Turkey: Privatisation In Turkey

Last Updated: 17 January 1997

AN HISTORICAL APPROACH

Organisations in which States have a participation have become more important for state economies all over the world starting from the 19th century.

Having a vital importance in the socialist economy, these organisations have also played important roles in the market economy. Developing countries which do not have sufficient funds and investors for industrialisation, have made use of these organisations in their economic development whereas their function is merely limited to the provision of public services in the developed countries.

State involvement in the economy did not work well as advanced technology, communication systems, financial resources, efficiency and a free market became more important with the globilisation of the world bringing up the question of whether or not the state should be the only regulator of the economy.

The organisations, which are called "State Economic Enterprise(s)" ("SEE") under Turkish Law played a considerable role in the production and marketing of basic goods and services since the constitution of the Republic of Turkey. They have been subject to various regulations, the last being the Decree Law No. 233 (see endnote 1) concerning State Economic Enterprises. None of these regulations were able to adequately address and solve the problems which arise in connection with the SEE, such as overemployment, the need for working capital, the necessity to renew the technology used, and the involvement of political pressures in SEE.

Privatisation came under consideration since the 1980s in Turkey. Because one of the founding principles of Republic of Turkey is nationalism, taking steps towards privatisation was not easy. However, this was not the only obstacle against privatisation. Employees of SEE, small businesses and artisans were also against it. Still, SEE had become a financial burden since the commencement of globalisation, due to over employment and unprofitability. Consequently, privatisation was necessary not only for ending the negative effects of the State Economic Enterprises on the National Budget but also for providing new investments, introducing new technology and management techniques, opening up to competition and increasing economic efficiency.

I. Development of the SEE

After the 1930 World depression, under the new industrialisation programme, State Economic Enterprises were established in order to stimulate the industrialisation.

Actually, the historical development of the SEE in Turkey can be studied in five periods:

In the first period, which is the last years of the Ottoman Empire a limited number of factories were established particularly to satisfy the various needs of the armed forces and their personnel (see endnote 2).

The second period is the period between 1925 and 1950, where the State invested in the energy, mining, banking and transportation sectors and enacted Law No. 3460 regulating SEE because of the reluctance of the private investors.

The third period (1950-1960) covers the years during which the Democratic Party was in the government and a liberal economic policy was adopted.

In the fourth period (1960-1983), the notion of planned development was introduced, and the first five year development plan was implemented. In this period the numbers of SEE had increased although a combination of different economic policies were adopted. Law No. 440 was enacted to realise a more efficient legal regulation which brought the new principle of reducing the state participation from 100% to 50%.

Finally, the fifth period which starts in 1983, continues to this date. Law No. 2929 enacted in 1983 provided that sector holdings and majority holdings were free to set the prices for their goods and services, although the Council of Ministers held the right to determine the prices of the SEE's products under special macro economic conditions. In 1984, Law No. 2929 was abolished by the Decree Law No. 233 with which the public sector was divided into two categories: the SEE and the Public Economic Organisations (PEO). SEE are public enterprises operating in accordance with commercial criteria whose entire capital is owned by the state. PEO are public enterprises with their entire capital belonging to the state, but which produce and market goods and services of a monopolistic nature based on public interest. The provision of these goods and services by the PEO constitutes concessions (see endnote 3).

Heavy industry and manufacturing where the private sector was reluctant to make investment in order to supply cheap input and basic consumption goods were the areas where SEE have invested. However, non-economic pricing policies, a non-competitive environment isolated from foreign markets, various political considerations and a redundant workforce have caused the SEE to become a financial burden on the economy. Furthermore, the governments failed to set appropriate economic goals and policies for the SEE, and attempts to restrict the SEE were unsuccessful.

After the set of decisions dated 24th January 1980 were implemented, the Turkish economy went through major changes. These decisions led to the expansion of foreign trade, development of the private sector and increase in foreign investment and domestic savings. In 1982, the Capital Market Board was established, and the Central Bank commenced transactions on an open market. Monopolies operating in the markets for electricity, tobacco and tea were abolished in order to promote competition in the relevant markets. Capital movements were liberalized in 1989. The goods and services provided by the State were restricted, and SEE were allowed to set their own prices.

II. LEGISLATION

Privatisation was first mentioned in article 4 of Law No. 3460 drafted in 1938 under the instructions of Ataturk. The number of SEE have increased in 1950s even though the leading party had relied on the privatisation of SEE in its party program. Law No. 440, which regulated the principles of the privatisation of SEE, was drafted. However, neither of these two laws were carried out.

The first legislation providing some provisions about privatisation has been Law No 2983 enacted in 1984. Law No 2983 provided for the sale of shares of SEE to real and legal persons, or alternatively, the transfer of management rights in these enterprises for specific periods but did not govern any privatisation method directly. The Law further provided priority to employees and the public residing in that region on the purchase of shares.

Law No. 3291 enacted in 1986, provided the most fundamental and extensive provisions on privatisation even though it was only an authorisation law. Law No. 3291 authorised the Council of Ministers to determine which SEE were to be privatised, and the High Planning Council had the responsibility of privatising affiliates of SEE. All enterprises within the privatisation program were to be converted to joint stock companies in order to realise a prompt privatisation. It was further provided that any SEE would be deemed privatised if the State participation falls below 50%.

Law No. 3911 enacted in 1993 has empowered the Council of Ministers to issue decree-laws to govern the privatisation procedure by taking into account the profitability, productivity, necessity, promptness and public benefit. Two Decree-Laws have been issued for such purposes. However, the Law No. 3911 and the Decree-Laws were cancelled by the Constitutional Court.

Under Law No. 3987, which was enacted in 1994, the Council of Ministers was authorised to privatise SEE and to provide for unemployment benefits by issuing Decree Laws. However, the Constitutional Court annulled Law No. 3987 and the relevant Decree Laws issued thereunder.

A social and political consensus on privatisation led to the drafting of the new Privatisation Law No. 4046 which was enacted on 24th November 1994 as amended by Law No. 4105. This law regulates an appropriate legal procedure to speed up privatisation and provides for the expansion of assets to be privatised. It also covers regulations relating to petroleum law and a social safety net for employees who might lose their jobs as a result of privatisation. As the decision makers for privatisation, foundations such as the Privatisation High Council and the Privatisation Administration were also established.

Endnotes

1 The Decree Law No. 233 which was amended several times, was first published in the Official Gazette dated June 18, 1994 and numbered 18435.

2 In 1812, Beykoz Military Equipment Factory (leather industry), in 1835 "Feshane" (Fez Factory), 1845 Izmit Factory (wool textile industry), in 1855 Zeytinburnu Factory (coton textile industry) and Hereke Factory (velvet and silk industry) were established. Ziraat Bankasi was founded in 1988.

3 The definition of PEO's as set out in the Decree Law No. 233 has been amended by the Privatisation Law to emphasise the concession nature of the goods and services provided by the PEO.

Next Issue: Privatisation Policy in Turkey

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