Exploring financial alternatives Sikandar Taimor According to the Austrian school, economic growth is linked with periods within a time cycle where capital expenditure is planned for economic activity. The spread between the US Treasury two-year and five-year bonds indicates investor sentiment on economic circumstances and its inversion is a key indicator to determine a recessionary phase. That sign surfaced in the last quarter of 2022, post which there was high inflation, increasing interest rates for major central banks, dollar index peaking and falling oil prices, marking a period of declining economic activity globally. Given how international economic circumstances are, growth through capital expenditure is not a possibility until the circumstances allow them. The internal political chaos adds to the complexity of the challenge, placing Pakistan at a point that could be declared a ‘red alert’ for its economy and for it to move forward both local and international factors need to align, which hasn’t been a likely scenario over the last year, nor does it seem possible for the next one. As the country moves forward on its current trajectory, its total public debt and liabilities are estimated to be about Rs63.279 trillion, which is 89 per cent of GDP and is ranked 67th out of 125 countries in terms of the growing deficit between demand and supply of infrastructure requirement, placing it in the bottom 20 out of 144 economies on global competitiveness. Having a state-owned fund that trades based on global macroeconomic trends could assist the country in navigating uncertain times This formulates an important question: what can the country do to address the growing infrastructure requirement and increasing debt servicing cost while its economic output is declining? Energy, water scarcity, inadequate health facilities, outdated rail network and public transportation, are key areas which require investment to increase the standard of living for the masses. There is a realisation and acceptance in society with key corporate leaders emphasising an increase in development funds in the annual budget and private investor participation, but it does not present a solution or a road map to addressing this challenge when the country is failing to meet its current expenditure. There are factors inherent in both infrastructure project financing and the domestic capital markets that hinder private participation. The very nature of infrastructure project financing is challenging since funding is required for long tenors and cash flows only start to materialise after a certain time. In the past, guarantees given while soliciting investment have not been fully adhered to, which naturally results in an unwillingness to lend, especially given the limited recourse the investors have under the current legal and political framework. This poses a concern regarding private sector funding as an approach, with investor sentiment shaped by the political and economic context of the country.

Countries that have modern infrastructure and have delivered a high standard of living for their citizens, in regions such as the Middle East, Europe and Asia, have sovereign wealth funds that are part of their funding sources. Trading of gold exchange-traded funds can generate an absolute return in the 60-64 per cent range and a five-year annualised average return of 12.4pc, an allocation that the government can make through a state-owned fund. In Pakistan, we rely on foreign aid, prefer to sell country-owned assets and engage in loan agreements that further increase the current account deficit. Norway, Finland, UAE, and Saudi Arabia all have state-owned funds. India founded a state-owned wealth fund in 2015 that manages $4.4 billion in assets — roughly the size of the entire holdings of the State Bank of Pakistan in the last quarter of 2022. We must understand contemporary global developments through an international relations scope, a changing landscape, with Russia Ukraine war in its second year. Iran, Saudi and China’s alliances further substantiate a threat to the petrodollar system. If we relate these developments to history, every 40 years, the culmination of a super cycle has led to the collapse of the monetary system, as the yield curve inversion reaches its deepest level since 1981. First, the gold standard, then Breton Woods and now the fiat currency system prevalence is being questioned, with the rising influence of China and Russia. In the likelihood of such an event, Pakistan does not want to increase debt servicing costs where exploiting its relationships for further aid would be futile.

FINDING WAYS TO SURVIVE Multinational companies (MNCs) are in a tight spot. Kazim Alam One can argue that they signed up for problems like high inflation, low economic growth and poor infrastructure when they set up local operations years ago. But the latest economic downswing has produced three challenges for foreign companies operating in Pakistan. The first is their inability to send dividends to their overseas shareholders for the last year, thanks to the official restrictions on dollar outflows amid low foreign exchange reserves. Secondly, an unprecedented loss in the value of the rupee against the dollar is rapidly eroding the value of their unpaid dividends. Rupee-based dividends, repatriated to foreign headquarters on a future date, will translate into a smaller dollar figure given the roughly 40 per cent devaluation in recent months. And finally, MNCs are unable to import raw materials — like their local counterparts — which has put their business continuity at stake. ‘One positive thing that’s come out of this crisis is that everyone is trying really hard to indigenise’ “Our estimate is that the pending dividends amount to $1.5 billion. Not a dollar has gone out as dividend for the last year,” said Amir Paracha, newly elected president of the Overseas Investors Chamber of Commerce and Industry (OICCI), in a recent interview with Dawn. The holdup in dividends is causing “serious reputational damage” to the country. That’s why OICCI has come up with two stopgap solutions for the dividend problem. The chamber representing 208 blue-chip MNCs has asked the State Bank of Pakistan (SBP) to allow partial dividend payments in the immediate run. These “symbolic” payments in “small tranches” will give heart to the foreign sponsors that things are getting back to normal in Pakistan, Mr Paracha said. Another proposal that OICCI will soon present to the SBP envisages that all accumulated dividends be dollarised to protect their “real value”. The proposal will give the central bank a window of 18-24 months while ensuring that the foreign shareholders don’t lose out any further because of the rapid devaluation. The SBP will bear the currency risk under this proposal, the OICCI president said. Pakistan has a liberal foreign investment policy that allows 100pc profit repatriation. MNCs repatriated $1.6bn to their overseas headquarters in the calendar year 2021. The repatriated amount dropped to $220.1 million in the first seven months of 2022-23, down 78.3pc from a year ago. As for the curbs on raw material imports, the OICCI president said MNCs have adopted different ways to deal with the problem. For example, many large companies “sensed” the impending problem back in November 2022 and over-ordered their inventories. Unilever Pakistan Ltd, where Mr Paracha serves as CEO, was one such “cash-liquid” company. “We’re surviving until now. We’ll ask the SBP when we run out of the stock,” he said.

Another way for MNCs to circumvent the import curbs involves inter-company loans. The SBP allows imports that are otherwise banned provided that the importing company is using dollars borrowed from its overseas headquarters. Yet another practice that MNCs have been using to import industrial raw materials amid official bans consists of the International Finance Corporation (IFC) — a World Bank Group organisation focused on private-sector development in emerging economies — issuing dollarised loans. The importing company gets dollar-based liquidity in the immediate term for bringing in raw materials, but the loan increases the cost of doing business in the long run, he said. MNCs have drawn heavy criticism from economists for operating in mainly consumption-oriented sectors of the economy, like telecommunications, food, personal care products, banking etc. They sell products and services within the domestic market and generate rupee-denominated sales and profits. Subsequently, they repatriate their profits to their overseas sponsors in dollars, bringing the country’s already strained balance of payments under further pressure. Mr Paracha acknowledged that there’s merit in the argument about the lack of export-oriented foreign direct investment. “There’s a growing realisation now. That’s why most MNCs are focusing on indigenisation of both raw material and production,” he said. He said firms like P&G, Nestle and Unilever have switched to local production by up to 90pc. In the case of Unilever, Mr Paracha said 99.9pc production is in local factories. Similarly, up to 60pc of Unilever’s raw material is locally sourced versus 30pc just four years ago. “One positive thing that’s come out of this crisis is that everyone is trying really hard to indigenise,” he said.

CORPORATE WINDOW: PAINFUL FOOD INFLATION In February this year, annualised food inflation shot up to 41.9 per cent in urban areas and 47pc in rural areas of Pakistan. In February last year, these readings stood at 14.3pc and 14.6pc, respectively. This means that food inflation — or the pace of increase in the prices of food items — has more than tripled in just one year. But what does it mean for households? It means that a rural family needed Rs14,700 in February 2023 to buy the same amount of food that they had bought for Rs10,000 in February 2022. For an urban household, the requirement was a little less — Rs14190. So, what if rural and urban households didn’t have more than Rs10,000 to spend on food? Well, in that case, in Feb 2023, a rural and an urban household ended up buying with their Rs10,000 only as much food as was worth Rs5,300 and Rs5,810, respectively, in Feb 2022. This painful food inflation has hit Pakistanis amidst a sharp economic slowdown (likely GDP growth of 1.3pc in FY23 versus 6pc in FY22), rendering about two million people jobless. It is not difficult to imagine the disastrous impact of such high food inflation rates on the lives of jobless people and those whose incomes have fallen due to the economic crisis. No wonder people are losing lives in stampedes occurring at the distribution of free wheat flour and some are committing suicide. However, the vast majority of financially constrained people are living on meagre incomes by working in the shadow economy, supplemented by debts, charity and the government’s cash handouts and subsidies. The edible items that cost Rs5,300 in February 2022 in urban areas now cost roughly Rs10,000 The sad news is food inflation is here to stay. Supply shocks caused by the last year’s floods, higher international commodity prices, the rupee’s depreciation, lack of administrative checks on retail prices amidst worsening political crisis, hoarding of food commodities and the unabetted smuggling of food items to neighbouring Afghanistan may keep food inflation high in near future. Stories of the smuggling of wheat, wheat flour and cooking oil to Afghanistan make headlines regularly in newspapers. But who cares to stop it amidst the ongoing political and constitutional crisis? Admittedly smuggling and hoarding of food items alone are not fueling food inflation — and there are solid economic reasons for it like an increase in support prices, the rupee’s depreciation, higher international prices etc. But if a country is unable to overcome these and other “economic reasons”, should it allow hoarding and smuggling to go on? The answer is obvious. In eight months of this fiscal year (between July 2022 and Feb 2023), forex-starved Pakistan had to spend $6.687 billion on food imports, according to the Pakistan Bureau of Statistics. Chances are that the full fiscal year food import bill will exceed $10bn. At a time when the country is running dry of foreign exchange, no one can deny the need for putting more effective checks on the smuggling of food items out of the country. Similarly, it is

essential to ensure that food commodities are not hoarded and retailers don’t overcharge customers or short-sell to them. But such things can be done only in an environment of at least some political stability. That, sadly, remains absent. So, food inflation may continue to remain high in the coming months as well. Possible further interest rate tightening by the State Bank of Pakistan in April, at the urging of the International Monetary Fund, may not ease food inflation. Stubbornly high food prices will start easing only when our agricultural output increases and energy prices become stable. Reducing consumer inflation makes agricultural inputs cheaper, and more importantly, political stability returns to the country while the hoarding and smuggling of food items fall significantly. In addressing food inflation — as in all other matters — sincerity of intent counts more than anything else. For decades, our rulers have made it a habit to talk more and do less. That has resulted in weak or no accountability of the government departments and agencies entrusted with certain responsibilities. Do our federal or provincial food ministers keep a check on whether officials responsible for gathering food prices do their jobs honestly? If you visit the Pakistan Bureau of Statistics (PBS) website and download weekly prices of essential items, you will be amazed to see wheat flour, milk, and curd are still selling at really cheap rates. The PBS price sheet of March 16, 2023, shows average prices of milk and curd at Rs160 per litre and Rs185 per kg, respectively! One wonders whether they have considered Karachi’s milk and curd prices (Rs210 and Rs300, respectively) before working out the national average prices of these two items. And if yes, then somewhere in Pakistan, milk and curd must have been selling at surprisingly low prices that the media did not report. This is just an example of inefficient monitoring. But examples of more serious problems, including corruption, also abound — if not in PBS — then in provincial food departments across Pakistan. For example, recently, wheat flour millers in Punjab and Sindh stopped milling when asked to sell flour bags at certain rates because of corruption-induced misallocation of wheat quotas. It’s a separate story that flour millers were as much to blame for it as “unscrupulous” food department officials. Little wonder then, most Karachiites buy fine wheat flour from Chakkiowners (small, often unlicensed wheat-flour millers) for Rs160 per kg. The government claims that wheat flour (of “standard” quality) is available at Rs90 per kg. Ramazan Mubarak!

MISMATCH OF RENEWABLES Nasir Jamal

Only 15 per cent — or 2,100 megawatts — of the planned hydropower capacity of 14,000MWs by 2030 is expected to come online in time, with the cost overruns estimated to go up from the current $31 billion to $49-61bn, says the Pakistan Renewable Energy Coalition (PREC). Out of the planned hydropower capacity 51pc has achieved financial closure, but only 39pc had begun physical construction as of September 2022. The fact sheet also mentions that almost 70pc of the pipeline capacity requires partial or complete funding by either the Water & Power Development Authority or provincial government bodies. The coalition, a group of allied organisations and individuals assisting in accelerating the growth of renewables in the country’s energy mix, is apprehensive that the delays in pipeline realisation are likely to increase power outages and load shedding in the country, prompting a switch back to the fossil-fuel power to bridge the shortages. Moreover, Pakistan and the government’s hydropower development wing have been downgraded by all three global credit rating agencies: Moody’s, Fitch and S&P, increasing the likelihood of delay in implementing hydropower projects. Industry analysis shows that it is not economically viable to select hydro plants for the next 10 years since solar and wind are cheaper options The hydropower pipeline is also becoming vulnerable to extreme weather patterns and climate change, the effects of which have been seen across the globe in Norway, France and China in the form of drying up of rivers and lower reservoir levels. In Pakistan, too, the early onset of summers saw record-breaking temperatures and low reservoir levels.

In its comments on the Integrated Generation Capacity Expansion Plan (IGCEP) 2022-31, the coalition has suggested that the plan, updated annually by the National Transmission & Despatch Company (NTDC), should provide more clarity and detail on cost mismatches in light of historical data and account for costing of renovation/refurbishing, schedule overruns, uncertainty in indexation and contingencies such as experienced in the case of Neelum-Jhelum and Mohmand Dam. “We request that all such cost considerations should be included and made publicly available to provide further confidence to the stakeholders in the national power planning processes,” it says. Analysing the latest IGCEP using the PLEXOS Energy Modelling Software, the coalition has pointed out some issues in the national power planning, starting with a delayed submission of IGCEP. “As a result, many ground conditions change. Many plants go offline, exchange rate changes, contracts change, etc. Then the committed plants (of capacity of 14,158MW) are fed into the model without capital expenditure on the assumption that they have moved to advanced stages and nothing can be done about them. “This, however, is not true. Our model shows that only about half of these projects are economically viable, and even then, only because of the urgent need for relatively cheaper electricity,” says Ammar Qaseem of Renewables First, a partner organisation of PREC. In his comments on IGCEP, Mr Qaseem points out that the transmission costs are also not reflected in the power planning document. “While IGCEP does not claim to model transmission, a truly optimised plan can only be built by incorporating results of both IGCEP and the Transmission System Expansion Plan (TSEP). However, the TSEP is missing and decisions made solely on the basis of IGCEP are not reflective of true costs. IGCEP selects many candidate hydro projects. But our results have shown that it is not economically viable to select any candidate hydro for the next 10 years. Variable renewable energy — solar and wind — is by far the cheapest option.“ Moreover, he underlines that IGCEP models NTDC and K-Electric (KE) as two separate systems connected with a tie line. “The capacity of this tie line is increased from 1,100MW to 2,050MW. Nevertheless, the government has since gone back on this commitment with KE. “As a result of this modelling approach, many expensive plants are being run in the KE system, which would not be economically viable if the country was treated as one system, that is, central dispatch. Similarly, many plants such as local coal are being optimised for KE, which would otherwise not be feasible if the country was treated as one system.” The coalition also questions the authorities circumventing IGCEP, the purpose of which is “to identify generation additions, by capacity and fuel type along with commissioning dates, for a certain plan period, through optimal use of all available generation resources”. In light of this, it is pertinent to ask how the initiative, taken by the Ministry of Energy to replace 10,000MW of fossil fuel-based generation with solar photovoltaic, fits with the planning of IGCEP.

“Given that such huge fast-track investment can have major financial implications for the power sector and the economy at large, it is important for such investments to be a part of IGCEP scenarios in order to ascertain their true cost in the short and long term. Moreover, the assumptions of IGCEP include provisions for government-2-government projects to be added as committed inputs. “As previous iterations of IGCEP have shown, projects added in the committed category are removed from the least cost considerations and discussion altogether, even if they run contrary to the purpose of IGCEP. “It is important to ask why does the IGCEP allow provisions for committed projects through the G2G channel to be added indefinitely into the future for projects which have not even been conceptualised yet and when added, will be able to bypass the entire optimisation process? “Whether it is the case of 10,000MW additions proposed by the Ministry of Energy (Power Division) or the future G2G projects, why does IGCEP accept raw data and inputs from outside instead of proposing such additions itself based on its own vision and optimisation? “Even if IGCEP is forced to accept such inputs, why are such projects treated as committed instead of being treated as possible scenarios to ascertain their true financial costs? In order to make IGCEP inclusive and reflective of ground realities, we request that a financial analysis of 10,000MW solar power should be made a part of scenarios to obtain clarity and build a rationale behind such a huge amount of power addition to the grid.” “We also request that further clarification is provided with regards to which fossil fuel-based plants are expected to be replaced by the said addition given the fact that many of the independent power producers are nearing their expiry term anyway, and their replacement may not prove worthwhile at this stage. “Moreover, we also ask that rationale be provided for including G2G projects under the heading of committed projects since such practices clearly bypass the IGCEP process and are also likely to discourage private investment in a soon-to-be-open and competitive market,” the coalition demands in its comments on IGCEP 2022. It adds that the current assumptions of IGCEP do not reflect Pakistan’s rapidly changing economic conditions after floods and negotiations with the International Monetary Fund. “Changes must be made in the plan to reflect the same. Moreover, we also request that the quantum for new technologies be identified and allocated in IGCEP to encourage the development of new technologies. Alternative and innovative solutions for solving social-environmental issues and fulfilling power demand should also be considered.”

COUNTER CHINESE BULLYING WITH AN ‘ECONOMIC ARTICLE 5’ Democracies should act against Chinese economic coercion at their summit this week.

What do Lithuanian beer, Australian wine, and Taiwanese pineapple have in common? You will struggle to find any of them in a Chinese supermarket. They are among the thousands of foreign products Beijing has effectively banned in recent years in retaliation for decisions it viewed as hostile to its interests. As China’s wealth has grown, so has its willingness to use economic bullying to achieve its foreign-policy goals. When Australian politicians called for an investigation into the origins of the COVID-19 outbreak in China, Beijing responded by slapping tariffs of more than 100 percent on Australian wines. Unsurprisingly, Australian wine exports to China collapsed, from $870 million in 2020 to just $8.3 million in 2022. The consequences for Lithuania were even starker when it allowed a Taiwanese representative office to be set up in Vilnius. In response, China launched an effective embargo on the entire Baltic state. This had significant knock-on effects on the European Union’s single market, with China also pressuring European companies to remove Lithuanian products from their supply chains. Beijing is running a play from a well-worn autocrat’s playbook. Russia, too, has long used economic blackmail to keep its neighbors locked into its sphere of influence. Following the

February 2022 invasion of Ukraine, Russian President Vladimir Putin believed such blackmail would work again. He thought that the threat of energy shortages would lead to a weak and divided response from Europe, but he was wrong. Europe and the wider democratic world instead responded with remarkable unity, both in their support for Ukraine and by quickly diversifying from Russian oil and gas. A similarly unified response could be even more effective with China, which relies on access to the democracies’ markets and technology to fuel its growth. In international affairs, Beijing acts like a classic bully, seeking to isolate smaller countries and pick them off one by one. It would not dare try the same approach when faced with the combined economic might of the democratic world, which still accounts for more than 60 percent of global GDP. This is why the world’s democracies need to stand together. NATO is the world’s most powerful military alliance because its adversaries know that an attack on any member will be met with a response by all, as Article 5 of NATO’s founding treaty makes clear. It is time to apply the same approach to economic coercion. It is time for an economic version of NATO’s Article 5. This is an idea my foundation, the Alliance of Democracies, has been developing. The concept is simple: Any democracy threatened by economic coercion from an autocracy could invoke the new economic article 5 to receive a unified response from fellow democracies. To work, this will need to pack a punch. When triggered, democracies would convene and decide on a tough but proportionate response. This would go beyond words of condemnation and include a set of retaliatory trade measures, such as sanctions or import tariffs. An economic article 5 would also need to include support for any democracy or company targeted by an autocratic regime. It would include a financial instrument to cushion the blow on industries directly affected by aggressive trade measures. Democratic governments would support each other in helping provide alternative markets for products hit by import bans or excessive taxes. This approach has already proved effective. When China banned the import of Lithuanian products in 2020, it looked like a disaster for Volfas Engelman, a Lithuanian beer maker. But just as orders from China dried up, those from Taiwan exploded. In 2021, the brewery exported around 180,000 liters of beer to Taiwan, 23 times more than in 2020. Under an economic article 5, this kind of compensatory trade among free nations could be done at scale. It would remove the sting of threats from dictatorships. Just as with NATO’s Article 5, the mere existence of such an instrument would act as a powerful deterrent. China would be far less willing to strike Lithuania or Australia with aggressive trade measures if it knew the entire democratic world would strike back. More and more countries and regions are waking up to the need to counter China’s economic bullying. The European Union has developed an anti-coercion instrument that gives it the power to retaliate with trade, investment, and funding measures if one of its member states is targeted. Last year, Japan adopted an Economic Security Promotion Act to protect itself from coercion based on economic dependency. Australia and Britain have kick-started an economic security dialogue. Most recently, a group of U.S. Congress members introduced a bill that would give the

U.S. government new tools to help U.S. allies facing economic coercion from China. Individually, these are all useful initiatives. However, a collective approach would create a far stronger deterrent and pack a far greater punch when needed. When U.S. President Joe Biden’s Summit for Democracy convenes for the second time this week, leaders from across the democratic world will discuss ways to strengthen democracy and push back against increasingly aggressive autocracies. A commitment to create an economic article 5 would be a clear and practical summit outcome. More importantly, it would add a potent new weapon to the democracies’ arsenal.

TURKEY’S GOVERNMENT USES DISASTER FOR PROFIT The ruling Justice and Development Party has a long record of targeting minorities through reconstruction projects. Shehraza Mart

The recent Kahramanmaras earthquakes killed more than 50,000 people in Turkey. But nature alone isn’t to blame. The impact of the quakes was exacerbated by decades of widespread corruption and misrule that created dangerously unsafe buildings in a quake-prone area. With at least 279,000 buildings collapsed or structurally compromised in southeastern Turkey, countless people have lost their loved ones, homes, and even entire towns. The Turkish government’s urban transformation framework, which has been gradually developed since 2002, was supposed to facilitate the evacuation and reconstruction of the very buildings that came crashing down. Instead, research shows, urban transformation projects became a tool for the ruling party to displace and dispossess minority communities for economic growth and political control. The government has a track record of using post-disaster reconstruction for profit and gentrification of Kurdish cities, as exemplified by the cases of Van after the 2011 earthquake and Diyarbakir following urban warfare between Turkish military and Kurdistan Workers’ Party (PKK) forces in 2015-16. In Diyarbakir, for example, taking advantage of the destruction, the government evacuated Surici, the historical city center populated by Kurdish communities, and expropriated almost every single parcel of land. The government proposed construction of six new police stations and two observatory towers, along with tourist attractions in the old town, in an effort to uproot political opposition while also turning a profit. This year, as the May national election approaches, Turkish President Recep Tayyip Erdogan is already making promises to rebuild the earthquake-effected region in a year and rushing to break ground for 17,902 new buildings in 11 cities—without any transparency on how the reconstruction will be accountable or safe despite how some social housing complexes built for victims of past earthquakes are crumbling. Reconstruction will be disastrous if the government deploys its past post-disaster strategies in the region. Civil society, the political opposition, and the international community need to advocate for transparency, public accountability, and the meaningful inclusion of local communities in the creation and implementation of reconstruction plans for the region. Turkey is a quake-prone country, and over the past two decades, the governing Justice and Development Party (AKP) has developed an extensive legal and organizational earthquake preparedness framework to, in theory, lessen the impact of disaster through urban transformation projects. Yet in practice, these laws have been used for political ends, not for disaster preparedness. One of the laws central to this framework is Law 6306, introduced in 2012, which gives the Ministry of Urbanization rights “regarding improvement, evacuation, and renewal … in areas at disaster risk.” Under the guise of readying for catastrophes, this law has been repeatedly used to target minority communities, justifying their forceful evacuation from urban centers (after which their neighborhoods are replaced with upscale residential and commercial areas). Since its first term in power, the conservative and nationalist AKP has wielded urban policies to boost the economy through construction. To do so, it has portrayed religious and ethnic minorities such as the Kurdish and Alevi communities as either undeserving and greedy or violent and implicated in terrorism in order to get hold of valuable urban land. Urban transformation projects have torn down historical neighborhoods that offered social ties and resources fundamental to

people’s survival, and which were hubs of political resistance with deep-seated know-how. By likening urban transformation efforts to the battle against terrorism, the government discredited oppositional figures and experts critical of its urban policies and even imprisoned them on accusations of espionage and attempts to overthrow the government. Amnesties that forgive zoning and construction violations also take advantage of earthquake preparedness language. The most recent amnesties were enabled through the 16th provisional article added to Law 3194 in 2018. The provisional article cites “preparations for disasters” to justify amnesties, implying that these after-the-fact applications for construction permits will facilitate the identification of buildings at risk. For AKP, these policies facilitated new alliances with businesses and voters. Urban transformation projects promoted new partnerships between the party and small- and mid-sized contractors. Meanwhile, zoning amnesties attracted new votes from individual property and business owners in the construction sector as the government provided permits retroactively without requiring them to bring the buildings up to code. Zoning amnesties are thus a selling point for the party, particularly in the run-up to elections. In fact, before the Kahramanmaras earthquakes brought southeastern cities crashing down, the Turkish parliament had been poised to decide whether to extend the scope of the zoning amnesties—right in time for the May general election. Almost 295,000 buildings in the earthquake zone had been given permits through amnesties. The government refuses to comment on how many of these buildings were destroyed by the earthquake. However, about 52 percent of the buildings in the earthquake zone were built after 2001 and, according to emergency planning experts, if those buildings had been built to legal standards they would not have collapsed. Besides profiting from construction violations, the government also spent earthquake taxes on building roads to stimulate the economy. Earthquake taxes were introduced after the devastating 1999 Izmit earthquake, and the government has collected over $36.5 billion of them over the past two decades. It has yet to report how this money contributed to disaster prevention and response efforts. Zoning amnesty applications were a massive source of income, yielding over 25 billion lira (currently equivalent to more than $1.3 billion) for the government. Research shows that the government relied on urban transformation projects to revive the economy and create jobs at times of economic crisis. Based on data from the Turkish Statistical Institute, the construction industry’s share of Turkey’s GDP increased by 4 percent during AKP’s first 15 years in power. The government’s abuse of the disaster preparedness and reconstruction industries is especially acute in southeastern Turkey, where the earthquakes hit. Erdogan has already put forth an executive order to give extensive powers to the Ministry of Environment, Urbanization, and Climate Change and its subsidiary Housing Development Administration (TOKI) to reconstruct the earthquake region. Yet this may result in a new wave of displacement and dispossession. On paper, TOKI is responsible for building social housing for those who have been displaced by urban transformation projects and disasters. However, rather than functioning as a social housing agency, TOKI has worked more like a profit-driven, private construction company that builds

massive subpar-quality apartment complexes in urban peripheries. For decades, TOKI has been claiming to give displaced citizens a chance to own apartments while in fact indebting them. Soon after the 2011 Van earthquake, TOKI built 23,000 apartment units for the earthquake victims in an area where 48,666 structures collapsed or were heavily damaged. But after nearly 10 years, many of the residents were still unable to clear their debts. Some of them could not pay the monthly bills and thus were evicted. The urban reconstruction process in Diyarbakir following the intense urban warfare of 2015-16 is another case in point. In the city’s Sur district, the governing party took advantage of the declared state of emergency to neutralize Kurdish local municipalities and expropriate land and property, which it used to build commercial and touristic spaces in neighborhoods that were once home to thousands of low-income Kurdish families. In return, the government provided the forcefully displaced inhabitants of Sur with the “opportunity” of either buying a TOKI apartment located outside of the city or receiving ridiculously low monetary compensation for their land and property. The declared state of emergency and the sense of urgency facilitated by Law 6306 allowed the government to attribute arbitrary and very low real-estate values to the destroyed properties. The government also used the ambiguity and variety of property types (inherent to the informal settlements and slum houses common in low-income minority neighborhoods) to keep compensations low for the displaced people, while funneling money into the pockets of construction companies and subcontractors. In the last 20 years, countless people have been displaced and continuously dispossessed by the urban policies of the Turkish government. The government may use the Kahramanmaras earthquakes as a basis for displacement and dispossession in other parts of Turkey as well. Turkey sprawls over an active fault system and is laden with millions of structurally unsound buildings. Earthquakes may occur naturally, but many of their consequences are human-made and political. The Republic of Turkey is commemorating its 100th year, and the impact of the recent earthquakes is enmeshed in a century-long history of structural and physical violence carried out by the Turkish state against the Kurdish and Alevi people. Regardless of which party comes to power in the May elections, corrupt and authoritarian urban strategies are built into the institutional cultures of the Turkish state as ways of dealing with economic crises and sociopolitical opposition. Today, civil society once again bears the brunt of the devastation, as volunteers work actively on the ground despite government efforts to repress documentation of the disaster’s impact. The Union of Turkish Bar Associations has filed criminal complaints against those involved in the construction and inspection of the collapsed buildings. As the government is rushing to remove the earthquake debris, civil society organizations and volunteers are persistently collecting evidence from the rubble to hold public officials and contractors responsible for the destruction in the region.

The levels of displacement due to the recent earthquakes are already heart-breaking and unimaginable. Preventing further displacement and dispossession demands urgent change in the Turkish government’s urban transformation and reconstruction policies.