July 21 - 27, 2008

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Political Developments:

The Constitution Court will meet on Monday to discuss the closure case. The verdict, expected in early August, could dissolve the Justice and Development Party, or AKP, and ban 71 members from political party membership for five years. Last week, the rapporteur reviewing the case recommended that the case be dismissed. EPA maintains the expectation of a closure verdict and snap elections before the end of the year. Last week, a number of AKP MPs introduced legislation that would make former members of the parliament eligible for pension. Current rules require that they must serve to years to be eligible for pension payments. Ahead of the court’s deliberations, Prime Minister Erdogan called for peace and reconciliation according to Hurriyet, a Turkish daily.

According the pollster Sonar, 76 percent of the people surveyed think the economic situation is getting worse and 53 percent think that Government is not successful. If there were elections today, AKP would get 32 percent of the votes, CHP 21 percent and MHP 14 percent with 13 percent undecided, the same poll revealed.

An Istanbul court agreed on Friday to hear the “Ergenekon” case against 86 people accused of plotting the overthrow of the government. The first court hearing will be held on October 20. It was reported that a supplementary indictment will be submitted covering the senior retired generals, the chairperson of the Ankara Chamber of Commerce and two journalists arrested last month.

Foreign Minister Ali Babacan was in New York last week drumming up support for Turkey’s bid for a non-permanent seat at the Security Council. Ten non-permanent members are elected by the General Assembly for two-year terms and are not eligible for immediate re-election. Turkey last held a seat in the Security Council in 1961 and is now competing with Austria and Iceland for the term of 2009-2010. Turkey needs the votes of 128 countries out of a total of 192 to get elected.

Turkey is willing to normalize its relations with the neighboring Armenia, Babacan told a press conference in New York. It was reported that Turkish and Armenian officials held a series of secret meetings in Switzerland to start the normalization efforts in early July.

Economic Developments:

Despite the increasing market sentiment that AKP is unlikely to be dissolved, the latest rate hike by the Central Bank and declining oil prices, ISE-100 attempts to rally during the early part of the week did not hold. With a sharp 3.7 percent decline on Friday, ISE-100 closed the week 1.1 percent below the previous week.


Deputy PM Ekren announced that last week’s economy policy review meeting decided to establish a “Current Account Deficit Commission” composed of private sector representatives, academics and government officials. According to Ekren, two working groups, one to explore the causes of the current account deficit and another to explore financing issues, will be set up.

Central Bank’s Real Sectors’ Confidence Index declined to 96.2 in July, An index value less than 100 represents a pessimistic outlook to the economic activity by the real sector agents covered by the Business Tendency Survey. The index that captures of the overall direction of the economy improved slightly to 63.4 in July from 62.2 in June that was the lowest level that index ever dipped to.

Central Bank’s Survey of Expectations, also published last week, showed that year-end inflation expectation is 10.8 percent. Expectation for the current account deficit is $49 billion, up from $48.2 two weeks ago. Expectation for GNP growth remained unchanged at 4 percent and the year-end dollar rate came down from YTL 1.3264 to YTL 1.3116.

Presidents Ilham Aliyev of Azerbaijan, Mikhail Saakashvili of Georgia, and Abdullah Gul of Turkey launched a railway project among the three countries on Thursday. At a railway station in the eastern Turkish border town of Kars the presidents of the three countries held a ground breaking ceremony for the 290 million lira ($241.06 million) Turkish segment of the railway. Three presidents placed three sections of railway track on a large map of the region in a symbolic launch of the project as confetti showered down. The project, involving new track construction and renovation of existing track (74 km or 47 miles), is expected to be completed in 2011. Work on the 29-km (18 miles) stretch in Georgia was launched last year. The 160-km (99-mile) section of rail in Azerbaijan will also be renovated.

Turkish Petroleum Refineries Company, or Tüpraş, topped the list of Turkey's top 500 industrial companies once again in 2007, according to the Top 500 Industries list compiled by the Istanbul Chamber of Industry. Automotive led all other industries when in exports in 2007, reaching $16.9 billion. ISO 500 companies constituted 9.3 percent of Turkey's GDP, however, their collective share in value added declined to 25 percent in 2007 from as high 51 percent in earlier years. (Click to see the list of ISO-500 companies)

Turkey announced last week that it will order six new U-214 class submarines from Germany's HDW in a deal worth around $3.97 billion as part of an upgrade of its naval fleet. The contract was won by HDW/MFI, a joint venture between Thyssen Krupp's HDW unit and U.K.-based Marine Force International. The two other bidders for the contract were France's DCNS, which is 25 percent owned by defense electronics company Thales, and the Spanish government shipbuilder Navantia SA.

Greece's largest gaming companies Opap and Intralot will make bids in a tender for Turkey's national lottery Milli Piyango with local partners, Greek paper Imerisia reported yesterday. Opap and Intralot are in talks with Turkey's Koç Holding and Çukurova Group, respectively, to form separate joint ventures to bid for a license with Milli Piyango, Imerisia said, citing Turkish media reports.

Simsek declared that Turkish economy will be larger than those of Japan, Germany, France and Italy in 2050. Speaking at a meeting in Gaziantep, the Minister of State quoted a Goldman Sachs study that projected Turkey's GDP reaching $5.9 trillion in the year 2050 and said that he has always believed that Turkey would overtake these other "giant" economies.

For the record, EPA would like to note that its principals working on the Turkish economy know where Karagumruk is as well as the meaning of the Turkish saying "Hit the belly of the magpie on the roof with a pick". Erdogan recently complained that those who criticize the Government’s economic policies would not even know where Karagumruk is. It happens to be a neighborhood within the Fatih district of Istanbul.

Global Developments:

Oil prices have tumbled to seven-week lows after the signs of demand destruction in the US and other developed markets began emerging. US sweet, light crude declined to $123.26 a barrel - more than $20 off its record level of $147.27 reached in early July. Oil market, however, remains very volatile and it is not clear whether last week’s price drop was signaling a reverse trend.

At the WTO meetings, ministers from leading nations returned to the table on Saturday following breakthrough Friday on the sticking points of farming and industry. The tentative break through came after the WTO Director-General Pascal Lamy proposed a draft agreement with a further cut in the US farm subsidies to 14.5 billion dollars per year and a clause to prevent developing countries from shielding entire sectors from tariff cuts.

Greek and Turkish Cypriot leaders said Friday they will start reunification talks on September 3, ending decades of deadlock and sparking hope that the island's 34-year division could end. Any agreement that Christofias and Talat might reach in the talks will, however, need to be put to simultaneous referendums on both sides of the island.

Member states of the Collective Security Treaty Organization (CSTO) will set up a joint task force in Central Asia, CSTO Secretary General Nikolai Bordyuzha said Friday. "The joint task force in Central Asia is aimed to become a restraining military and political factor in the region, taking an uneasy situation in Afghanistan into account," he was quoted by the Itar-Tass news agency as saying after the talks attended by CSTO envoys in Moscow. The CSTO, a post-Soviet security alliance, comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Uzbekistan and Tajikistan.

The regular session of the foreign affairs ministers' council of the Shanghai Cooperation Organization (SCO), chaired by Tajikistan, took place in Dushanbe last week. Ministers considered the issues of preparation to the session of the council of the states heads - the SCO members that will take place on August 28, 2008 in Dushanbe.

Russian stock market plummeted nearly 6 percent on Friday after Prime Minister Putin's call for an investigation of mining company Mechel escalated worries about political risk and led to sell off across sectors.

What to expect this week:

Turkish markets are expected to focus on developments in the closure case and will muddle through until a verdict is announced, possibly before the end of the week.

July 27, 2008