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The Kapali Carsi

Turkish economists to shut up – or get locked up

I had just sat down to write my predictions on the Turkish economy and markets Friday afternoon when I realized I could go to jail for that.

Bloomberg reported Jan. 4 that Société Générale, a French bank, had “ordered employees to cease commentary on Turkey pending a review of new legislation that threatens up to five years imprisonment for certain types of commentary on financial markets.”

The bank was reacting to a clause of the new Capital Markets Law, which took effect Dec. 31, under the article Markets Fraud: “Those who give untruthful, wrong or misleading information, start rumors, provide news, make comments or prepare reports with the intention of influencing prices and values of capital markets instruments or investors’ decisions are punished with a prison sentence of two to five years and a pecuniary punishment of up to 5,000 days.”

This is the introduction to my Hurriyet Daily News (HDN) column,  where I argue that this is not the first time analysts have come under attack. I summarize last’s year “witch hunt”, where pro-government daily Sabah was doing a smear campaign about economists critical of monetary policy. I also relay my own experience from 2007, when the PM had recommended to my bank that I be fired:). Anyway, you can read the column, and all the details, at the HDN website.

As for an addendum, I have quite  few points to make. But first of all, note that the clause in question was heavily criticized after the law was approved in the Parliament on Dec. 6. But I wasn’t sure how research providers would react once it took effect on Dec. 31. Thanks to SocGen, I did not have to wait too long:)…

As for the actual addendum, the column was quite popular yesterday at HDN, getting a record number of clicks, shares and comments, so it’s appropriate I start with some reader comments. One reader asks:

The law says “….with the intention of influencing the prices…”. Then every commentary can have a disclosure that “…the commentary here is not intended to influence prices, decisions, etc…”. Wouldn’t be enough to avoid liability?

To be honest, I am no lawyer, so I had to consult a couple of lawyer friends of mine. My friends don’t think it is going to work. But here’s another reader’s response to this question:

The answer is simple. If the sultan loves you, then the disclaimer will be enough. But if the sultan does not love you, then it will not be not enough and you must go to prison. That is only just, because those whom the sultan does not love are ipso facto infidel terrorists who belong in prison.

The reader is referring to PM Recep Tayyip Erdogan, I think:) I will not go as far as to say that he will have the final say on who’ll go to jail and who won’t because of this law. But one thing is clear: The problem with the current law is that it is open to interpretation. For example, let’s say an economist is predicting bond yields to fall and writes a report to that effect. But her bank recently bought quite a bit of bonds, and so did she write the report so that there would be a rally in bonds and her bank would make a neat profit?

Even people who have no conflict of interest are not safe: I believe bond yields will rise, despite the huge demand to today’s and yesterday’s auctions, and so I am planning a column titled “I expect you to die, Mr. Bond“. I know there is a chance I may be tried because of the famous clause 2 of article 107 (what I translated in the column). But I am a freelance economist and so don’t work in a firm that could have a position on government bonds. I don’t have any bonds as investment and neither has my family. So I am safe, right? Actually, no! First of all, as far as I know, the monetary fine is without a trial, just by decision of the Capital Markets Board. And if I don’t want to pay up and go to trial: If I think I may spend 6 months in jail waiting for my verdict, I will have spent 6 months in jail even when acquitted… You see my point? And even if I won’t wait for the verdict in jail, even a small chance of being found guilty could be enough for me to apply auto-censure and decide on not writing this column:(… BTW, I have a lot of books waiting to be read, and jail is a great place for reading in Turkey, and so I will probably write the column anyway:)…

Anyway, the Capital Markets Board decided to respond to this criticism: In a statement late afternoon yesterday (Monday, sorry only in Turkish), they note that the clauses regarding market manipulation are not that different under the new law than the old one. They even compare the two (old and new) relevant clauses side by side. To the untrained eye, the two clauses look almost identical. But your friendly neighborhood economist has a eagle eyes, trained by reading hundreds of pages of extremely boring bank General Credit Agreements for a loan he is taking for his family business. So it did not take too long for him to figure out two crucial differences between the relevant clauses of the old and new laws: First, as Ibrahim Haselcin of National Bank of Greece affiliate Finansbank affiliate Finansonline:) notes, while the old law was about manipulating prices, the new law has included investor decisions as well. Now, this is very open to interpretation. Secondly, the old law did not say anything with respect to research reports.

I should tell you that not all commentary about this new clause is negative. For one thing, SocGen has resumed Turkey commentary after apparently deciding the law does not pose a threat. And research reports have not come to a complete halt: I received reports from most of the outfits I get stuff from in the last couple of days.  But I learned today that another major European bank has stopped commentary for the moment, as they find it confusing as to what constitutes a jail sentence, i.e. exactly my point above. On the other hand. the Financial Times argues, in its beyondbrics blog, that the clause in question is largely misunderstood. They quote the head of corporate communication at the Capital Markets Board that there will be secondary legislation that will specify the acts that would count as market manipulation and therefore clear some of the ambiguity in the current clause. This is confirmed by columnist and analyst and consultant (and friend) Atilla Yesilada as well, who has an excellent guest op-ed in Bloomberg view. He also puts this clause in the greater scheme of media control, self-censorship and limits to freedom of speech in Turkey. Highly recommended…

In a Turkish column, Yesilada spells out why the current clause is very dangerous as it is, unless modified or clarified with secondary legislation. First, even if you are not a conspiracy theorist and don’t believe that the clause was ordered in by Erdogan to silence objective economy and markets reporting, there is a good chance pro-government daily Sabah, whose exploits you can read in the column, will start pressuring the Capital Markets Board on economists/analyst critical of the the government’s policies. Or if the economy does not do well, the Justice and Development Party could resort to the same method before the local elections next year.

And finally some Turkish links relevant to the column for my readers who Turkish speakers: The actual law in the Official Gazette and the Haberturk Mobius article I refer to in the column. I also recommend Radikal columnist Ugur Gurses’ column, especially his quote from economy tzar Ali Babacan regarding the importance of legal institutions and the rule of law…

32 Responses to “Turkish economists to shut up – or get locked up”

ChadMarch 21st, 2013 at 5:42 pm

I'm taking my family to Turkey in the next few months. Just from doing a little research it doesn't look like the Turkish Lira has changed much. I believe 40 lira is still around $20 US Dollars. I was reading where over a century ago one lira was worth five US dollars. So the Turkish economy has certainly come a long way.

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Emre Deliveli The Kapali Carsi

Emre Deliveli is a freelance consultant, part-time lecturer in economics and columnist. Previously, Emre worked as economist for Citi Istanbul, covering Turkey and the Balkans. He was previously Director of Economic Studies at the Economic Policy Research Foundation of Turkey in Ankara and has has also worked at the World Bank, OECD, McKinsey and the Central Bank of Turkey. Emre holds a B.A., summa cum laude, from Yale University and undertook his PhD studies at Harvard University, in Economics.

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