The Double Function of Turkey’s Public Banks and Reinterpretation of Mandates during the Covid-19 Pandemic

ABSTRACT

Turkey’s public banks performed a double function during the Covid-19 pandemic, repeating but also extending the scope of their actions in the 2010s. These institutions provided temporary financial relief to low-income households, while simultaneously extending extraordinary support to capital groups organically linked to ruling circles. During this period, the public bank mandates were not legally revised but recurrently reinterpreted by state managers, postponing the financial troubles of some social groups and disproportionately benefiting corporations. Such public bank actions raise questions concerning a public purpose approach to public financial capacity during economic crises and emergencies. The double function of Turkish public banks in recent years indicates that short-term financial support to low-income groups worked almost as a countervailing intervention, yet producing contradictory results amid the lack of democratic oversight and strategies for the self-empowerment of disadvantaged groups.

KEYWORDS:

• Public banks
• Turkey
• public purpose
• Covid-19 pandemic

JEL CODES:

• G21
• P43
• H12
• O53

Acknowledgement

I would like to thank the reviewers for their helpful comments and the editors of the special issue for their patience. I also want to express my gratitude to Bahadır Arslan, who helped me with the research, and surveyed key public bank actions in Turkey and related news published during the Covid-19 pandemic.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 As Turkey underwent a political regime change in 2018 and the new system provides extraordinary authority to the head of the executive branch, I use the term ‘Erdoğan administration’, referring to the post-2018 period.

2 According to Poulantzas (1975) the power bloc concept expresses the unification of different fractions of capital and social groups, with the leadership of some class fractions on others. Power bloc is characterized by an ‘unstable equilibrium of compromise’ (Poulantzas 1975) which is mostly shaped by the strategies of the hegemonic fraction(s).

3 This graph excludes loans in foreign exchange extended to corporations. Since households cannot borrow from the banking sector in foreign currencies in Turkey (a regulation adopted after the 2001 financial crisis), I preferred to use TRY credit flow to highlight the significance of consumer loans within newly extended credits during the pandemic. This graph remains similar to the total credit flow that considers FX valuation effects.

4 TWF was established in 2016 but became active in 2018. TWF aims to support technology-intensive investments and further deepen the country’s financial markets. As a result of regulations in the following years, it has become an investment fund that financializes state assets. It can channel considerable resources to a sector or corporation if the President wants to do so. TWF can also borrow from the financial markets, showing its assets (the corporations transferred to the fund by the AKP government and the Erdoğan administration) as assurances. Uncontrolled borrowing by TWF and its immunity from the TCA audit has led many opposition MPs to characterize TWF as an alternative Treasury. However, TWF does not borrow on behalf of the state and plays no role in the state’s cash flow management, which are traditionally Treasury functions in Turkey (Güngen 2021).