Den of thieves: The importance of fighting corruption

The importance of fighting corruption

WHATEVER else Turkey does, if it wants its economy to flourish, it must control corruption. For decades, sleaze and authorised theft have undermined the economic life of the country. And this is a fish that has rotted from the head. When asked how she was able to afford an apartment block in Florida, Tansu Ciller, who served as prime minister in 1993-95, said that she had found some of the money wrapped in a bundle in her mother's bedroom. Other former prime ministers stand accused of manipulating the sale of state assets for their benefit.

On New Year's Eve last year, Murat Demirel, the one-time owner of Egebank and a nephew of a former president, Suleyman Demirel, was picked up by the Bulgarian authorities from a small fishing boat that was trying to land on Bulgaria's Black Sea coast. He had been barred from leaving Turkey while investigations into the collapse of Egebank were going on. He is said to have offered the Bulgarian coastguard €100,000 ($136,000) to let him go, but the man would not take a bribe. In asking for his extradition, Turkey told the Bulgarian authorities that Egebank's collapse had caused financial losses of $1.2 billion. Mr Demirel was duly sent back to await trial.

Corruption may be getting more publicity, but is not yet attracting heavier punishment. Turkey was one of 34 signatories of the OECD's anti-bribery convention in 1997, but an anti-corruption law that the present government drafted in its early days in power has yet to be passed, and a pre-election promise to end immunity from prosecution for parliamentarians and ministers remains unfulfilled.

The family suspected of being the biggest thieves of all, the Uzans, continue to elude the authorities. The father, Kemal, and one son, Hakan, have fled abroad. The other son, Cem Uzan, once an aspiring politician who made his own fortune as a media mogul in partnership with the son of a former president and prime minister, Turgut Ozal, still lives openly in Turkey, having avoided signing incriminating documents. Meanwhile Motorola and Nokia, two mobile-phone companies, are trying to recover the $5 billion awarded to them by an American court in 2003 in damages, compensation and interest for money of which the Uzan family defrauded them; and the Turkish government is trying to find the Uzans to reclaim the $6 billion that it says they owe the state.

The armed forces, surprisingly, are being bolder than the government in cracking down on corruption. General Hilmi Ozkok, the chief of general staff, has given his blessing to the prosecution for corruption of a retired admiral. In December, various charges were brought against Ilhami Erdil and his wife and daughter. The daughter is alleged to have been a partner in a company that won naval supply contracts; the wife is said to have used the navy's credit cards for frequent shopping trips; and Mr Erdil himself is said to have dispensed soft postings to conscripts at a price of $5,000-10,000 each. He claims his purchase of two apartments in Istanbul for $1.25m was financed by a relative.

The admiral's case came to court not because the system's built-in safeguards exposed him but because two officers he had fired posted some of the evidence on the internet. Immune from prosecution while in office, he was brought to court on his retirement. His case is widely expected to be followed by others involving former generals and an air-force commander.

Most Turks know (if only because every male has to do military service) that military officers' quarters are far from spartan, and on the whole they are not bothered by the luxury bath taps and well-stocked cellars. Some worry, however, that General Ozkok's decision to bring higher, and hidden, levels of corruption out into the open may undermine the average Turk's faith in the armed forces, which polls consistently show to be the most respected institution in the country.

This, the worriers argue, will matter more in the years to come as Turkey's progress towards EU membership steadily diminishes the soldiers' power. This process has already begun. Since August last year, the powerful National Security Council, a joint committee of government ministers and top military officers, is no longer headed by a military man.

Foreign Dearth of Investment

The pervasive corruption in Turkey has imposed not only a moral cost but a heavy economic one too. It is one of the main reasons why Turkey attracts such low levels of foreign direct investment. A recent study by two professors at the University of Massachusetts in Boston on the relationship between corruption and foreign direct investment (FDI) found that corruption is a serious obstacle to investment. It also found that the willingness to invest was related to the difference in corruption levels between the country of the foreign investor and that of the host country. Thus Turkey may be able to attract investment from equally or more corrupt nations, such as Russia or Ukraine, but not from western Europe or north America.

Indeed, Russians and Ukrainians are far more in evidence in Turkey these days than visitors from any EU country. From the queue for visas at the airport to the hairdressing salons in the south-west, the brothels in Istanbul and the ski resorts near Erzurum, it is clear that these two countries are happily investing in Turkey whereas others stay away.

“Power can corrupt even good people,” says Mr Ala, the governor of Diyarbakir. A big chunk of the AK Party's vote at the 2002 election came from people fed up with sleaze. But however well-intentioned Mr Erdogan and his ministers may currently be, to expect them to be totally incorruptible is unrealistic. The system presents temptations at every turn. In mid-January there were headlines about Mrs Erdogan having accepted gifts worth $33,500 on an official trip to Moscow with her husband earlier that month. When she had admired a carpet in a shop, the Turkish owner had presented it to her, explaining that he could not accept money from his prime minister. Some of the gifts were subsequently returned.

Corruption has helped to prevent Turkey from taking advantage of a huge economic opportunity that presented itself on a plate. International companies today want to be “lean and mean”, which implies holding very little stock. Yet they also want to be able to meet modern consumers' desire for instant gratification, which requires them to hold at least some stock. Most companies resolve this conflict by compromise. They go to China to get goods made cheaply, but they also look for another offshore manufacturing centre that is closer to home.

Mexico has become such a place for the United States. But Turkey has not been able to play a similar role for Europe because it has never managed to attract the heavy foreign direct investment that would be needed. Annual inflows have generally remained below $1 billion; Mexico, by contrast, has attracted over $10 billion a year for the past eight years. As a proportion of GDP, Turkey's stock of FDI is lower now than it was in the 1980s.

Undoubtedly corruption is one reason for these low levels of investment, but there are others. One of them is red tape. Compliance with Turkish customs regulations is particularly onerous. Sadan Eren, the chairman of the thriving chamber of commerce in lively Trabzon, says he complains about bureaucracy every time he goes to Ankara. The governor of Van sees the reduction of red tape as one of his prime responsibilities.

Another deterrent for foreign investors is Turkey's poor record in protecting intellectual-property rights. One American company recently withdrew from the country because it found itself unable to enforce international arbitration awards. Others complain of the “at times ambiguous legal environment”.

Investment is sorely needed, particularly in the east. Beyond Erzurum there is little industrial activity other than the occasional cement factory and a flour mill or two. When Mr Erdogan visited the eastern town of Siirt, his wife's birthplace, the crowd chanted, “Bring us a factory.”

The GAP project, a series of dams blocking the Tigris and Euphrates rivers as they meander towards Syria, has been a showpiece for successive governments of what is being done for the impoverished regions of the east. But the dams have been a mixed blessing. They have turned large parts of the Harran plain, south of Sanliurfa, from brown to green. But they have also created a build-up of silt close to the Syrian border that threatens to raise tensions between the two neighbours. They have encouraged the cultivation of thirsty, soil-depleting cotton in the area: the GAP region is now a bigger producer of the white fluff than Turkey's traditional cotton-growing area around Adana. And they are blamed for a change in the local climate. Diyarbakir, which used to see regular falls of winter snow, has not had one for five or six years.

Almost the only sizeable foreign investment in the region is a huge pipeline being built by a consortium of oil companies led by BP. Scheduled to come on stream this year, it will be able to carry a million barrels of oil a day from Baku, in Azerbaijan, via Tbilisi in Georgia and Kars in the north of Turkey, to the Mediterranean port of Ceyhan. But there will be little to show for it. Along its whole length there will be only eight pumping stations; the rest of the pipeline will run underground. It will be watched over by a specially trained but small security force. It will, however, prevent a further increase in the large number of oil tankers that now pass through the narrow Bosphorus Straits.

Article is part of an Economist survey on Turkey.

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