Economist Mahfi Eğilmez expressed his concerns about the Turkish Sovereign Wealth Fund under seven broad categories. Eğilmez said, ‘Turkey does not have a current account surplus or enough real and financial assets to build a healthy wealth fund.’
The debate that started after the issuance of an executive order which transfers all licenses related to the rights for the lottery games to the Sovereign Wealth Fund, for the next 49 years, continues. Previously the licenses for chance games were granted by the Turkish National Lottery Administration. Mahfi Eğilmez expressed his concerns and outlined his expectations of the changes made by the executive order, in an article entitled ‘The Wealth Fund.’
The veteran economist listed his assessments on the law as follows:
1- The Turkish Sovereign Wealth Fund does not derive from a budgetary or a current account surplus. Unlike major oil or natural gas exporting countries, Turkey does not have a budget surplus due to trading commodities, it does not have a current account surplus, nor does it have a public pension system that carries a surplus. On the contrary, Turkey has a stubborn budget and the current account deficit, and a public pension system that is under water and is reliant on government funds. The only public fund that generates a surplus in Turkey is the unemployment insurance fund that cannot be pooled into the Sovereign Wealth Fund. In summary, Turkey does not have the necessary real or financial surpluses to establish a healthy Wealth Fund.
2- The bill does not address how the earnings from the Fund will be allocated. The only clues to how the generated income will be appropriated come not from the main text of the bill but the introduction and referral part of it. Also, the bill lacks the specifics of the legal and budgetary monitoring process which might be a concern for the investors.
3- The law does not specify a new source of income, but merely proposes the transfer of a portion of the state budget to the Wealth Fund. However, directing the privatization proceedings and re-directing a portion of the budget revenues to the Fund might substantially worsen the state budget deficit.
4- Inclusion of extraneous goals, such as limiting the dominance of the traditional banks and expanding Islamic banking in the bill, is both puzzling and questionable.
5- A public financing tool called the ‘Public Resource Pool’ was very popular during the Erbakan coalition government years. The idea was to set up a fund to gather the public sector revenues other than the budget revenues and spend it from that pool. Quite often the government would transfer public resources to this pool only to find out that it was unsustainable and would seek new resources. The proposal for funding of the Sovereign Wealth Fund reminds me of the ‘Public Resource Pool’ experiment.
6) In the late 40s and early 50s, famous American Cartoonist Al Capp had created a fictional character named Shmoo. It looked like bowling pins and was very cute. It could reproduce asexually and could become whatever you would imagine. For example, it would taste like chicken if you wanted to eat chicken or taste like beef if that’s what you’ve wanted. I immediately recalled Shmoo after reading the list of expectations from the sovereign wealth fund.
7) I can’t speak for other countries but Turkish history is full of similar financial inventions. A separate fund “Irad-i Cedid” besides the central treasury was established in 1793 during the reign of Selim III. It was followed by shipyard treasury and grain treasury. Many other treasury funds (mostly military) were established in the following years. Having multitude of separate treasuries didn’t help Ottoman finances to thrive but it has accelerated collapsing of financial accountability. Moving away from central treasury system has an important role in the collapse of the Ottoman empire. Nevertheless, central treasury system was reestablished in 1839.
Translated by :Tahsin Durmuş