of the general elections of 1973, Bülent Ecevit took over as prime minister at the head of an unlikely coalition, with the religious National Salvation Party representing the interests of small, provincial capital. Externally, the four-fold rise in oil prices and the global “stagflation” that followed put the Turkish economy in an extremely precarious position. Coalition governments tried to isolate the domestic economy from the price shocks through an array of subsidies. The 1974 invasion of Cyprus placed an additional burden on the economy. Within two years, Turkey’s foreign reserves disappeared, and the economy piled up enormous balance of payments deficits aggravated by a nosedive in workers’ remittances, a speedy deterioration in terms of trade, and the US arms embargo.
Despite all indications that the deficits could not be sustained, Demirel’s right-wing coalition government — the Nationalist Front — deferred the crisis by resorting to massive short-term borrowing in the petrodollar market. [9] This economic indulgence was complemented in the political arena when, under the permissive eye of Demirel, a well-funded fascist movement began to prosper, challenging the organized forces of the left. [10] By 1977, Turkey’s external debt surpassed $10 billion. The annual rate of inflation was 26 percent and rising. The trade deficit stood at a whopping $4 billion, and the oil import bill alone amounted to 82 percent of total export receipts for that year. Turkey was entering its third and most severe post-war economic crisis, marking the end of the “easy” stage of import-substitution industrialization.
During 1978-1979, Ecevit’s center-left coalition government tried to contain the crisis through adjustments of exchange rates, elimination of subsidies to bring domestic prices in line with world prices, and reductions in the government deficit. The lira had already been devalued by some 28 percent against the dollar in five stages during Demirel’s tenure. Ecevit followed suit with a 35 percent devaluation in 1978 and a 78 percent devaluation in 1979, tied to two stand-by agreements with a reluctant IMF. The exchange rate adjustments brought a surge in workers’ remittances, but failed to initiate any substantial increase in exports. It took the forced limitation of (legal) imports to reduce significantly the balance of payments deficits. This led to rationing of imported primary and intermediate inputs, which created production bottlenecks and depressed the general level of economic activity. Prices skyrocketed, and the cost of living indices registered 54 and 82 percent increases in Istanbul, and 53 and 72 percent increases in Ankara, during 1978 and 1979 respectively. Shortages, long queues and black markets became the order of the day. Accelerating political violence, economic hardships for masses of people and reluctant support of international financiers all contributed to the fall of the Ecevit coalition government.
The Defeat of Populism
The turbulence of the 1975-1980 period finally and irreversibly shattered the harmonies idealized in the liberal 1961 constitution. Increasing politicization of the urban sectors of the society, the rising militancy of Kurdish nationalism, and diverging interests of different segments ol capital all drew the state deeper and deeper into political conflict. (After the 1973 elections, an old accomplice of Demirel, Necmettin Erbakan, had become a key power in the parliament at the head of National Salvation Party pursuing the interests of small, mainly provincial capital. Despite a setback in the 1977 elections, Erbakan continued to be a menace for monopoly capital. In the late 1970s, monopoly capital was also involved in infighting over the issue of pursuance of export-oriented versus internal market-oriented policies.) By the time Demirel returned to office at the head of a minority government supported by his former Nationalist Front partners in late 1979, the defeat of populism was complete. The stage was set for the major operation on the economy, to be performed in 1980.
On January 25, 1980, Demirel announced a comprehensive economic stabilization program, drafted “in consultation” with the IMF by his economic adviser, Turgut Özal. This third and heaviest dose of “IMF medicine” in two years included a 33 percent devaluation, devotion to restrained money growth, abolition of price controls and subsidies to state economic enterprises, and cessation of deficit spending — all to be monitored by the IMF.
In return, the IMF released in June 1980 funds equivalent to 625 percent of Turkey’s IMF quota, the highest multiple ever granted to a country up to that time. On July 1, interest rate ceilings were abolished as the “second step.” With the IMF’s “green light,” fresh money began to flow, alongside debt relief.
The stabilization program was designed to eliminate shortages and reduce inflation and the balance of payments deficit in the short run. This would encourage “private initiative” and foreign capital and promote a more “efficient” industrial and financial structure capable of generating and sustaining growth. The depletion of stocks that followed price and interest rate decontrol had the immediate effect of eliminating shortages, but gargantuan price increases soon squeezed out the buyers. The general erosion of purchasing power intensified the struggle of unions and employers’ organizations over wages and hampered the ability of the marginal sectors and small producers to cope under extremely harsh conditions. Behind the shield of the Demirel government, the fascist movement escalated its frontal assault against the left, the liberals and the intellectuals, provoking violence to the level of a small civil war. Adventurist left factions contributed their share to this chaos. In eastern Turkey, Kurdish organizations were reported to have set up “liberated zones.” Not only the “stabilization” program but an entire range of Western interests seemed to be at stake. [11] The “third step” was necessary: the generals’ coup of September 12, 1980.
The generals immediately revived Turgut Özal as their chief economic aide and began implementing the “stabilization” program. The first step was to secure labor discipline. Three days after the coup, the military ordered striking workers back to work, banned all forms of work stoppage or slowdowns, and announced wage guidelines. The second step in March 1981 was an income tax bill to give some relief to low income earners and simultaneously increase tax revenues from self-employed farmers, small entrepreneurs and professionals. Agricultural support price increases were confined to a fraction of the inflation rate, in an attempt to limit further retail price increases. At the same time, the regime gave the corporate sector preferential tax breaks — the most significant was the January 1982 corporate income tax rate reduction from 50 to 40 percent. Just a year later, international as well as domestic representatives of finance capital were crediting the generals with successes on the economic front. The star performers — the inflation rate, which had dropped from over 100 percent to 40 percent, and the 62 percent increase in export receipts — were hailed as signs of another “Brazilian miracle.” Increased domestic savings and foreign capital inflow were additional signs of improvement. Massive human rights violations, repression, a precipitous decline in working class living standards and rising levels of unemployment were dismissed as the “incidental costs of stabilization.”
The Generals’ Miracle
If we scrutinize the economic record of the generals, the superficial character of this positive assessment — even within its rather narrow premises — becomes clear. The regime brought down the inflation rate [12] by further depressing an already depressed economy, and by severely restricting nominal income growth. Government-controlled wages and salaries increased an average of 25 percent in 1981, and less in 1982 and after, but the loss in purchasing power continued, except for some possible minor improvement in the lowest income brackets resulting from the income tax reform. [13] With agricultural price support increases kept below the inflation rate, farmers similarly lost ground. If the 1978-79 period was characterized by shortage of goods, the 1980-1982 period was characterized by a shortage of buyers.
The dramatic rise in interest rates raised short-and medium-term credit costs to a level of 70 percent. Bank deposits doubled in 1981 and increased a further 60 percent in 1982. The liberalization of interest rates unleashed competition in the banking sector, under increasing challenge from the unofficial money market that had emerged in the inflationary environment of the 1970s. After the July 1980 decree, the banks tried to put a lid on interest rates through gentlemen’s agreements, but those finance and brokerage houses in the unofficial capital market lured away deposits by promising more lucrative returns. Bankers desperately tried to attract new funds by promising ever higher interest rates, just to be able to keep up with interest payments on previously drawn liabilities.
In October 1981, Finance Minister Kaya Erdem boldly disclosed that the unofficial market was bound to collapse. Before 1981 came to a close, the first wave of bankruptcies had already wiped out an important source of income for small savers trying to ride the rough times. To satisfy bank demands, the government attempted to impose some regulation on the industry. This precipitated a second wave of bankruptcies and set the stage for the collapse of the largest financial house in the country.
The export performance of the Turkish economy, at the first glance, looked impressive: a 62 percent surge in export earnings in 1981 included a doubling of exports of processed and manufactured products. A smaller 22 percent surge overall in 1982 was accompanied by a still forceful 50 percent increase in processed and manufactured products. Conditions in the domestic market left Turkish businessmen unwilling to finance inventories at the prevailing interest rates, yet unable to find buyers at home, so they scrambled to find outlets elsewhere. Continual devaluations of the lira and lucrative export incentives — in the form of selective allocation of cheap credit, tax rebates for export-oriented production and preferential access to foreign exchange — provided added impetus to the export drive.
One peculiarity of the Turkish export drive concerns its geographical distribution. Increased purchases by Iran, Iraq and Libya constituted 65 percent of the total increase in exports during 1981. The increase in exports to the two Gulf countries reflected the wartime needs of their economies; [14] Libya’s purchases stemmed from the massive construction efforts of the Qaddafi regime. Iran alone accounted for 53 percent of the increase in 1982, a year when 45 percent of Turkey’s exports went to the Middle East and North Africa. With most countries in the region suffering from the downturn in oil production and revenues, and with the uncertain outcome of the Gulf war, there is no certainty that these markets will prove durable. [15]
Finally, the apparent rapid growth in exports took place in comparison with the 1977-1980 period, years of severe foreign exchange shortages. It is a well-known secret that during this time a considerable amount of hidden earnings generated from under-invoiced and smuggled exports found their way to a highly profitable black market in foreign exchange. [16] To some extent, the official post-1980 trade figures merely reflect the resurfacing of this previously unrecorded flow.
Partisans of the generals’ regime also point to the growth of foreign investment as one of its economic achievements. Foreign investment authorizations amounted to $337 million in 1981 and $167 million in 1982, compared with total foreign investment in the 1970s of a mere $228 million. This impressive apparent increase, though, does not take into account inflation, which affected the US dollar as well as the other currencies. Secondly, the actual flow of investments — estimated by the Organization for Economic Cooperation and Development at $50 million per year — invariably lies well below the authorizations. Thirdly, most of the movement was not due to the import of fresh capital but represented uncollected debts without government guarantee that had accumulated during the 1978-80 period. [17]
As a matter of fact, signals of persistent economic recovery in Turkey are hard to come by. Industrial production in 1981 registered improvements on most fronts as a result of increased capacity utilization, thanks to the outlawing of strikes, and restored import capability. Industrial output grew by 7.2 percent over a weak 1980 base level. In 1982, on the other hand, lower productivity gains in manufacturing and a drop in mining output confined the increase to 3.2 percent. As interest rates varied between 50 and 70 percent, construction failed to pick up. Real investment stagnated, pointing toward output constraints in the future.
The Kastelli Collapse
The 4 percent average growth in GNP/GDP since the generals took over has been way below what is deemed necessary to keep unemployment in check. [18] In 1982, the highly dubious official unemployment figure stood at 18.2 percent of an 18 million strong labor force, up from 15.4 percent in 1980. [19] The share of wages and salaries in national income fell substantially. [20] The economic Darwinism supervised by the government took its toll in the form of record bankruptcies, especially in the small business sector. In 1981, Turkey recorded a 122 percent increase in defaulted promissory notes over the previous year, and this figure had already doubled again in the first six months of 1982. Turgut Özal argued that this was not a cost but a benefit of the austerity program: The elimination of inefficient companies would leave the market to the strong and competitive.
It was not only the small fish who were threatened. Conglomerates were shocked early in 1982 to find their profits eroded by financing costs that were four to seven times labor costs. With the labor problem solved, they turned their attention to the financing problem. In May 1982, the private sector presented a long list of demands to a sympathetic government. The list included requests for stringent control of informal “bankers,” lower interest rates, cheap credit for investment, reduced taxes, increased export incentives, subsidies on state-produced inputs used by the private sector, allowance for revaluation of already depreciated capital, and return of the mines nationalized during Ecevit’s tenure to their former owners.
The single most revealing and dramatic development occurred in the middle of 1982: Kastelli, Turkey’s largest finance house, went under with liabilities valued at $780 million — equivalent to 8 percent of total bank deposits. To prevent panic, the government announced that all Kastelli debts were under “state guarantee.” $325 million in low interest central bank credits were transferred to the banks involved to help them with their deteriorating liquidity positions.
The Kastelli collapse was explosive testimony to the uneven nature of the new economic regime with respect to different segments of monopoly capital. Internal pressures to deviate from the tight credit policies written into the IMF standby agreements had been building up throughout the year. The industrial structure that had evolved behind a half-century of protectionism (custom walls, government subsidies of key inputs, interest rate controls, overvalued currency) was suffocating under the double grip of a depressed domestic market and skyrocketing interest rates. The massive reorientation of the economy’s resources towards the export markets had caught the domestically oriented producers unprepared, but had created its own enthusiasts. A group of industrialists and exporters had been able to cash in on new opportunities, and built new empires by absorbing cash-hungry firms into their holding companies. By June 1982, the battle lines around the generals’ economic program were clearly defined.
In early June, the IMF warned Turkey to keep its money supply under control. This intervention dealt the final blow to an already tense situation. The Fund’s main concern was reviving inflation, singling out extensive use of export incentives, large unpaid corporate tax balances and the banking sector’s reluctance to abide by reserve requirements as the main targets for criticism. The Fund warned that official debt relief would decline from $2 billion in 1982 to $500 million by 1986.
Bank Kastelli was the only major finance house that remained outside the control of a major corporation or bank. On June 2, the Turkish press reported that Kastelli owner Cevdet Özden — whose provincial style contrasted sharply with the magnates dominating the financial and industrial scene — had fled to Geneva. [21] Thousands of small investors rushed to Kastelli branch offices to find military police guarding the locked doors. In the public outcry that resulted, Turgut Özal and Kaya Erdem had to resign.
Kastelli’s history dated back to the 1960s, when Cevdet Özden traded in the public savings bonds issued to finance government investment efforts. Özden’s rise to prominence within the “parallel” or unofficial financial market had followed the developments in the Turkish economy. In the last 1960s, he diversified into the booming real estate market, and later into the new private bonds and securities markets. Kastelli flourished during the inflationary period following the 1977 crisis, when an increasing amount of savings found its way to the parallel market. He was rumored to be active in the underground foreign exchange market, which had reached sizable proportions during the foreign currency shortages of the 1977-1980 period. During these years the corporate sector felt increasingly threatened by the growth of this unregulated sector, but had to turn to it nonetheless to secure the foreign exchange needed for financing imports. The banking sector was also going through a transformation, as holding companies scrambled for control of banks in an attempt to gain access to secure sources of finance.
Cevdet Özden, through the sheer size of his operation, had emerged as a major impediment to the efforts of finance capital to suppress interest rates. Although the government had not blinked an eye during earlier rounds of bank bankruptcies involving some $130 million, it hastily rushed in after the Kastelli incident. Since Kastelli had provided most of its 220,000 investors with certificates of deposit issued by banks as well as private sector bonds as collateral, the government had essentially stepped in to save the banks, not the small savers. Initially, the government offered no guarantees on interest payments, but later announced an across-the-board rate of 25 percent on all debts covered by the operation. Debtor institutions were allowed adjustments they deemed necessary on the schedule for repayment of principal. With going lending rates of 50 to 70 percent, and bond yields of 32 to 50 percent of face value, banks and corporations gained access to a sizable fund on extremely favorable terms. [22]
Trouble Ahead, Trouble Behind
During 1982, the government demonstrated the same zeal in bailing out two larger textile companies and a steel company. But this was only the tip of the iceberg. Özal’s heir, Adnan Başar Kafaoğlu — a seasoned bureaucrat and former adviser to Gen. Evren had to deal with new solvency problems every day. As he put it, “each company in trouble meant a bank in trouble.” Hundreds of companies, including many of the country’s largest, were demanding to be rescued, with debts totaling some $1.5 billion.
Throughout 1983, Kafaoğlu continued to walk the fine line between giving enough breathing space to the industry and the banks and not stepping outside the IMF guidelines. Massive infusions of credit to the ailing companies required cutbacks elsewhere. The credit squeeze was so severe that local importers were complaining of running out of Turkish liras to buy the foreign currency needed for financing imports. Cutbacks in export incentives, coupled with a regional slump in the Middle East and North Africa, hit 1983 trade figures. In August 1983, officials estimated the annual GNP growth rate at less than half the target rate of 6 percent, while inflation was headed for 35 percent by the end of the year, ten points over the 1982 figure. The balance of payments, after a small surplus in 1982, seemed destined for a deficit exceeding $1 billion.
Earlier in the year, long before gloomy facts replaced rosy forecasts, the generals scheduled parliamentary elections for November 6. The only “independent” party allowed to take part in the elections, the Motherland Party, was led by Turgut Özal, one-time ally of the generals. [23] Following a short, dull campaign under the tight grip of the military and conducted against the background of an ailing economy, Özal emerged as the winner. In what was regarded as a vote against titular democracy, Turkish voters charged the “architect” of the economic “reforms” with the task of cleaning up the mess he had created.
The “January 24 measures” attributed to Özal were held up as an “unalterable comprehensive package,” constituting “a radical break with the past economic policies,” and “the only viable alternative.” Yet, in substance, the measures reflected the basic tenets of orthodox economic thinking: [24] export promotion policies, currency devaluation, and raising officially controlled prices to reduce the government deficit had all been on Turkey’s agenda at one time or another since 1967. Unlike the austerity programs of the past, though, the “January 24 measures” were rendered operational by the military intervention of September 1980. In the words of Özal himself: “Some positive results of the January 24 measures were seen before September 12. However, I can say that had September 12 not taken place, today’s results would have been impossible to achieve.” [25]
Political Equations and Military Intervention
Plans to alter the structure of production had been on the agenda at least since the end of 1977, when it became clear that the economic crisis could no longer be postponed. Given the balance of forces in Turkish society in the second half of the 1970s, neither Ecevit’s 1978-1979 coalition, nor Demirel’s minority government preceding the coup had the political backing to restructure the economy. Ecevit attempted to reconcile the expectations of the broad masses and the desires of the industrial bourgeoisie in an equation constrained by the IMF and international commercial lenders. Demirel’s equation incorporated the general interests of dominant classes in Turkey and the vision of imperialism — but it lacked the structure of domination and mechanisms of coercion necessary for successful implementation. What turned the otherwise unworkable January 24 measures into “the only viable alternative” was the generals’ decision to throw into the equation the weight of the 600,000-strong Turkish armed forces. [26]
The clearest manifestation of the restructuring effort is seen in the domain of relations between capital and labor. The military government has drastically reduced real wages, severely curtailed workers’ rights to unionize and to strike, extended the work week and the work year, and legislated retractions of severance pay, seniority rights and social insurance benefits. In the agricultural sector, the government has depressed agricultural support prices, dismantled cooperatives, curtailed credits to small and middle farmers, legislated changes favoring export-oriented agribusiness and installed incentives to attract foreign capital and technology.
The logic of the January 24 measures was not impartial to the complex structure of interests identifying different segments of capital. From the beginning, it was clear that small entrepreneurs were written out of the equation. What was unclear was how corporate interests would be accommodated. Industrial and financial conglomerates, despite some ambivalence about the emphasis on export production and the free market, had expected to survive and even prosper in the transition, thanks to the cooptative labor policies of the generals. Yet several corporate giants were engulfed in the wave of bankruptcies that began in mid-1982. Out of the first crisis within the ranks of the ruling alliance emerged an interventionist coalition advocating moderation and an active role for the government. By ousting Özal, the generals risked their ties with the IMF and the West, but secured the continued support of Turkish monopoly capital. The greatest irony was that a period meant to bring about a decrease in the role of the state productive sector was having the exact opposite result, with the express consent of a hapless bourgeoisie. [27] Having institutionalized their political grip on the country, and with the state enterprises in the productive and banking sectors enjoying a commanding position in the economy, the generals could afford to call elections to legitimate their “bureaucratic-authoritarian” rule. [28]
Whether the bureaucratic-authoritarian model can provide the conditions for resumption of accumulation in Turkey will undoubtedly depend on external as well as internal factors. Two will prove to be crucial: availability of funds to cover Turkey’s financing needs and adequate export earnings. The regime’s efforts to court foreign capital have not met much success. [29] The grace periods on Turkey’s rescheduled debt will begin to lapse in 1985. Debt repayments and interest may have amounted to some $2.9 billion in 1983, [30] a sum that would wipe out more than six months’ export earnings. Short of another rescheduling operation, Turkey will have to raise significant sums just to service the estimated accumulated debt of $23 billion. The well-publicized export boom seems to have come to an end.
As for domestic factors, much will depend on the balances in the ruling alliance. It is no secret that influential groups in monopoly capital are troubled by Özal’s return to power. The Turkish Industrialists’ and Businessman’s Association (TUSIAD) — the major representative organization of monopoly capital — seems to be particularly disturbed. In a interview published in the Turkish weekly Nokta of November 14-20, 1983, a representative of TUSIAD made the dominant perspective clear: “In essence, I cannot say that the dominant groups in TUSIAD are at peace with Özal’s mentality. Yet, since to declare opposition from day one will be inappropriate and unbusinesslike, pursual of good relations with Özal and even attempts to convince him to follow in TUSIAD’s wake have been set out as TUSIAD’s policy. If Özal does not follow in this wake and insists on having his own way, you shouldn’t have the slightest doubt that the demolition ads that TUSIAD placed in the papers regarding Republican People’s Party will also be placed for Özal.” The TUSIAD representative was referring to full-page advertisements declaring TUSIAD’s oppostion to Ecevit’s policies placed in all major papers during 1979. If Özal can manage to deliver on his campaign promises by making the conditions more bearable for the middle classes without stepping out of the IMF track, the resulting surge in domestic demand might alleviate some of the market constraints on business. In the short run, however, a more important issue concerns his stance on corporations waiting for “bailing-out operations.” Finally, it remains to be seen if forces in civil society can be kept under control after “democracy with strings attached” begins to function.
Endnotes
[1] “Turkey: A Survey,” Economist, September 12, 1981. Özal was not finance minister but Demirel’s economic adviser at the time.
[2] Supplement to Euromoney, February 1982, p. 5.
[3] For a comprehensive analysis, refer to Çağlar Keyder, “The Political Economy of Turkish Democracy,” New Left Review 115 (May-June 1979), pp. 3-44. The distinctions between the outcome of the 1960 coup and the 1971 intervention, as well as the logic behind the 1980 coup are highlighted in Irvin Cemil Schick and Ertuğrul Ahmet Tonak, “The Political Economy of Quicksand: International Finance and the Foreign Debt Dimension of Turkey’s Economic Crisis,” The Insurgent Sociologist 10/3 (Winter 1981). A succinct treatment of Turkish economic history highlighting the major developments that paved the way to the 1977 crisis is provided in Şevket Pamuk, “Political Economy of Industrialization in Turkey,” MERIP Reports 93 (January 1981).
[4] Initially, a levy on foreign exchange transactions was imposed. The official devaluation did not come until August 1960, with the new exchange rate set at the old one plus the levy.
[5] Ties with the US were initiated in the framework of the Truman Doctrine and extended under the Marshall Plan. The point of no return was reached shortly after Turkey committed troops for Korea, with membership in NATO. A short account of these developments is given in Feroz Ahmad, The Turkish Experiment in Democracy, 1950-1975 (Boulder, CO: Westview Press, 1977), pp. 389-399.
[6] In 1967, consumer goods accounted for 57.2 percent of manufacturing output with intermediate goods providing 31 percent and investment goods providing 11.8 percent of total. In 1978, the figures were: consumer goods 42.1 percent; intermediate goods 41 percent; investment goods 16.8 percent. World Bank, “Turkey: Policies and Prospects for Growth,” March 1980, p. 306.
[7] A detailed chronicle of this period is provided in Ahmad, pp. 288-319. See also Ahmet Samim, “The Tragedy of the Turkish Left,” New Left Review 126 (March-April 1981), pp. 72-74.
[8] With Republican People’s Party under its new leader Bülent Ecevit in opposition, the military was in the awkward position of having to rely on Justice Party’s support. Even though the “reform coalitions” installed by the generals were pursuing Demirel’s ends, the fact that he had been removed from office by the military’s pronouncement had made Demirel ambivalent about the intervention. Once it became clear that the Justice Party was firmly behind him, Demirel staged a faceoff, whereby RPP and JP were jointly able to block the generals’ attempt to install their candidate in the presidency. Two years after launching their crusade “to save the Fatherland,” the political domination of the military came to an abrupt and humiliating end.
[9] During 1975-1977, $8 billion poured into Turkey under the controversial “convertible lira” scheme. Under this scheme, hard currency deposited with Turkish banks could earn interest above the going rate in the Euromarket and benefit from the exchange rate guarantee provided by the Central Bank of Turkey.
[10] A short account of fascist terror culminating with the “Kahramanmaras massacre” in December 1978 is given by Seyla Benhabib, “Right-Wing Groups Behind Political Violence in Turkey,” MERlP Reports 77 (May 1979).
[11] As the Economist aptly put it, “The explosive amount of [commercial bank] lending to Turkey in 1975-1979 was clearly unrelated to the country’s capacity to service it; the banks must have felt protected by Turkey’s strategic position within NATO.” (“International Banking Survey,” March 20, 1982, p. 41). Two days after the coup, Le Monde would ask: “What was the Turkish Air Force commander doing in Washington a few days ago?”: (September 14-15, 1980).
Price statistics in Turkey need to be interpreted with extreme caution. The Wholesale Price Index of the Ministry of Commerce, the most widely reported figure, not only includes a mere 88 commodities, but utilizes 1938 weights to arrive at the composite figure. Among the commodities not included are key consumption items like bread, margarine, noodles, detergent, cigarettes and alcoholic beverages; consumer durables like washing machines and refrigerators, as well as cars, trucks and tractors; and crucial imports like fertilizers and insecticides. Furthermore, the weights for petroleum and its derivatives are negligibly small.
[13] The reliability of wage statistics leaves much to be desired. The complete series excludes fringe benefits and involves an upper cutoff point which is adjusted every couple of years. The incomplete series is generally regarded as being more representative, and is therefore included as a reference point.
Nothing symbolizes this fact better than the observation that the uniforms of both armies were being manufactured by the same textile company in Turkey. Independently of the course of the Gulf war, the company later ran into liquidity problems and was acquired by state-controlled banks.
[15] There are some indications that some problems have already been encountered. Libya has been having problems in keeping up with the payments schedules since 1982. Trade with near-bankrupt Iraq took a nosedive in 1983. Snags have also been encountered on the Western front. For two years in a row, EEC imposed tariffs and quotas on Turkish textile exports, charging Turkey with dumping practices.
[16] This point is recognized by OECD (Turkey, April 1983, p. 25) as well as the World Bank (Turkey: Policies and Prospects for Growth, March 1980, p. 94).
Middle East Economic Digest, July 16, 1982, reports that a narrow majority of the creditors with an estimated $1.3 billion sunk in Turkey have opted for payment in local currency, which could be used for local manufacturing purchases, or for increasing existing investments.
[18] OECD estimates this figure at seven percent, assuming 450,000 new entrants to the labor market and a four percent average rate of productivity increase (Turkey, April 1982, p. 38).
[19] The 18.2 percent rate is arrived at by assuming 63.5 percent of the active population is participating in the labor market. When the 68.4 percent labor force participation rate estimated for the 1973-1977 period (Turkey, OECD, April 1983, p. 15) is used instead, the unemployment rate exceeds 25 percent.
[20] No data on income distribution are available since 1977. This is the conclusion OECD reaches based on estimated wage trends, GNP and employment of dependents (op cit, p. 21).
[21] Details of the Kastelli incident are provided in News from Turkey 17 (June-August 1982), pp. 21-23. Kastelli’s plea for a $250 million rescue package had been denied shortly before his flight to Geneva, a figure substantially lower than the $325 million used to contain the crisis.
[22] This incident was by no means atypical: There were two more well-documented cases of similar conduct. The first involved the sum of $650 million in unpaid required reserves by banks. The second involved some $190 million in unpaid employers’ share to the workers’ social insurance fund. In both cases, the debtors continued to use the funds by paying negligible interest penalties.
[23] See the article by Feroz Ahmad in this issue.
[24] See Cheryl Payer, The Debt Trap: The International Monetary Fund and the Third World (New York: Monthly Review Press, 1974).
[25] From an interview published in the Turkish weekly Yanki, December 28-January 3, 1982.
[26] The officer corps has a direct stake in the capitalist system in Turkey. By the late 1970s, the Armed Forces Mutual Fund (OYAK) founded in 1961 and financed through a 10 percent levy on the salaries of Turkey’s 80,000 strong officers corps, had become the third largest conglomerate in the country, with assets in the vicinity pf $300 million. As the events of the 1971-1973 episode had indicated, the military was always ready to defend the status quo with extreme vengeance and brutality. Jane Cousins documents the methods of repression employed during this “dress rehearsal” for the 1980s in Turkey: Torture and Political Persecution (London: Pluto Press, 1973).
[27] It has to be kept in mind that the increases in the prices of commodities produced by state economic enterprises not only meant higher production costs for the private sector, but also brought about a dramatic swing in the state sector’s profitability.
[28] This conceptualization is derived from the Latin American experience. See, for example, David Colier, ed., The New Authoritarianism in Latin America (Princeton, NJ: Princeton University Press, 1979).
[29] For comprehensive documentation of the administrative and legal changes affecting foreign investment facilitated under the general’s rule and a snapshot of foreign capital in Turkey, see OECD, Foreign Investment in Turkey: Changing Conditions under the New Economic Programme, Paris, 1983.
[30] Middle East Economic Digest, August 12, 1983.
