Istanbul’s mayor has “condemned” Turkish state banks who he says have stopped making routine loans to the city since the June ‘revote’ in the business and cultural capital in which he managed a shock victory over populist President Recep Tayyip Erdogan’s ruling Justice and Development Party (AKP).
The behaviour of the government-run lenders has forced the Istanbul municipality to borrow from abroad, Mayor Ekrem Imamoglu, of the main opposition Republican People’s Party (CHP), told reporters on November 24. City officials were working on a plan to sell eurobonds to finance projects, he confirmed—although observers noted that the Turkish Treasury would have the authority to block such a financing plan, thought to target the raising of around $500mn.
If confirmed, the strategy might seem to run counter to the Erdogan administration’s attempts to secure a big and rapid bounceback for the Turkish economy partly by pushing state and private banks to open up credit taps in tandem with accelerated monetary easing.
Imamoglu said that Turkey’s largest city required more than Turkish lira (TRY) 20bn ($3.5bn) in financing, with more than half of it needed for stalled metro projects. He also noted that Istanbul had TRY28bn in debt and needed permits from Turkey’s Treasury to issue municipal bonds. “It would not be right for them to not give permissions,” he said.
Istanbul’s unconsolidated debt, under AKP rule, more than tripled in the years from 2014.
Imamoglu on tour
The mayor has returned to Istanbul following a debut fundraising tour of European capitals.
Noting that all municipal transactions and salary payments were made through state banks, Imamoglu—seen as an eventual potential charismatic challenger to Erdogan should the cards fall his way—said the city of 16mn now planned to increasingly rely on foreign lenders and private Turkish banks.
“State banks are not even extending routine loans after the elections to Istanbul municipality. The doors of state banks are closed to us,” Imamoglu said, as reported by Reuters.
“I condemn the managers of these banks who show this kind of attitude towards the municipality. I have been patient for the past five months,” he added.
“It’s sad that the state lenders remain distant to us since we came into office,” Imamoglu also remarked to reporters, according to Bloomberg. He added: “I don’t know what their motives are. However, I have no doubt that we will find funding from Europe.”
The country’s state banks account for around 40% of overall Turkish loans and deposits. Istanbul accounts for more than half of Turkey’s $722bn GDP.
The crushing and humiliating defeat suffered by Erdogan’s Islamist-rooted AKP in the Istanbul mayoral election (and, more embarrassing still, in the subsequent revote which it demanded from election officials, claiming irregularities in the initial poll), against a backdrop of economic pain that began with the summer 2018 currency crash, ended 25 years of rule in the city by the party and predecessor parties. Erdogan took his political career to the national stage by winning the iconic mayorship of the city in the nineties.
Imamoglu visited Paris, Berlin and London to seek financing for underground rail projects stalled for two years. He secured an €86mn loan deal from the French Development Agency and a €110mn loan from Deutsche Bank.
Ankara feels financing heat too
The secularist CHP also defeated the incumbent AKP earlier this year in the political capital Ankara.
Its new mayor, Mansur Yavas, said last week that the central government had “disregarded” a previous deal over metro costs and also cut the city’s shares by 5%, leaving Ankara “under a serious financial burden”, Reuters reported.
In January, researchers at the European Bank for Reconstruction and Development (EBRD) and the London School of Economics concluded that Turkish public banks have “systematically” adjusted lending patterns around elections in the last 15 years to boost provinces where incumbent mayors from the ruling party faced tough challenges. State banks, they contended, also cut lending in provinces where opposition mayors faced tight elections.