‘No one can compete since no one dares to lend more cheaply!’: Turkey’s Ilbank and public water finance

ABSTRACT

As a midsized public development bank in Turkey, Ilbank is crucial in financing water provision. It provides cheaper loans to municipalities and serves as an intermediary for accessing international funds. Being owned by municipalities and designed to serve them, Ilbank is unique in Turkey’s banking sector in terms of financing water provision. However, the potential of Ilbank to expand its role is limited due to recent revisions of its mandate, the attempts to divert its resources and its undemocratic structure. A reformed and democratized Ilbank could be a crucial player in building an integrated water and sanitation system management for Turkey.

KEYWORDS:

• Public water
• Turkey
• Ilbank
• public bank
• water and sanitation system

Acknowledgements

I thank the editors of the special issue and two anonymous reviewers for their comments and suggestions. I also thank the public water experts for their time and patience during the interviews. Any remaining errors are my responsibility alone.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Turkey underwent a political regime change in 2018. The new system provides extraordinary authority to the head of the executive branch. The ministers are appointed by the president, and the council of ministers lost its previous significance. For these reasons, I use the term ‘Erdoğan administration’, referring to the post-2018 period.

2. Article 168 of Turkey’s Constitution maintains that:

Natural wealth and resources shall be under the authority and at the disposal of the State. The right to explore and exploit these belongs to the State. The State may delegate this right to persons or corporate bodies for a certain period. Of the natural wealth and resources, those to be explored and exploited by the state in partnership with persons or corporate bodies, and those to be directly explored and exploited by persons or corporate bodies shall be subject to the explicit permission of the law.

Following the constitution, legal regulations in the water sector enable the transfer of water management to the private sector for certain periods. In this vein, the public management of water systems is not guaranteed but depends on the decisions taken by the national and local authorities.

3. Law no. 2560 was promulgated to specify the mandate and functions of ISKI (Istanbul WSA). In 1986, an article was added, making the regulation binding for all WSAs. Since then, the central government transfers 10% of the municipal funds (the money allocated to municipalities in the general budget) to the WSA of that territory.

4. Ilbank remains unique in Turkey’s financial sector, but municipal banks and municipal development funds can be found in various countries, notably in Europe, as illustrated in this special issue. The mandates and capacities of these municipal banks change in accordance with the development of the financial systems and needs of local governments.

5. Halkbank (People’s Bank) was founded in 1938, and Vakifbank was founded in 1954. Halkbank has the specific mandate of supporting industrial production by funding small and medium-scale enterprises. Vakifbank’s mandate was to mobilize wakf (foundations with specific purposes) resources for industrial development. Though established in 1863, Ziraat Bank (Agriculture Bank) was reorganized in 1924 to expand credit opportunities for other businesses alongside supporting agricultural production.

6. After the restructuring of the banking system in 2001, duty losses arising from specific loans and cheap credits extended to large social segments were paid by the Turkish Treasury in the same month they were incurred and labelled as income losses until 2021. Despite the terminological controversy, income losses were accounted for as duty loss payments until further changes in 2020–21. They can be traced monthly in Turkey’s budget expenditures.

7. The electoral victories of opposition parties changed the municipal landscape after the 2019 local elections in Turkey. More than half of the population lived in the municipalities controlled by opposition parties after 2019. However, this ratio changed dramatically in late 2019 and 2020. A total of 48 municipalities previously ruled by the People’s Democratic Party are now ruled by trustees appointed by the Ministry of Interior, and the tensions between the municipalities ruled by opposition parties and the Ministry of Interior grew. Politicized lending and the use of grants grew in importance in recent years. In 2020, for example, 99% of the infrastructure projects that Ilbank transferred grants from the central government belonged to the parties that supported the Erdoğan administration (Bildircin, 2022). In my interviews, a few experts implied that it was easier and quicker for the AKP municipalities to access loans for infrastructural investment.

8. When asked about Ilbank’s future projects or the most pressing issues in the water sector, interviewees listed the climate crisis and environmental protection high on the list of priorities (similar sustainability issues are raised elsewhere in this special issue, notably by the Dutch Water Bank). The objectives in recent Ilbank reports have included supporting renewable energy projects and reducing carbon emissions. However, Ilbank still lacks a comprehensive environmental strategy, while Turkey’s municipalities are ill-equipped to cope with the ramifications of the climate crisis.

Additional information

Funding

The author has no funding to report.