Turkish government handing out cheap bank loans in anticipation of local elections: study

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As Turkey’s municipal elections draw closer, the Turkish government has put in place several campaigns extending favorable bank loans for housing purchases in what economists claim to be an election investment, BBC Turkish service reported on Tuesday.

Public lenders provide a third of overall loans in the country, a rate that is significantly higher compared to developed economies.

Campaigns by public banks to extend loans with interest rates below the market average are perceived by experts as moves aimed at securing the outcome of the local elections slated for March 31, using public resources at the expense of opposition candidates.

The BBC cited research which revealed that state lenders have especially been handing out abnormally favorable commercial loans in electoral regions of critical importance.

The study, titled “Lending cycles and real outcomes: Costs of political misalignment,” by Orkun Saka from the London School of Economics (LSE) and Çağatay Bircan from the European Bank for Reconstruction and Development, was released in October and published in January by the Bank of Finland Institute for Economies in Transition (BOFIT).

The research found that public banks have been more generous in loans in critical locations where the ruling party controls the municipalities, while they were pursuing unfavorable policies in places where the opposition is in office.

The study also showed that economic activity and the unemployment rate are impacted as a result of the preferential distribution of loans.

Voters tend to attribute the fluctuations in local economies to the mayors in office, the study said.

The Turkish economy had suffered a slowdown in late 2018 in the aftermath of a currency crisis in August that was taken under control through sharp hikes in interest rates.

Runaway inflation was another problem, constantly driving up food prices, to which the government reacted by blaming wholesalers and setting up municipality-sponsored produce stalls offering fruits and vegetables at reduced prices.

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