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