FACTORY EXPLOSION UNDERSCORES DANGER OF UNREGISTERED

UNCLAS ISTANBUL 000059 SIPDIS SIPDIS TREASURY FOR J.ROSE USDOC FOR 4200/ITA/MAC/EUR/PDYCK/CRUSNAK E.O. 12958: N/A TAGS: ELAB EIND ASEC TU SUBJECT: FACTORY EXPLOSION UNDERSCORES DANGER OF UNREGISTERED ECONOMY ¶1. (U) All newspapers gave front-page billing to a January 31 explosion at an unlicensed factory in Istanbul's Zeytinburnu district that killed 23 people and injured more than 100. Around half of those killed were onlookers or passersby. According to Zeytinburnu Mayor Murat Aydin, a fire in an unlicensed fireworks depot spread to the unregistered Irnak Textiles jean processing plant on a lower floor. The Irnak Textiles boiler exploded, collapsing the top two floors of the five-story building and damaging surrounding buildings. ¶2. (U) Of the five companies in the building, Aydin claimed only Irnak Textiles was unlicensed. However, the company housing the fireworks was licensed only to produce plastic goods. Defending his office against widespread accusations of negligence, Aydin claimed the municipality had closed Irnak Textiles several times and finally resorted to filing charges after it was repeatedly reopened without proper permits. ¶3. (U) The tragic incident brought Turkey's informal economic sector into the limelight. Of Turkey's 22 million workers, the Turkish Statistics Institute estimates 47% are unregistered, with 1.1 million unregistered workers in Istanbul alone. Unregistered workers have no collective bargaining rights, are typically uninsured and are not eligible to participate in government-sponsored retirement and disability programs. Yaman Toruner, former governor of the Central Bank of Turkey and current member of AKBank's board of directors, estimates the informal sector accounts for 34% of Turkey's $500 billion GNP. ¶4. Comment. Business leaders have long argued the informal economy tilts the playing field by giving an unfair advantage to unlicensed companies who do not pay corporate/employment taxes or fairly compensate workers. In a December conversation with Istanbul AmCham affiliate, State Minister Mehmet Simsek acknowledged that the informal economy was a drag on both government revenues and the real economy. However tax evasion (a primary incentive for operating an unregistered business) is popularly viewed as a "victimless crime" and labor market reforms are both technically difficult and unpopular with voters. Now this deadly accident has prompted many media commentators to argue that unlicensed businesses are dangerous as well as bad for business. It remains to be seen whether the Irnak Textiles explosion will be the impetus the government needs to take difficult steps to tackle the unregistered economy. End Comment. WIENER