"What is the charge?”
“Unnecessarily occupying the left lane”
It is reported that CHP, the main opposition party, is establishing a museum to commemorate its 85th anniversary. EPA thinks that it is an appropriate move to house the current management of the party.
PKK escalates attacks. Kurdish rebels threatened on Friday to stage more attacks on economic targets in Turkey, days after claiming responsibility for a fire at a key oil pipeline, a pro-Kurdish news agency said. The Baku-Tblisi-Ceyhan (BTC) pipeline has been shut down since August 5, cutting a throughput that has averaged over 850,000 barrels a day in recent months. Turkish authorities initially said that the explosion was due to technical reasons. On August 7, however, the People’s Defense Force (HPG), the military wing of the Kurdistan Workers’ Party (PKK), issued a statement claiming that the explosion was the result of sabotage by one of its units. BP PLC (BP), operator, and part owner of the Baku- Tbilisi-Ceyhan oil pipeline has warned of a 21-day delay on Azeri crude lifting from the Ceyhan terminal, Turkey, traders of Mediterranean crude said Friday. While BP has said one of its alternatives to transport some of the spare Azeri crude would be to use rail links through Georgia, in view of conflict that broke in South Ossetia Friday, this option now looks almost impossible. Rerouting the crude to Russian Urals pipeline system through Novorossiisk would downgrade it to Urals quality, resulting in a loss of more than $4 a barrel, traders said. In separate incidents, a mortar attack on the headquarters of the 1st Army in Istanbul failed, but attacks on gendarmerie posts in Mus and Elazig took the lives of two soldiers last week.
A partial tinkering? It is reported that AKP has given up the complete overhaul of the 1982 constitution but decided to introduce a “democratization package” involving amendment of about 40 articles, including those on the closure of political parties, once the parliament is back from its recess.
Really? Investigators from the Religious Affairs Department, looking at the explosion and the collapse of a dormitory that took the lives of 18 girls aged between 8 - 16 last week, claim that the dorm housed students attending an English course, and not a Koranic school as widely reported in the media!
Not too soon? AKP Deputy Chairman Edibe Sozen withdrew a draft legislation to “enhance youth protection” following fierce reactions from many quarters. The draft law proposed construction of places of worships for students from all religions at schools and providing identification for those purchasing pornographic materials.
World is changing? More Russians than Germans have made their way to the beaches of Turkey for the first time this year. In the first seven months of 2008, 1.27 million Russians went on holiday to Turkey, compared to 1.21 million Germans. Last year, the numbers were approximately 4 million Germans and 2.5 million Russians. According to Bild.de, German travellers are enraged by the Russian invasion. Moscow finance agencies report, however, that Russians spend eight times as much as Germans when on holiday.
Economic Developments:
Last week, the euphoria that swept the Turkish financial markets after the non-closure verdict, has died down. As predicted, ISE, decoupled from global markets, 5.3 percent of its value while SP-500 gained 3.8 percent during a volatile week as stocks dived and rallied on alternate days. Oil prices which spiked to over $120 on the news of BTC pipeline explosion a day earlier, closed at $115.2 on Friday. Another significant development of the week was also the reversal of fortune for the dollar. It rallied against other major currencies and gained 3.3 percent against a basket of these currencies.
A bottomless pit? Current account deficit in widened 78.2 percent year-on-year to $5.6 billion in June, bringing the deficit for the first half of 2008 to $ 27.3 billion, according to a report released by the Central Bank. Rapid growth in imports and slower export growth contributed to the widening of the current account deficit despite better than expected tourism revenues. Private sector borrowing ($21.4 billion) financed more than three quarters of the deficit during the six month period. DFI declined to $5.8 billion from $11 billion and portfolio investment plummeted to $1.7 billion from $6.0 billion during the first half of 2007. Private sector’s external debt is estimated to have risen to $180 billion at end-June from $158 billion at end-2007. Much of the private sector borrowing was in the form of syndicated loans to the banks and large corporate groups. While most market analysts as well as Minister Simsek expect the deficit exceed $50 billion, EPA expects that financing will become a constraint and limit the deficit to $44 billion to $46 billion range unless the Government decides to use up reserves.
Central Bank published its expectations survey for the first half of August. It reflects the post-verdict optimism in terms of growth and exchange rate expectations. Year-end inflation expectations, however, were upped to 11 percent.
It’s all IMF’s fault. Minister Simsek said that Turkey's economic success depends on having a reformist government rather than on any IMF program and that large current account deficits were the result of IMF programs. EPA agrees with the minister, however, thinks that it is easier to sign a deal with the Fund than looking for a reformist government. Simsek added that “Turkey needs to focus on developing its physical infrastructure and human capital to increase its competitiveness in the future and it cannot expect help from the IMF doing this. The areas which we need to work on are the issues outside the IMF's typical specialisation field." EPA reads this as a clear signal of Government’s clear intention not to have a formal program with the Fund.
HSBC is sharpening its focus on Islamic lending in Turkey and across the Middle East, the deputy general manager of its Turkish unit told Reuters in an interview. He said the bank this year had issued some 6-7 Islamic murabaha facilities, under which a financier buys a commodity and sells it to the customer at a higher price, complying with Islam's ban on interest. But he said that the volume of such syndications was set to decline to $300 million-$400 million this year from $500 million- $600 million a year earlier due to global market conditions. "There is a serious contraction in international lending markets and this has had an impact on Turkey. There is a change in the profile of investors and a decline in liquidity," he added.
Minister Simsek, in a gathering of business people in Tatvan. told that regional investment and tax incentives will be put in place in 2009. EPA has concerns about the fiscal impact of half baked incentive schemes in the absence of an industrial strategy. So far, the Government has not been able to put in place any strategic framework in any sector.
Global Developments:
A first? Russian troops engaged an army of a former Soviet republic for the first time. Escalating tensions between Tbilisi and Tskhinvali since April when Russia declared expanded support to South Ossetia and Abkhazia led to clashes between the South Ossetian and Georgian forces in July. Russia started reinforcing the 58th Army positioned in the Northern Ossetia. The trigger for the fresh escalation began last weekend, when South Ossetia accused Georgia of firing mortars into the enclave after six Georgian policemen were killed in the border area by a roadside bomb. On Friday, what was labeled a “frozen conflict” so far turned into armed strife with Georgian troops taking over the control of Tskhinvali and parts of South Ossetia. Late Friday, Russian 58th army rolled into South Ossetia and Russian Air Force bombed the port city of Poti, Gori, Vaiziany military base near Tblisi, and airfields in Delisi and Kutiani. While the Georgian authorities said that bombs fell not to far from the BTC pipeline route, it is not clear whether the pipeline was specifically targeted during the air raids. On Saturday, Abkhazia joined in the action, attacking Georgian positions, particularly in the Kodori Gorge together with the Russian forces. Putin, just back from Beijing arrived in North Ossetian capital Vladikvkaz to “coordinate humanitarian assistance.” Cease fire attempts, so far, have failed. EPA speculates that the Russia’s military intervention may have multiple objectives including (i) discouraging the former Soviet republics from flirting with NATO membership, particularly Ukraine; (ii) making the point that oil and gas transport bypassing Russian territory may pose risks, particularly when the competition between Nabucco and South Stream is fierce; and (iii) toppling Mikhail Saakashvili who became a thorn for the Russian dominance in the Caucuses. It is also hard to imagine that Saakashvili would have taken on Russia without any promise of support from the West. But it looks like George Bush is busy playing beach volleyball in Beijing.
What to expect this week:
Oil markets may take a pause from its downward trend, responding to the developments in Georgia and price potential impact of the conflict on long-term availability of the BTC pipeline. Turkish stock market is likely to be concerned about the widening current account deficit and the signals from the Government on future of the Turkey's relations with the IMF.
August 10, 2008
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