Privatization and regulation in Turkey: An assessment

Abstract

AbstractThis paper provides a comprehensive discussion of the privatization policy that has been implemented in Turkey between 1987 and 1991. After a brief discussion of the problems of the state economic enterprises (SEES) which have led to introduction of the privatization practice in Turkey, the paper focuses on major implications of privatization in the country, including a detailed exposition of sale methods, share ownership and the role of the capital market. The highest objectives of privatization are to promote competition and improve efficiency of public enterprises, to develop the capital markets in Turkey and to ensure wider distribution of shares. However, the following points have been raised in the paper: first, in the course of privatization the selling strategy favoured block sales to domestic and foreign institutions rather than individuals where the basic goal of wider share ownership envisaged by the government has been overlooked. Secondly, Turkey has been very cautious in preserving a ‘golden share’ in a number of the privatized enterprises. Thirdly, the size and depth of the capital market has remained restricted and has been dominated by the public sector securities. By and large, investors in Turkey seem to focus on dividends and interest income rather than on capital gains or equity shares. Despite some positive trends in stocks trading in recent years, this has been achieved by governmental intervention in the stock market and the money market. It is expedient for the government to reduce the interest rates on bank deposits and the interbank interest rates, and to control more effectively the rising internal borrowing of the public sector. Fourthly, it is concluded that the question of regulation has been rather overlooked in the privatization of the airport service company which had previously enjoyed considerable monopoly power. There is a need for a ‘regulatory body’ to control monopolistic behaviour and to regulate pricing policies of private monopolies. Finally, implementation of privatization has been constrained because of the presence of chronic inflation, high interest rates and mounting internal and external debts.