February 1, 2010

Turkey – Review of Political and Economic Developments

February 1, 2010

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Political Developments

Brothers, yes, but. Speaking to reporters in Davos, Azerbaijan’s President Ilham Aliyev said that “No resolution has been reached despite some twenty months of negotiations between Turkey and Azerbaijan on new natural gas prices. The price Turkey pays for the natural gas it purchases from Azerbaijan is too low, and it is not possible to continue natural gas trade under such conditions”. Turkey continues to pay $120 for thousand cubic meters of Azerbaijani natural gas, this according to a contract that “ended on April 15, 2008” and Azerbaijan sells Russia natural gas at a price of $300 for thousand cubic meters, Aliyev noted.

Between a rock and a hard place. On Wednesday, Azerbaijan President Ilham Aliyev said he was confident Turkey would not ratify the agreement until Armenia has returned Azeri territory that it occupies, including Karabakh. Armenia accused Turkey on Friday of trying to block a deal to establish diplomatic ties and open their border and warned their bid to overcome a century of hostility could collapse.

Found his match? Erdoğan on Sunday warned Israel should to "take another look at its relations with its neighbors" if it wants to maintain ties with Turkey in the future. "Israel should give some thought to what it would be like to lose a friend like Turkey in the future," Erdoğan told Euronews, regarding his thoughts on the recent tensions between the two Mediterranean countries. "We have done our best for Israel-Syria relations," added Erdoğan. "But now we see Benjamin Netanyahu saying: 'I do not trust Erdogan, but I trust Sarkozy'. Do you have to give a name? This is diplomatic inexperience, too."

A good start. Sofia and Ankara have signed a memorandum to make the existing gas pipeline between the two neighboring countries reversible and build a new gas link, Bulgarian energy minister Traicho Traikov said. This follows the visit of Bulgarian Prime Minister Boiko Borissov to Turkey where he told a joint news conference with Erdoğan that Bulgaria supports reforms in Turkey and its desire to join the European Union "We are for the reforms and we want the European integration of the Balkan countries to continue, but we have also laid certain claims. There should be balance in this bilateral process,” he added. It was reported that the issue of Bulgaria’s claim against Turkey for compensation for Bulgarians forced out of Turkey in 1913 had been raised and both sides had agreed that the issue should be resolved through cooperation rather than confrontation. Bulgaria and Turkey also have agreed on opening two new ferry services, between Varna and Samsun and between Varna and Zonguldak, and on extending the volume of flights at the airports of Sofia, Plovdiv, Varna, Bourgas – on the Bulgarian side – and Ankara, Istanbul, Izmir and Bursa in Turkey.

Latest episode. The Constitution Court overturned with unanimous vote, a law allowing the military to be put on trial in civilian courts, a move fiercely opposed by the armed forces at a time of escalated tension with the government.

Why not start here? Organisation for Security and Cooperation in Europe (OSCE) said Turkey's Internet law was failing to preserve free expression in the country and should be changed or abolished. OSCE said that Turkey was blocking some 3,700 Internet sites, including YouTube, GeoCities and some Google pages, for "arbitrary and political reasons" and urged reforms to show its commitment to freedom of expression. It may a good place to start actually doing something about democratization, if intentions were serious.

Economic Developments

Signs of recovery? In December, Turkey’s imports increased by 31.4 percent to $15 billion and exports rose by 30.3 percent to $10 billion, bringing the trade deficit to 4.9 billion from 3.7 billion year-on-year, the trade figures that Turkstat released Friday. In 2009, imports contracted by 30.3 percent to $140.8 billion while exports decreased by 22.6 percent to $102.1 billion, resulting in a trade deficit of $38,6 billion, 45 percent below its 2008 level. Need to roll over. Treasury said on Friday, it expected total debt redemptions of TL 20.4 billion ($13.7 billion) in February and borrowing of TL 19.3 billion. For March redemptions were seen at TL 13.6 billion and borrowing was seen at 13.5 TL billion. For April redemptions were seen at TL 16.9 billion, and domestic borrowing was seen at TL 15.8 billion. The Treasury also said it could reissue its ten-year bond if market conditions allow. The issue of Turkey's first ever 10-year bond on January 25 was hit by weak market sentiment, and the yield at 11.24 percent topped forecasts of 11.11 percent.

If hot milk burned your mouth. Central Bank Governor Durmuş Yılmaz said on Tuesday the bank may cut its benchmark interest rates further if the recovery in the economy is delayed. It had already cut rates by 10.25 percentage points to a record low of 6.5 percent. Yılmaz told news conference that the bank saw interest rates at single-digit levels for the foreseeable future. He also said the bank saw a 70 percent probability that 2010 inflation would be between 5.5 percent and 8.3 percent.

Give it up! Two weeks ago, Erdoğan told the media that finalization of talks with IMF was imminent and was a matter of days. His comments were tempered by more sober comments by other ministers. Later that week, “The Turkish government has not requested a negotiating mission from IMF to finalize a loan agreement but talks are ongoing”, a Fund spokesperson told a regular press briefing.

Briefly:· Capacity utilization in manufacturing rose by 0.2 percentage points to 67.8 percent in January from 67.6 percent a month earlier, the Central Bank said last week. It was 61.4 percent a year ago.

· Central Bank’s Real sectors confidence index rose to 102 in January 2010 compared with 92.2 in December 2009 and 59.4 a year ago, A sub-index measuring overall course of business was also up; 106.9 in January 2010 vs. 96.9 for the previous month.

· The Consumer Confidence Index, jointly conducted by the Central Bank and Turkstat rose by 0.53 percent to 78.8 in December 2009, compared its November 2009 level. It stood at 69.9 in December 2008.

· Turkstat’s October unemployment figures showed that the rate of unemployment was 13 percent, up from 11.4 percent a year ago, while the rate of non-agricultural unemployment stood at 16.4 percent, up from 14 percent in October 2008. The official number for the jobless was 3.3 million.