İstanbul Fi­nance Sum­mit 2011: on the road to a new fi­nan­cial cen­ter,

Turkish Review - - CONTENTS - By Zeynep Topaloğlu

The sec­ond İstanbul Fi­nance Sum­mit, held over two days at the end of Septem­ber, gath­ered to­gether sig­nif­i­cant play­ers from through­out the global fi­nan­cial ser­vices sec­tor. Plans are afoot to make İstanbul a re­gional fi­nan­cial hub; their suc­cess de­pends on the pri­vate sec­tor’s at­ti­tude. The po­lit­i­cal will be­hind the ini­tia­tive is clear, what re­mains to be seen is whether the sec­tor’s play­ers will re­spond to this call The sec­ond İstanbul Fi­nance Sum­mit, held over two days at the end of Septem­ber, gath­ered to­gether sig­nif­i­cant play­ers from through­out the global fi­nan­cial ser­vices sec­tor. The re­cently es­tab­lished sum­mit aims to help es­tab­lish İstanbul’s place on the map of in­ter­na­tional fi­nance.

After In­ter­na­tional Mon­e­tary Fund (IMF) and World Bank meet­ings in Wash­ing­ton, DC, in the same month, the agenda was dom­i­nated by the cur­rent dead­lock in de­vel­oped coun­tries. Cit­i­group Chief Economist Willem Buiter drew at­ten­tion to the po­lit­i­cal sit­u­a­tion of the US, where -- he claimed -- both par­ties would sooner see the coun­try fail than the other party suc­ceed. Poor em­ploy­ment and growth in­di­ca­tors are not only wor­ry­ing for the US it­self but also threaten the global econ­omy.

Mean­while, ev­ery coun­try in Europe has its own pri­or­i­ties. A res­cue plan for Europe like the Trou­bled As­set Re­lief Pro­gram (TARP) in the US was rec­om­mended at the sum­mit. Even if debt re­struc­tur­ing takes place in Greece, most prob­a­bly be­fore 2012, the coun­try’s re­moval from the euro seems less likely than ever. If one con­sid­ers that the EU be­gan as an eco­nomic co­op­er­a­tion, then one can see how deep the roots of the need for this eco­nomic in­te­gra­tion go. The union is un­likely to hold on po­lit­i­cal grounds if it be­gins to break up on eco­nomic ones. After such an in­ci­dent bank runs all over the Europe would be in­evitable. In the com­ing term a new man­age­ment struc­ture for the Eu­ro­zone is in­escapable. First of all, banks and in­surance com­pa­nies have to be re­struc­tures, mean­ing ev­ery­thing will be na­tion­al­ized. The state will own the majority of the banks, as is al­ready the case in the UK and Ire­land. Greece, Ire­land and Por­tu­gal will be re­struc­tured within the Eu­ro­zone, sim­ply be­cause it will be cat­a­strophic for the rest of the coun­tries in the EU not to do so.

The les­son that should be learnt from this sit­u­a­tion is the dif­fi­culty of main­tain­ing mon­e­tary in­te­gra­tion with­out fis­cal in­te­gra­tion. Euro­pean coun­tries are ex­pected to use the same cur­rency with­out spend­ing from the same bud­get. There are huge dis­crep­an­cies in the way they bor­row from the out­side world, while they make pay­ments in the same cur­rency. Some claim that spend­ing from a common bud­get means los­ing their in­de­pen­dence, how­ever -- and as State Min­is­ter for the Econ­omy Ali Baba­can rightly stressed -- by giv­ing up the right to print money they have al­ready sac­ri­ficed their in­de­pen­dence.

It is fair to say that the de­vel­oped coun­tries are so trou­bled by their own prob­lems they care lit­tle about what is go­ing on in the emerg­ing mar­kets. There­fore, de­vel­op­ing coun­tries are try­ing to find the best pol­icy

re­ac­tion to the trou­bles stem­ming from de­vel­oped ones. Baba­can, prais­ing the poli­cies of the Turk­ish Cen­tral Bank, un­der­lined the in­abil­ity of pol­i­cy­mak­ers to stop rapid de­pre­ci­a­tion of emerg­ing cur­ren­cies from the lev­els they hit dur­ing the cri­sis. As a re­sult of the 2008 cri­sis there has been a sig­nif­i­cant ap­pre­ci­a­tion in emerg­ing mar­ket cur­ren­cies. Var­i­ous poli­cies have been used to stop the cap­i­tal in­flow, from Tobin tax to cap­i­tal con­trols, but it ap­pears that the Turk­ish Cen­tral Bank is the only one that man­aged to keep such fluc­tu­a­tions within a cer­tain range. Cen­tral bank head Er­dem Başçı stressed the in­de­pen­dence of the Turk­ish Cen­tral Bank, and noted that they were able to act with­out any ex­ter­nal con­cerns and their poli­cies proved suc­cess­ful.

Turkey has a highly reg­u­lated fi­nan­cial sec­tor, which proved ben­e­fi­cial when the cri­sis struck. All the de­vel­oped coun­tries are less reg­u­lated than Turkey. Turk­ish in­sti­tu­tions al­ready meet the new Basel II cri­te­ria be­ing im­posed by de­vel­oped coun­tries. It seems de­vel­oped coun­tries lacked the po­lit­i­cal power to im­ple­ment common rules. How­ever, it is im­por­tant to note that the Turk­ish fi­nan­cial sec­tor is dom­i­nated by banks, which also makes it eas­ier to con­trol. While praise is doubt­less due, op­por­tu­ni­ties for im­prove­ment should also be noted. In the fu­ture, Turkey needs to con­cen­trate more on in­creas­ing the depth, width and size of its fi­nan­cial sec­tor.

At the sum­mit Başçı listed three fu­ture ar­eas of fo­cus for the fi­nan­cial ser­vices sec­tor: (1) Fi­nan­cial ed­u­ca­tion: Turk­ish peo­ple lack in­for­ma­tion about the fi­nan­cial ser­vices and the prod­ucts avail­able to them, which is in turn a bar­rier to de­vel­op­ment. (2) Business ethics: While cul­tur­ally this is al­ready present among Turk­ish peo­ple, it should be fur­ther in­ter­nal­ized. (3) Business law: Turkey needs to im­prove the con­di­tions for both busi­ness­men and con­sumers. Con­sumer rights have to be im­proved to the level pro­vided in de­vel­oped coun­tries. For busi­ness­men, the en­force­ment of con­tracts and own­er­ship rights on prop­erty are the ar­eas re­quir­ing im­me­di­ate im­prove­ment. The sooner Turkey pro­vides the le­gal and phys­i­cal in­fra­struc­ture needed to sim­plify do­ing business in Turkey, the closer it will be­come to be­ing the lead­ing re­gional -- and ul­ti­mately global -- fi­nan­cial cen­ter.


Deputy Prime Min­is­ter Ali Baba­can (R) speaks at the İstanbul Fi­nance Sum­mit. (Sept. 29, 2011)

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