Saturday, 18 September 2004

How Turkey averted a crisis

JUST LIKE RP. Apart from a completely different language, living in Turkey reminded me so much about life in the Philippines.

The pleasant Mediterranean climate had a great deal to do with it—nice balmy evenings, sunshine-filled summers and pleasant weather most of the time.

There were also the beaches reminiscent of Mactan’s crystal clear waters and white sand. And of course who can forget the people—inquisitive, friendly and very hospitable. In my seven years in that country, it was like I never left the Philippines.

EVADING TAXES. It was not just the pleasant things that reminded me of home, however. Its bad sides likewise mirrored those of the Philippines.

Istanbul’s rush-hour traffic could compete on even terms with Manila’s worst.

Turks behind the wheel, with their total disregard for road safety and courtesy, were more than a match for our own jeepney drivers. Oh, and the police took bribes as well. And to round off the list, almost everyone did not pay his proper share of taxes, unless he had to.

My ruminations on Turkey came while reading about the Philippines’ “forthcoming” fiscal crisis, which now seems to be the hot topic of conversation among armchair economic pundits. That of course means over 90 percent of the Philippine population.

CURRENCY CRASH. In 1994, Turkey was in the midst of one messy economic crisis. Its currency, the Turkish lira, had devalued 20 percent overnight, effectively wiping out millions of dollars in locally denominated financial assets. Our company alone lost $200k on the value of our cash deposits, all in the space of a single day.

People now talk of Argentina’s collapse as a warning for the Philippines, but with Turkey being so close and so inextricably linked to Europe, this crisis was potentially more troublesome for the global economy than Argentina’s.

COURAGE AMID STORM. Turkey weathered the storm, and emerged less than a couple of years later a stronger and more competitive economy. The things it did along the way were fundamental, and yet it took a lot of courage on the government, and cooperation from the people, to make them happen.

First off, Turkey did not renege on its foreign debt obligations, something that many now advocate for the Philippines to do.

Former Prime Minister Tansu Ciller, who like our own Gloria Macapagal-Arroyo is a trained economist, reasoned that the erosion in Turkey’s standing with international creditors was something she did not wish to jeopardize, as it was vital to get their full support for the economy’s future growth. Clearly, this option is something our own government will have to consider very carefully indeed.

REVENUE BOOST. To boost short-term revenues and avert a looming fiscal crisis, Ciller undertook a serious of measures that no one thought would be acceptable, much less workable. But they were, and with astonishing results.

Turkey, much like us, had a very porous tax collection system. Those that were taxed at source like salary earners could not escape payment, but many others got by with paying bribes to tax examiners instead.

As a one-time revenue earner, an “economic stabilization tax” was introduced, which was a five percent surcharge on the previous year’s income. The tax was collected at source so there was no avoiding it.

Simultaneously, the criminal and financial penalties on tax evasion were tightened, in order to ensure fairness.

After a grace period to allow for the repentant to come forward and arrange payment, a few prominent businessmen who did not heed the warning were thrown in jail, to serve as an example.

More next week…

Published in Sun Star Daily, Saturday, September 18, 2004 (

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