Sublime to ridiculous? A 2,450 page indictment for the Ergenekon probe was submitted to the court on Monday. It is reported that the indictment is a hybrid between an introduction to Turkic mythology and X-files script. It is also reported that the indictment states that “terror organization” that is being probed has taken its roots from "Agartha", a legendary city that is said to reside in the Earth's core. It is related to the Hollow Earth theory and is a popular subject in Esotericism. Agartha is one of the most common names cited for the society of underground dwellers. Shamballa (also known as Shambalah or Shangri-La) is sometimes said to be its capital city]. The mythical paradise of Shamballa is known under many different names: It has been called the Forbidden Land, the Land of White Waters, the Land of Radiant Spirits, the Land of Living Fire, the Land of the Living Gods and the Land of Wonders. It wouldn’t be surprising if the Clintons would soon be charged under the Ergenekon probe because of the “white water” reference. The court is to decide whether to “accept” the indictment before setting a trial date.
The Turkish military denied the newsreports that 20 serving officials are being investigated for alleged links to the Ergenekon probe. Its press statement said that an investigation in the air force is not related to the civilian investigation and asked the people to show "legal and democratic" reactions to slander attempts to the armed forces.
Heavy diplomatic traffic. U.S. advisor for national security affairs, Stephen Hadley, the Iranian foreign minister, Manouchehr Mottaki, and the Israeli minister of national infrastructure, Benjamin Ben-Eliezer were in Ankara last week . Turkey also hosted an informal meeting for foreign policy advisors of some of the NATO countries last week. Ben-Eliezer's visit was to discuss a strategic multi-purpose pipeline known as Medstream to carry water, Caspian oil and natural gas to Israel. Turkey's natural gas cooperation with Iran, saying that progress on such plans amounts to encouraging Tehran accused by the West of seeking to possess nuclear weapons. “It is very, very bad. I think it is the worst thing that can happen to the world -- encouraging Iran,” the Israeli minister, told the Turkish Daily News in an interview Thursday.
Economic Developments:
As promised, last week was not a dull one with a lot of factors at play. On the global front, the slide in oil prices, Paulson/Bernanke hearings and the rally in financials with better than expected earning reports boosted the equity markets, the S&P 500 index ended with a weekly rise of 1.7 per cent, having fallen to its lowest level since November 2005 on Tuesday. On the domestic front, the lira rose to the highest level in four and a half months against the dollar after the Central Bank raised its key interest rate for the third time in as many months and the Constitution Court was advised to reject a request to outlaw the governing AK Party. ISE-100 closed the week with an 8.4 percent gain and the Treasury paper yield was 20.86 on Friday, about 73 bp below its level a week ago.
The Central Bank raised its benchmark borrowing rate by 50 bp to 16.75 percent, bringing the rate increase to 150 basis points since May and pushing it to the steepest among the emerging market economies. It left the lending rate unchanged at 20.25 percent. In its statement, the Central Bank left the door open for future hikes indicating that [“the bank] will consider a further measured rate hike when needed, so as to prevent the potential second-round effects of such risk factors. The timing of a possible future rate hike will depend on developments in global markets, external demand, fiscal policy implementation, and other factors affecting the medium term inflation outlook.” Last week, central banks in Thailand, Mexico, and the Philippines also raised interest rates this week to ward off mounting inflationary pressures.
EPA believes that while the rate hikes are important to signal the effort to curb inflation, the underlying causes of inflation have been misdiagnosed by the Central Bank. For the fourth month on a row, the Central Bank has been claiming that primary cause of inflation has been the energy and food prices while Central Bank’s own core inflation figures run higher than the headline inflation. In June, the core inflation defined by the Central Bank as to exclude energy and unprocessed food, was 0.89 percent while the headline inflation declined by 0.36 percent. Causes for the accelerationin the core inflation, other than the secondary and tertiary impact of the energy and food prices should be sought in the private capital flows that take place outside the central bank’s monetary policy sphere.
Treasury borrowed YTL 6.3 billion ($ 5.2 billion) last week with an average yield of 21.65 percent for 24-month paper, making Turkish domestic debt paper one of the highest yielding instruments. The higher rates are at odds with the Treasury’s medium-term financing plan that assumed a decline in borrowing costs and a larger fiscal space for the additional spending. The Treasury’s cash realization figures for June 2008 also point out to a slowdown in revenues that were 10 percent below its 2007 level, and declines in tax revues in nominal terms since May.
Stimulation package a la Turca. On July 28, the Government will start refunding the “Housing Fund” payments that were deducted from payrolls during 1987 and 1999. Ziraat Bank is expected to disburse YTL 2.8 billion to approximately 8.5 million people who were subjected to payroll deductions during that period. While the amounts are small – 3,8 million people will receive a payment less than YTL 50 while the highest amount will be YTL 1,391 roughly to about 1 million recepients-, rapid injection of liquidity (about 0.3 percent of GDP) is likely to add to inflationary pressures in August.
Turkey's unemployment rate fell to 9.6 percent in April 2008 from 9.8 percent a year earlier, according to TurkStat. The unemployment rate in non-agricultural sectors that EPA believes to be a better gauge was 12.3 percent in April compared to 12.4 percent a year ago, reflecting an increase of new 373,000 jobs in these sectors. The decline in the unemployment rate was largely due to a rush for signing up for social security before an April 30, 2008 deadline that changed the benefit coverage with the implementation of the new legislation. An estimated 1.7 million people signed up for social security, a significant part of which was underage children, before the April 30 deadline.
OECD issued its “Economic Survey of Turkey” last week. The report points out to the slowed down growth as a result of loss of competitiveness in large areas of the economy, the deterioration of international conditions, and a weakening of confidence domestically. It calls for: (i) preserving the gains of fiscal consolidation and making fiscal policy more compatible with higher growth; (ii) resuming disinflation and better aligning structural policies as well as fiscal policy with the inflation targeting framework; and (iii) reducing barriers to formal employment in order to mobilise the productivity potential and improve the resilience of the economy. (Click to see OECD's Policy Brief for Turkey)
Seven Turkish cities, Ankara, Aydin, Corum, Erzurum, Nevsehir, Sinop and Sirnak, are suffering from lack of water and 34 more could join them by 2010, according to the Forestry and Environment Minister Veysel Eroglu. Turkey will need to invest 2.9 billion liras ($2.4 billion) over the next four years to ensure drinking water supplies across the country.
A drought in southeastern Turkey is forcing farmers to abandon their land to look for work elsewhere and has led to at least two deaths in a dispute over irrigation, Referans newspaper said last week. Yields have plummeted as rainfall declined to one-fortieth of normal levels, Livestock has also been hit because farmers are unable to afford surging prices for feed.
Brief Company News
- Gazprom has proposed setting up a company in Turkey to handle urban gas distribution as well as a planned extension of the Blue Stream pipeline to Israel.
- Turkish airport services firm Celebi said on Tuesday it will participate in a consortium to bid in a tender for ground-services rights at an international airport in Delhi. The Turkish company will own 67 percent of the venture with Indian Shaurya Aeronautics, Celebi said in a statement to the Istanbul Stock Exchange.
- ArcelorMittal is to acquire full control of its stainless steel service centre in Turkey and double its operations, the company said in a statement on Monday. ArcelorMittal struck a deal to buy 35 percent of Uginox Sanayi ve Ticaret Limited Sirketi that was owned by German company Primex.
- The Carlyle Group has acquired a 50 percent share in Turkish shipbuilding company TVK Gemi Yapım. While the price of the acquisition was undisclosed, plans to make further investments in Turkey, announced a company spokesperson last week.
- Turk Ekonomi Bankasi AS, a Turkish bank co-owned by BNP Paribas SA, sold 75.6 million liras ($62 million) of non-performing loans for about one-seventh of their face value. TEB, which specializes in lending to businesses, sold the loans to Girisim Varlik Yonetim AS for 10.9 million liras, the bank said in a filing with the Istanbul Stock Exchange.
Global Developments:
More regulation, but how? Last week’s hearings on Fannie Mae and Freddie Mac brought out a number of issues regarding the regulation in the financial sector. It looks like that this debate, including the independence of the central banks, is going to continue given the architecture of financial markets make regulation and policy intervention very difficult.
The European Commission could freeze hundreds of millions of euros in assistance for Bulgaria this week because of its spending irregularities, corruption, organized crime and slow moving judicial reforms, officials said Friday. The country has seen some 150 mafia-style slayings since 1989, but no convictions, and it is a frequent target of EU complaints about lax controls on the spending of EU money.
The World Bank raised its forecast for Ukraine's inflation this year from 17.2 percent to 21.5 percent, the Interfax-Ukraine news agency reported on Friday. It also revised its forecast for Ukraine's gross domestic product (GDP) growth this year from 5.5 percent to 6 percent. Ukraine's consumer price index (CPI) rose 15.5 percent in the first half of this year, according to the reports.
What to expect this week:
Next week will provide a better sense of where the oil prices are heading following the $15 a barrel decline last week. Existing and new home sales data as well as a series of earning reports to come out next week is likely to depress US equity markets. ISE is likely to mimic the US and European markets this week, barring significant domestic political developments.
July 20, 2008
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