Monday, May 2, 2011

Weekly Hurriyet Column: Financial Center Dreaming - II

Below is my Hurriyet Daily News & Economic Review column for this week (it is actually last, as I am posting this exactly a week late, but I am sticking to its original date for archiving purposes), which you can also read at the Daily News website.  As for the title, yet another cheesy one, or at least one mildly so: I was loosely referring to the Kusturica movie.

As for the addendum, I have ten pages of notes from the meetings, some of which are quite interesting, but have no time to add them. The good thing is that they are not time-sensitive at all, so it will be OK even if I add those in a couple of weeks.

Anyway, on to the column:

The government has been dreaming about carving a financial center out of Istanbul ever since economy czar Ali Babacan first disclosed the Istanbul Finance Center, or IFC, strategy and action plan, or SAP, to great fanfare on the eve of the IMF-World Bank meetings in Istanbul.

That press conference was marked by a lack of foreign journalists, hinting that they had taken the idea with a grain of salt. The foreign economists I talked to during the meetings humorously (and politely) mentioned the traffic as the biggest obstacle, and I and Kaan Sarıaydın shared that skepticism in a column at the time.

One and a half years later, I had an opportunity to learn how much ground has been covered with that SAP in the Istanbul Finance Center: Perspectives and Creating Stimuli conference organized by the Foreign Economic Relations Board, or DEİK.

In the keynote address, Babacan noted that they have covered 9 of the 71 action plans in the SAP and are working on 13 others. In the second session of the conference, representatives of the different state agencies involved in the project summarized their work. But the show-stealers were the morning and afternoon panels, which brought together a very impressive list of professionals sharing their views on the IFC.

I am happy to take Babacan’s word on the progress of the SAP so far and that it would be completed in the next five years. However, I do have serious reservations about such a laundry list approach that not only does not prioritize among the action plans, but also fails to take IFC’s objectives and its competition into consideration.

For one thing, one of the highlights of the conference for your friendly neighborhood economist was to learn that Jeju is not a Jedi knight. It is a special autonomous province in South Korea that would like to become a financial center. In fact, the panelists noted that many other countries, all the way from Russia to Colombia and Peru, have financial center aspirations.

According to them, the largest financial centers have lost some of their share to smaller ones as a result of over-regulation and a loss of confidence in developed economies after the crisis. In addition, several panelists highlighted that capital will no longer be as bountiful and cheap as in the past, which should strengthen this trend.

Therefore, as Domenico Siniscalco of Morgan Stanley noted, becoming a financial center is not an exercise in creation, but one in competition. And in that regard, Istanbul does not fare well: It is ranked 71st in the Global Financial Centers index prepared by the Z/Yen Group for the City of London, up one place from its latest ranking before the SAP was enacted.

If the government enacted the SAP and leapfrogged in these rankings, Istanbul would certainly attract more capital, but it would need more than that to become a financial center. As the panelists argued, Istanbul, and other contenders for that matter, needs to find its niche. Those specialties could be geographic or product-based: Commodities, derivatives, exchange-traded funds and Islamic finance were some of the recommendations.

It is at least positive that the government is willing to engage the private sector in the process. In fact, Laura Cox of PricewaterhouseCoopers noted that she was impressed by the level of consultation. I have learned that Babacan met the panelists in private the previous night, and State Planning Organization Undersecretary Kemal Madenoğlu confided in his closing remarks that the conference has shown him the need to hold discussions with domestic stakeholders right away.

Let’s hope that all this advice is made well use of before IFC turns into yet another one of the government’s “crazyprojects.

Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at

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