Erdogan Takes on Media Mogul Political Feud in Turkey Scares Off Foreign Investors

Local elections in Turkey have added fuel to the bitter feud between Recep Tayyip Erdogan and media mogul Aydin Dogan. But the Turkish prime minister's apparent vendetta is shaking foreign investor's confidence in the rule of law -- right in the middle of an economic crisis.

Aydin Dogan likes to be around powerful people, and the photos depicting his encounters with them are arranged, in silver frames, on the windowsill in his opulent Istanbul office: Dogan chatting with former Soviet leader Mikhail Gorbachev, shaking hands with former US President Bill Clinton and smiling with German Chancellor Angela Merkel.

There is also a photo of Dogan and Turkish Prime Minister Recep Tayyip Erdogan, with whom the billionaire is on a first-name basis.

The picture was taken several years ago, when the two men were still on good terms. That was when Erdogan still called Dogan "Abi," or "big brother," and the young prime minister would make appearances at events at Dogan's TV stations and openings of his dairies. In those days, the premier and the powerful media mogul and industrialist still managed to work out their differences over tea. "We had a controlled friendship," says Dogan.

But that controlled friendship turned into a controlled feud and, in the past few months, into an open conflict. Local elections  will be held in Turkey this coming weekend, and the conservative Islamic Justice and Development Party (AKP) and its "sultan," as Erdogan is called by friend and foe alike, are expected to emerge victorious once again.

Erdogan believes that there is only one man who could thwart his plans. "We are not elected by the media, but by the country," Erdogan shouts into the microphone at a campaign appearance in Malatya, a city in eastern Turkey. The crowd knows whom he is alluding to. "Don't buy these newspapers, they are full of filth and lies."

Since Dogan's high-circulation daily newspaper Hürriyet reported on a political contribution scandal in September, the prime minister has considered the media mogul to be his real opponent in the election. The paper described at length how Deniz Feneri, an Islamic charity, allegedly collected contributions from Turks living in Germany and funneled the money into companies in Turkey with ties to the AKP. Dogan's newspapers and television stations were also full of harsh criticism for Erdogan's lackluster economic policies and waning interest in reform.

Four weeks ago, the government struck back. A tax office in Halkali imposed a fine for the equivalent of about €380 million ($513 million) on Dogan's publicly traded newspaper and television holding company. It was a sum that could -- or might even have been intended to -- bankrupt the country's biggest media group. "Erdogan wants to destroy us, because he cannot make us bend to his will," says Dogan.

Erdogan's supporters insist that the fine was not politically motivated. But the prime minister himself has fuelled that suspicion. For weeks, he has sharply criticized the "pro-opposition press," as he calls it, and called for "civil courage" in dealing with the papers, which he claims are deliberately reporting false information. "Sentence them to poverty," he recently boomed at his audience at a campaign rally -- a few days before the tax authority imposed its heavy penalty on Dogan's operations.

The strike against Dogan's media empire is more than just a blow to freedom of the press. The size of the tax penalty and its seemingly fabricated justification have unnerved companies and investors, who are now asking themselves whether the law or Erdogan's iron will is more decisive, when push comes to shove. In the midst of the economic crisis, which has also hit previously booming Turkey, the prime minister has shaken a painstakingly built-up confidence in the rule of law, a confidence that has attracted foreign capital in recent years. Foreign investment in Turkey, which amounted to just under $3 billion (€2.2 billion) in 2004, shot up to more than $22 billion (€16.3 billion) by 2007. The flow of foreign capital is now ebbing, mainly as a result of the financial crisis. "But the feud has shaken the image of Turkey as a safe country in which to invest," says Christian Rumpf, a lawyer specializing in Turkish law.

The Dogan case fits with the image that the government in Ankara has conveyed recently. The hope that Erdogan, once a champion of reform, will continue to open up the country and lead it into the European Union is fading. Apparently he feels less obligated than ever to guarantee freedom of the press and the rule of law, the EU's core requirements. "At some point, the question is no longer whether Turkey is ready for the EU, but whether it even wants to join," says Ria Oomen-Ruijten, the European Parliament's rapporteur on Turkey.

But the prospect of EU membership was one of the country's most important tools for attracting foreign capital. "I wonder when Erdogan will realize that it will be a catastrophe if the investors pull out," says Cengiz Aktar, a professor of political science.

But until recently, the prime minister was not even interested in talking about the global economic crisis. At the World Economic Forum on Europe and Central Asia, held in Istanbul last November, he apparently preferred to discuss terrorism, so much so that appalled attendees wondered whether Erdogan was living on a different planet. "He apparently doesn't understand how serious the situation is," says Seyfettin Gürsel, a professor at Bahcesehir University in Istanbul.

Many Turkish analysts are reluctant to publicly concur with Gürsel's view. Erdogan has created "an atmosphere of fear," says an analyst at an Istanbul bank. "This administration is an investment risk."

Erdogan has always been thin-skinned when it comes to criticism. For years, he has taken cartoonists and authors to court, and he pays careful attention to which journalists are invited to press conferences. "Nowadays he only tolerates yes-men in his inner circle," says political science professor Aktar.

Large sections of the media already toe the prime minister's line. The television station ATV and the tabloid newspaper Sabah are owned by Calik Holding, where Erdogan's son-in-law is a senior executive. The prime minister can feel confident that much of the media's reporting about him is sympathetic. Zaman, one of Turkey's largest daily newspapers, is also generally loyal to the regime. With a recent approval rating of 46 percent, Erdogan finds it difficult to understand that any criticism is justified. "One cannot smear mud on the sun," he says.

Since the AKP barely escaped being banned last year, the premier is more sensitive than ever. "Erdogan is worried about losing his power, and now the economic crisis is also jeopardizing his track record. That makes him aggressive," says Elmar Brok, a member of the European Parliament's Committee on Foreign Affairs. The burning question in Turkey is: Who controls the country? Is it the new or the old elite, the Muslim up-and-comer Erdogan or the secular Istanbul establishment, to which the Dogan family belongs?

For this reason, the irascible Erdogan doesn't just view the Dogan media outlets as an irritation, but also as part of a long-standing coalition of the military, business and political elites that want to remove him from office. And this is why Erdogan's supporters accuse Hürriyet, Milliyet and television stations like CNN Türk of making the economic situation seem more dire than it is. "They are constantly pouring oil onto the fire," a columnist for the pro-administration daily Zaman wrote recently. Erdogan also believes that Dogan claims freedom of the press but has ulterior motives. "That is now ending," Erdogan threatens.

'Tayyip Bey, Stop Harassing Us'

Yasemin Congar, 42, is not convinced that Erdogan aims to launch a general assault on the freedom of the press. If he did, she too would be in a tight spot. Congar is the editor-in-chief of the independent daily Taraf, which has taken on both the government and the military. As a precaution, the paper's offices are located in a building that houses a busy bookstore with 24-hour security.

Erdogan has not forgotten the role that Dogan's newspapers played in 1997 in helping to support the military coup against the Islamist government of Necmettin Erbakan, says Congar. "Dogan is a symbol," she adds. The media mogul is also occasionally maligned for supposedly having once received a former prime minister at his villa wearing pajamas. One of his friends insists that there is nothing to the rumor. Nevertheless, the anecdote continues to be repeated, including by Erdogan himself.

In the eyes of critics, the Dogan Group's newspapers and television stations are powerful instruments for asserting the group's industrial interests. Dogan, whose name translates as "falcon," owns the country's biggest oil company, car dealerships, travel agencies, insurance companies and organic farms.

"I could be richer if I weren't a publisher," says Dogan. Nevertheless, he is now using his media outlets to defend himself against Erdogan's attacks. Last September, Dogan had himself interviewed in a special broadcast on his own station, Kanal D. "Tayyip Bey, stop harassing us," a hoarse and visibly emotional Dogan said, addressing the prime minister.

Prior to the broadcast, Erdogan's tax authorities had unleashed 10 auditors on the media holding company, the headquarters of Hürriyet and the glass-walled broadcast center in Istanbul's Bagcilar district. Dogan's executives were not told the reasons for the unannounced visit. Instead, the auditors spent months investigating the companies. New audit reports have arrived continuously since December and a total of 20 reports have been released until now. The penalty has increased to at least €380 million ($513 million), which exceeds the market value of the entire media division. The most serious charge is that Dogan committed tax evasion when he sold a quarter of his TV shares to Germany's Axel Springer publishing house in early 2007.

Dogan did pay millions in taxes on the proceeds. However, the tax authority found that the group should have paid taxes on the transaction earlier and therefore could not claim the usual exemptions. Dogan and Springer announced their deal, worth €375 million ($506 million) in November 2006. But the two sides did not finalize the contract and exchange shares for money until Jan. 2, 2007. In other words, the deal was not sealed until then.

In addition to the full tax, the agency is now demanding a fine equal to more than five times the amount of tax supposedly owed, as well as suddenly ordering Dogan to pay value-added tax on other sales of stock from previous years. Those sales, even according to the official interpretation, were considered tax-exempt in Turkey until now.

Pending a court's decision resolving the issue, Dogan offered a large proportion of his shares and his stations' trademark rights as security. But the tax authority turned down his proposal and instead ordered his holding company's bank accounts frozen. "If they want to force us into bankruptcy, they should say so," says Mehmet Ali Yalcindag, the head of the media company and the patriarch's son-in-law.

"Turkey needs tax reform. The tax audit is not independent, but is instead under the direct control of the Finance Ministry," says Arzuhan Dogan-Yalcindag, the chairwoman of the Turkish Industrialists and Businessmen's Association (TÜSIAD). She is also Dogan's daughter and is married to Yalcindag.

She knows that her name makes it easy for the administration to downplay criticism coming from TÜSIAD as lobbying for the family business. But even the International Monetary Fund has made greater independence of Turkey's regulatory agencies one of the conditions for an urgently needed $20 billion (€14.8 billion) loan. Erdogan, calling the IMF's demands unacceptable, has so far turned down the offer.

Aydin Dogan refuses to capitulate. "I have faith in the judges and am proud of my country," he says. He is so proud, in fact, that he displays documents in his office that demonstrate that he has been Turkey's biggest taxpayer for years. They are on a wall directly opposite the windowsill where Dogan displays his photos of Tayyip Erdogan.

Translated from the German by Christopher Sultan
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