DÜNYA TÜRK HABER/WORLD TURKISH NEWS:Canada

MIDDLE EAST INSTİTUTE Turkey’s crisis management playbook: Donations, reconstruction, and inflation with an eye on elections Turkey has suffered severely from the two major earthquakes on Feb. 6, 2023. The death toll is a record high, exceeding 45,000. Physical damage from the earthquakes will cost at least $20 billion, as the number of buildings destroyed has been steadily revised upwards. GDP growth will be 2.0-2.5% less than forecast before the disaster, adding nearly $20 billion to the cost. The combined economic losses due to damaged assets and slower growth expectations may end up being much higher than $40 billion when the government releases a detailed and reliable disaster loss report covering human resources. Outside figures already suggest the total will be even greater: A recent World Bank estimate put the cost of direct physical damage at almost $34.2 billion — the best and worst case scenarios are $28.7 billion and $40.8 billion respectively — and total reconstruction and recovery at nearly twice that. Turkey was already in a weak economic situation when the quakes hit. In addition to repairing and replacing the damaged buildings and infrastructure, at least a million citizens will need to be supported financially and their accommodation, heating, and food expenses covered for six months or more. Civil society and business associations have launched major fundraising campaigns. The biggest was held by the government on Feb. 15; its 7-hour-long jointly broadcast TV program, “Turkey, One Heart,” took in donations of TL115.1 billion ($6.1 billion) to aid recovery and support programs. Moving forward, the main pillars of the Erdoğan administration’s political strategy are threefold: emphasizing the unprecedented magnitude of the quake (which they have dubbed the “disaster of the century”), claiming that their initial response was better than that following the 1999 İzmit earthquake, and highlighting the government's financial and technical capabilities to rebuild the damaged areas. Thus, the total amount of donations received is critical. Moreover, these funds will be allocated to institutions under President Recep Tayyip Erdoğan’s control, such as the Disaster and Emergency Management Presidency (AFAD), which operates under the Ministry of Interior; the Turkish Red Crescent (Kızılay), the largest humanitarian organization and counterparty of the Red Cross; and the Housing Development Administration (TOKİ), the state’s main tendering agency. Another major issue for the Erdoğan administration is growing public criticism over the use of the so-called “special communications tax,” intended to prevent earthquake-related damage. Introduced in 2000 as a temporary one-off measure to deal with the impact of the 1999 earthquake, the tax was made permanent in 2004. A total of $38.2 billion has been collected so far and none of it has been allocated to earthquake damage prevention. Adjusted for inflation, the total collected would come to $52.1 billion today, or 5.2% of 2022 GDP. Under Turkish law, governments have full control over the use of tax revenues unless the law specifically states that the revenue is for a special purpose and must be accumulated in a particular fund. Accounting for where the money has gone and explaining why it hasn’t been spent on earthquake damage prevention will be vital for the Erdoğan administration. Breaking down the donation numbers Of the TL115.1 billion in donations received, TL83 billion, or 72%, came from state institutions and entities whose main shareholder, either directly or indirectly, is the central government. The single biggest contributor was the Central Bank of the Republic of Turkey (CBRT) with TL30 billion. All state-owned enterprises transfer their profits as dividends to the Turkish Treasury. The Treasury also owns 55% of the CBRT; however, due to its regulations, the Treasury receives almost all of its dividends. That is to say, there is no need to make such a donation — the money would have ended up in the Treasury’s hands anyway. In addition, corporate tax on the CBRT’s net income is also paid to the Treasury. There is another way of increasing the CBRT's profitability and enabling it to transfer additional funds for the recovery: monetary expansion. There are different ways of doing this. One is to print physical notes, although this is old fashioned and inefficient. Its impact is very limited when there are TL320 billion in notes in circulation, while the total money supply is even higher, at TL8.73 trillion. Another method is direct short-term lending from the CBRT to the Treasury. This was prohibited by law in 2001 to highlight the determination of the government at the time in its fight against inflation. In developed countries, quantitative easing is the main tool used; this is when a central bank purchases predetermined a