Turkey – Review of Political and Economic Developments
November 23, 2009
A number of recent political developments, some of which are highlighted below, paint a bleak picture of the deteriorating political stability in Turkey. The impunity and callousness with which the AKP leadership is demonstrating in addressing a very critical and heavy political agenda along with the nonsensical positions that the two large opposition parties have locked themselves into have stymied any hopes for moving forward on any of these issues whether domestic or external. For a government that claims to be championing democratic reforms, ordering wiretapping of political opponents is hardly to way to establish credibility. Fringes on both sides of the aisle – that probably would account for thirty percent of the electorate – who hijacked the political agenda will need to realize that political stability is going to be critical in getting of the economic crisis during the next eighteen to twenty four months. Ankara is totally oblivious to the discrepancy between the image it wants to project abroad and how domestic political scene in Turkey is seen from outside. It needs to focus on one or two key issues as it builds a track record for becoming a regional power broker. It will not happen by behaving like a five year old in a candy shop. A comparison of the indices for the equity markets in Turkey and emerging markets during the last four weeks is a good indicator of investors’ perception of the political risks in Turkey.
Political Developments
Imam from Of[1]. Erdoğan’s speech to the parliament on the “Kurdish Initiative” was not whole lot different than that of the audio skid of the Imam from Of. Started out in a reconciliatory tone, he gradually lost his temper, became insulting that led CHP ranks to storm out of the session. What a way to build consensus!
Another classic. During Erdoğan’s speech, there was an amusing instant when an opposition MP shouted that the high speed train that Erdoğan was taking credit for putting into service was derailed earlier that day near Eskişehir. Erdoğan either had no clue that there was actually a derailment earlier that day, or he chose not to acknowledge it. He shouted back at the MP: ”Nothing is derailed. You are derailed”. It exactly sounded like how he dealt with the economic crisis. “What crisis?”
War without weapons The recent episodes of wiretapping members of the judiciary, including the chief public prosecutor of the İstanbul province who is nominally in charge of the Ergenekon indictments at the request of the Ministry of Justice have added to the increasing political tension in the country and reminded the markets of the political risks that were overlooked for some time. Last week shares, the lira and bonds were hit by fears that a row over a probe into government-sanctioned wiretapping of judges and prosecutors could eventually result in a bid to ban the ruling AK Party. Among the judges who were eavesdropped is the presiding judge for the fourth criminal court of Bursa who sentenced the columnist for the AKP-supporter daily Vakit and pedophile Hüseyin Üzmez to 15 years. While Erdoğan and the AKP leadership have been trying to distance themselves from the Justice Ministry’s wiretapping request that covered 56 judges and prosecutors who are perceived to be secularists and opposition to the government, the political warfare between the AKP and those institutions that have not yet been subjugated has intensified and unlikely to settle down. Also last week, the Prime Minister’s office said that an investigation was under way got a suspected plot by Naval officers to attack non-Muslim minorities to discredit the ruling Islamist-rooted AK Party. The alleged "Cage Operation Action Plan" involved bomb attacks, kidnappings and assassinations against non-Muslims, which would then be blamed on Islamist militants, another AKP-supporter daily Zaman reported on Friday in a front page article headlined: "A plan to finish Turkey off.”
Come on. Talking to an AKP retreat in Kızılcahamam, Erdoğan, in an effort to distance himself from the wiretapping accusations, told his flock said that “he is a prime minister who is also eavesdropped and if he could find a way to stop all this… For a PM who has been ruling for the last seven years, this is either an admission of total incompetence or hypocrisy par excellence. The Economist last week concluded its piece on wiretappings: “The row has little to do with justice. Rather, it is another twist in the long-running power struggle between Mr Erdogan and his mildly Islamist party, and an old guard led by the generals that has steadily lost ground. The army’s standing has been damaged by a slew of leaked documents detailing plans to foment chaos and topple the government. AK is hitting back with new laws pruning the army’s powers. The secret wiretaps may be just another weapon in this political fight.” EPA disagrees with these views that sound like an apology for AKP. The Government is making mockery of the rule of law in the country and playing the victim at the same time.
A sober analysis of the Ergenekon entitled “Between Fact And Fantasy: Turkey’s Ergenekon Investigation” by Gareth Jenkins concludes that “[Ergenekon] … could have provided an opportunity for the establishment of an independent truth commission which could perhaps have enabled Turks – including both secular nationalists and Islamists – to come to terms with the realities of recent Turkish history. But, in the short-term, a more pressing concern is not the wasted opportunity for Turkey to confront its past but what the Ergenekon investigation might be saying about its future, and the disturbing questions it raises about the prospects for democracy and the rule of law in the country.”
Was it also Ergenekon? Some ceiling tiles of the courtroom where the Ergenekon trials are held collapsed on the bench last week. The courtroom was converted less than six months ago to accommodate some 200 defendants from what was supposed to be built as a gym in the Silivri Prison. While no one was hurt and the hearings were suspended for two days to allow for repairs, it makes one wonder about the contracting and quality control procedures for contracts of the Government, in this particular case of the Ministry of Justice.
Sliding back. Turkey's ranking fell three places to 61st from 58th in 2008 according to the 2009 Corruption Perception Index (CPI) that measures domestic public sector corruption and compiled by the Transparency International. Turkey stood one place after Cuba and one place before Italy. Qatar ranks the 22nd, UAE the 30th and Israel the 22nd fared better than Turkey. Iraq ranked 176th, Uzbekistan 174th, Turkmenistan and Iran 168th, Kyrgyz Republic 162nd, Tajikistan 158th, Russia 146th, Azerbaijan 143rd, Armenia and Kazakhstan 120th out of 180 countries.
Whirling Dervish or Minister? Turkey hurled itself into the Iranian nuclear standoff, offering an unsolicited role to intermediate once again. The offer is part of Turkey's increasingly active role in the region, Ahmet Davutoğlu told Gulf News in an interview. Davutoğlu was in Spain, Iran and Kabul in the last ten days, travelling around at a dizzying pace, although it is not clear whether the Government thinks through the potential risks of what they are offering. Turkey does not have the infrastructure to store close to a ton of low-grade uranium. In the absence of secure storage facilities that would cost several hundred million dollars, trying to store it in Küçükçekmece, in the midst of greater İstanbul and millions of people, can at best be described irresponsible. The neo-Ottomanesque obsession to lead and intermediate in the region what Davutoğlu describes as "activism" in the Turkish foreign policy is already suffering from lack of credibility. Under Netanyahu, Israel has ruled out resuming Turkish-mediated talks with Syria, insisting that any new contacts must be direct. "On this issue (of mediation), Israel's stance is that it doesn't trust us," Erdoğan told a news conference in Rome, where he was attending a U.N. food summit. Perhaps it is time now to think through a sound foreign policy and a strategy to implement it.
Oh, well! "Turkey is not a part of Europe and will never be part of Europe. An expansion of the EU to include Turkey cannot be considered as just another expansion as in the past. The universal values which are in force in Europe, and which are fundamental values of Christianity, will loose vigour with the entry of a large Islamic country such as Turkey" Van Rompuy, the President-elect of EU said during a meeting of the Council of Europe on the subject of Turkey's possible entry into the EU, held in the Belgian parliament on December, 2004.
Ever do anything right? The Turkish State Council last week annulled the tender in which only one bidder – a consortium made up of Inter RAO, Atomstroiexport and Turkey's Park Teknik – participated. The tender was regarded by many as far from a real competition and failed to cover expectations related to power pricing.
In a great hurry? Defense Minister Vecdi Gönül issued an ultimatum on Saturday to Israeli industries, demanding they supply 10 long-awaited unmanned aerial vehicles (UAVs) to Turkey within 50 days. CNN Turk quoted Gönül as saying that he had sent a letter to Israel Aerospace Industries (IAI) and Elbit Systems to fulfill the $183 million deal - signed in 2005 - within 50 days. If the UAVs were not supplied, Gönül said he would cancel the tender. Israeli officials said that the delays were the result of Turkish demands to install additional technology on the aircraft that is too heavy for them to carry. IAI and Elbit usually sell their UAVs with electro-optic sensors, but in this case the Turks wanted to install their own systems that turned out to be weightier than the permitted payload.
A sad story. In the Programme for International Student Assessment (PISA ), an internationally standardized triennial assessment of 15-year-old school children's children's performance, Turkey ranked at the bottom among the OECD countries, just above Mexico. PISA assesses how far students near the end of compulsory education have acquired some of the knowledge and skills that are essential for full participation in society. In all cycles, the domains of reading, mathematical and scientific literacy are covered not merely in terms of mastery of the school curriculum, but in terms of important knowledge and skills needed in adult life. While the 2009 results are not yet available, the results of the assessment carried out in 2006 reveals a bleak picture for the education outcomes in Turkey. In all three assessment categories – mathematics, science and reading, Turkey ranked 29th out of the 30 OECD countries. Also in all three categories, about two third of the students performed at level 2 or below – about basic minimum proficiency to function in the society- out of six levels.
Economic Developments
Debt piles up. Central Government’s total debt reached TL 438 billion at end-October, increasing TL 64.6 billion (or about 6 percent GDP) in the last twelve months. According to the Central Bank, Turkey’s private sector had total foreign-denominated debt of $132.2 billion at end-September.
Watch Out. BDDK Chairman Tevfik Bilgin said this year's bank profits would likely be the highest for the next few years and 2010 would be a difficult year. He warned once the easing cycle has ended banks will face lower net interest margins and profits.
Where is the beef? Last week, CHP the main opposition party published a report on the economic crisis. While the report provides a good analysis of the recent economic developments and the impact of the crisis, it does not have anything on what should be done and a set of policies that CHP would recommend to get out of the crisis. Hard to imagine that CHP has no economic program, but then again?
Keeps increasing, August unemployment data shows that the rate of non-agricultural unemployment rose to 17 percent, compared with the 12.9 percent a year ago. While the Turkstat estimates the number of unemployed at 3.4 million at end-August, many analysts believe that it is closer to 6.3 million.
Tobin, who? Central Bank expects 2010 inflation to be below the official 6.5 percent target, Governor Yılmaz told a conference on Friday. He said that interest rates would remain at current levels for a long period, and said that Turkey had no plans to impose capital controls to protect the economy as it recovers from recession.
On a roll. The Monetary Policy Committee cut the policy borrowing rate 25 bp to 6.50 percent, while lending rate is decreased from 9.25 percent to 9 percent. It noted “that the cumulative policy rate cuts implemented since November 2008 and the improvements in global risk perceptions have started to exert favorable effects on credit markets. However, lingering problems across the global economy are not resolved completely and there are still uncertainties regarding the strength of the recovery. Taking these factors into account, the Committee has reiterated that it would be necessary for the monetary policy to maintain an easing bias for a long period of time.” There is, however, no basis to claim that the 1100 basis points cut in the policy rates in the last twelve months has “started to exert favorable effects on credit markets”. Bank credit only declined 4.4 percent in real terms during the same period
Briefly:
· Reuters reported that Austrian energy group OMV has dropped its plan to take full control of Petrol Ofisi after warning that a row between the Turkish group's owner and local authorities could delay such a deal. OMV said in August it wanted to increase its 42 percent stake in the petrol retailer to help develop Turkey its third strategic centre, after Austria and Romania. Turkey's only oil refiner said late on Wednesday exports were halved to 2.8 million tons during the first 10 months of the year. Domestic sales fell 9 percent to 18.2 million tons.
· German media giant Axel Springer said on Thursday it had agreed to buy a 29-percent stake in Turkey's biggest independent media group Doğan for €161 million ($239 million), The new arrangement is however contingent on tax and regulatory proceedings brought against Doğan by Turkey's Radio and Television Supreme Council (RTÜK) being successfully resolved, Springer added.
Chicken come home to roost. The Davutoğlu-inspired high wire act, otherwise known as Turkey’s new foreign policy orientation is now stuck with two ambassadors recalled home and Erdoğan spewing fire all over the globe – something he seems to be thoroughly enjoying. Another egg on Turkey’s face last week was the statement from the Israeli Foreign Ministry that said "No decision has been made on resuming talks with Syria under Turkey mediation, but if these remarks represent Turkey's desire to improve relations with Israel and contribute to the advancement of peace in the region, then it is obviously a welcome aspiration," after Erdoğan told reporters in Saudi that Israel has accepted Ankara's offer to mediate the talk and the stalled talks may begin again at "any minute".
