Arcelik illustrates how Ankara has helped Turkish econo…

For a sense of how Turkish government largesse has helped the country’s economy shine this year, ask Hakan Bulgurlu, the chief executive of Arcelik, Turkey’s biggest white goods manufacturer.

Last year was intensely challenging for the country: a faction of the army mounted a failed coup, terrorists carried out a string of attacks, and the economy and the currency came under profound strain.

But, Mr Bulgurlu said, customers kicked off 2017 by streaming into Arcelik’s 3,000 franchises — and loading up on fridges, washing machines and other household goods.

It added, up, the executive said, to a 39 per cent year-on-year sales growth in the first quarter of this year, a surge he thinks has been boosted by temporary government pro-growth policies. “Show me another economy where numbers are this strong,” he said of his company’s sales figures.

A big government stimulus has helped gross domestic product recover from a 1.8 per cent contraction in the third quarter of last year to 5 per cent growth in the first three months of 2017.

The question is whether the Turkish government’s easy credit policy that boosted sales has provided anything more than temporary relief for Arcelik and the wider economy.

One part of the package was made up by tax holidays, including the temporary removal of a 6.7 per cent consumption tax, a move that helped companies such as Arcelik, which is a subsidiary of Koc group, Turkey’s biggest conglomerate.

Another important component was a newly recapitalised credit guarantee fund, which allowed the government to underwrite nearly $50bn in new credit to businesses and executives, while taking on some of the risk of defaults from reluctant banks.

“A big part of this 5 per cent growth is coming from that stimulus,” Mr Bulgurlu said, although he warned that consumption would slow as some taxes are reinstated.

He suggested that the buoyant economy, which has surprised analysts and pleased President Recep Tayyip Erdogan ahead of 2019 elections, has drowned out investors’ concern about Turkey’s fraught politics.

Of the 22 fund managers he has recently met, none asked him about the state of emergency imposed by Mr Erdogan in the wake of last year’s coup, which the president has no intention of lifting. All of them asked him about growth potential

The end of the stimulus is now approaching: the tax holidays are due to lapse in September, and the credit guarantee fund is down to $19bn.

Arcelik has experienced a sales growth of 39% year-on-year in the first quarter, says chief executive Hakan Bulgurlu © Reuters

But Naci Agbal, Turkey’s finance minister, says the package has succeeded in its purpose, supporting growth at a time when local banks lacked the assets to provide more help.

“If we hadn’t done this kind of support, the Turkish economy would have become worse and worse,” Mr Agbal said in an interview. “The tool is right: the programme is the effective and efficient way of giving economic support.”

Not everybody is convinced. The months of government support may have invigorated growth but they have only deepened Turkey’s dependence on cheap credit. In addition to the credit guarantee fund, Turkey has pooled some $200bn of the government’s stakes in blue-chip companies into a sovereign wealth fund, so it can borrow more against them to support infrastructure projects.

At the same time, Mr Erdogan and his allies have railed against private banks for not lending more, and warned them against competing for deposits.

The largest concern is about credit quality. By pledging to take on 7 per cent of possible defaults in the new loans made under the fund, the government has in effect lowered lending standards. Banks are taking on riskier loans and are not always fully clear what borrowers are doing with the money.

Mr Agbal said some 60 per cent of the loans were probably used for new investments, citing the fund’s data, and that he was largely comfortable with the quality of the loans.

“Quality’s important, but quantity is also important,” he said, adding that the government was discussing whether it should prescribe that any new loans made ought to be specifically pegged to new investments.

Up to now that has not always been the case.

“If they hadn’t done this, hundreds of companies would have gone bust, but we should be quite a bit worried,” says Atilla Yesilada, at GlobalSource Partners, a consultancy. “There’s really no accounting for where these loans are going to.”

At a fish restaurant in Ankara, Serkan, who owns a high-end kitchen design shop and employs 160 people, said he took out a TL800,000 loan backed by the fund, to pay off more expensive loans.

His friend, the restaurant owner, bought dollars to hedge against the falling lira. Others in their circle of young businessmen have used their loans to invest in the stock market, now at an all-time high.

“I know it’s not good,” said Serkan, with a laugh. “But at least today we are eating!”

Mr Agbal suggested he was untroubled by such issues.

He said: “I had to do all these actions to accelerate economic activity. I see we are successful in this area, and Turkey’s economic indicators are looking very good . . . What is more important than any other thing is that everybody’s happy now because they’ve got finance in such a difficult time.”

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