International healthcare companies are struggling to reclaim around $2.3bn in debts owed to them by Turkey’s state hospitals, a senior US official has revealed, as he warned of the dangers posed to the Turkish economy by an unpredictable investment environment.

David Satterfield, the American ambassador to Ankara, said that the non-payment of money owed to pharmaceutical and medical equipment companies from the US and elsewhere had become a “significant issue” in trade relations between his country and Turkey.

Mr Satterfield said that US commerce secretary Wilbur Ross had last year been given assurances by President Recep Tayyip Erdogan and his son-in-law, finance minister Berat Albayrak, that the outstanding dues — at the time totalling $230m — would be paid.

One year on, he said the Turkish government had asked the companies to accept “a range of very significant reductions in the amount owed”, a sum he said had now snowballed to $2.3bn.

“There will be a consequence to non-payment of debt or to demands that companies accept a reduction in the total for equipment and services provided,” Mr Satterfield warned during an online event hosted by the American-Turkish Council, a business group.

“Companies will consider departing the Turkish market or will reduce their exposure to the Turkish market. This is not a direction that serves the interests of Turkey, its business persons or its citizens and it needs to be addressed and addressed promptly.”

Mr Satterfield’s comments will deliver a blow to Turkish policymakers at a time when they are already struggling to attract foreign investment.

New entrants to the Turkish market have been increasingly deterred in recent years by concerns about economic policy under the watch of Mr Erdogan, as well as the erosion of the rule of law and geopolitical risks caused by Ankara’s tense relations with Europe and the US

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Volkswagen had been close to finalising an agreement to build a new car plant in Turkey last year but put the plan on hold after Mr Erdogan ordered a controversial military operation against US-backed Kurdish forces in north-eastern Syria that provoked outrage in Europe. Earlier this year, VW confirmed it would axe the plan amid plummeting demand in the auto sector as a result of the coronavirus crisis.

Healthcare reform has been one of the most successful features of Mr Erdogan’s 18 years at the nation’s helm. The government has poured money into building new hospitals and overhauled social security provisions for its citizens — policies that have won widespread public approval and been a driver of successive election victories by the ruling Justice and Development party (AKP). 

In recent years, however, the government has pursued a more controversial policy of building giant hospitals in cities across Turkey under a public-private partnership model that has left the government with large financial liabilities. 

Late payment of debts was a common complaint among Turkish companies that were suppliers to the government in the aftermath of a 2018 currency crisis that wiped almost 30 per cent off the value of the lira and plunged the country into recession.

It has once again reared its head since the onset of the coronavirus pandemic, which has been accompanied by a fresh plunge in the Turkish currency. The president of the Federation of Medical Device Manufacturers and Suppliers told the Turkish news site Duvar earlier this month that companies in his sector were owned TL17bn ($2.2bn) by the state. 

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Still, Turkish officials have always insisted their country has an impeccable record on its obligations to foreign investors and businesses. Turkey has never defaulted on its sovereign debt in its 97-year history as a modern republic.

Turkey’s low levels of government debt and its small budget deficit were long seen as one of the country’s key strengths. They remain low in comparison to some other emerging markets. However, the rating agency Moody’s cited the government’s deteriorating fiscal position as one the factors behind its decision to cut the country’s debt rating deeper into junk territory this month.

The Turkish Treasury did not immediately respond to a request for comment.

Via Financial Times