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  TURKEY

REPUBLICAN REFERENCE

Area (sq.km)
814,578

Population
63,000,000

Capital
Ankara

Currency
Lira

President
Suleiman Demirel

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Background:
Turkey was created in 1923 from the Turkish remnants of the Ottoman Empire. Soon thereafter the country instituted secular laws to replace traditional religious fiats. In 1945 Turkey joined the UN and in 1952 it became a member of NATO. Turkey occupied the northern portion of Cyprus in 1974 to prevent a Greek takeover of the island; relations between the two countries remain strained. Periodic military offensives against Kurdish separatists have dislocated part of the population in southeast Turkey and have drawn international condemnation.

UPDATE January 2002

The Turks are receiving a lot of attention by the US and the IMF, having a key position in the post 9:11 world. The one NATO member in the Middle East, they are vital to the US in its new policy in the region, to engineer a Palestinian state and to put pressure on Saddam Hussein's regime in Iraq, even to attempt to topple it.
The terror attacks as a diversion, have been in a sense a godsend for the government, whose record economically and in other respects was none too good. A three-party coalition under Premier, Bulent Ecevit, it had failed in the early months of 2001 to prevent a massive 40% devaluation of the lira and a disruption to businesses and the frail banking system.
Now the IMF is considering granting Ankara a new loan to account for disruptions since 9:11, on top of a new US$3bn three-year stand-by credit arrangement. This comes after the IMF's executive board ended its 10th review of the Turkish government's economic reform programme.
On November 15th, Horst Köhler, the IMF managing director, said that Turkey faced a financial gap of nearly US$20bn for 2001 and 2002. He said that he was prepared in the light of recent progress to recommend the stand-by arrangement. The recent progress is really little more than pious talk about reform, which is the mantra you have to perform when you go cap in hand to the IMF.
Turkey had been coming under criticism for the decision by the Constitutional Court to close down the Virtue party, the Islamicist party. Taken in the summer, the move no longer looks so retrograde, although there is no reason to believe that the party, headed by a popular mayor of Istanbul, is in any way a terrorist organisation or has links with bin Laden and the like.
They are redoubling security and co-operating with the US to monitor suspect terrorist activity in the region. Mistrustful of their former Arab subjects, they are also in close co-operation with the Israelis, whose military prowess they admire. Turkey is certainly a key player in the current world crisis.

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AVIATION

Turkish Defence Ministry reaches accord with US Bell company on helicopters


The final stage of signing an accord between Turkish Aerospace Industry [TAI] and Bell Textron is planned to be reached following the accord talks held between TAI, Bell Textron, Turkish and foreign companies and firms supplying equipment for the project. The final stage of talks regarding pricing and cost will be concluded, apparently, in January 2002, Ozgur Politika web site has reported. 
While, on the one hand, unemployment and poverty has hit the highest point, on the other hand, military spending, which is one of the primary causes of the economic crisis, is increasing. 
It was reported that an agreement between the American Bell Textron, which was selected by the defence industry undersecretariat as the licensed company following the assessment made last year, and the Ministry of Defence was reached. The agreement tackles fundamental issues such as "complete modernisation, planning and development of helicopter, lifelong integral logistic support for product and mechanical and avionics renovation and modernisation."

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BONDS

Investors warm to Turkey deal


There was a diverse range of new issues in the international bond markets on 4th December, taking in corporates, emerging market sovereigns and asset-backed deals. The secondary bond market was calmer after a day of spread widening caused by the collapse of Enron, The Financial Times reported.
Despite the turmoil in Argentina, it seems that the funding strategies of other borrowers' in the emerging markets have not been disrupted after Turkey successfully completed a €300m issue. The deal is an increase to an existing 2005 bond, originally launched in October, bringing the total issue size up to €800m.
The increase to Turkey's 2005 bond takes advantage of its strong performance since October, allowing a relatively low cost of funding.
The new bonds were priced to yield 695 basis points over German government bonds, or 10.63 per cent, compared with 744 bp over or 11.12 per cent at the time of the original launch. Almost three-quarters of Turkey's new bonds were sold to foreign investors, bankers said, with accounts in Germany taking 48 per cent of the deal.
Investors have warmed to Turkish bonds in recent months recently. Standard & Poor's changed the outlook on the sovereign's B minus rating from negative to stable.
Although it still faced many economic challenges, S&P said Turkey had "improved prospects for the continued implementation in 2002 of financial policies and structural reforms, in the context of a new three-year IMF stand-by arrangement."

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DEFENCE INDUSTRY

Turkish, Israeli companies to modernise 170 tanks


Aselsan, a military electronics firm, will contribute to the modernisation of 170 tanks by Israel, Anatolia News Agency has reported. 
The Machinery and Chemistry Industry Institution, which is the subcontractor of a tank modernisation project of the Defence Industry Undersecretariat, is waiting for the implementation of the agreement. 
The US$700m investment financed by the Defence Industry Undersecretariat (SSM) will be realised by a consortium whose main contractor is the Israeli Military Industries (IMI). 
Aselsan will also contribute to the project as a subcontractor. After the signing of the tank modernisation agreement between the SSM and IMI, the tanks will be modernised in a maximum of three years.

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ENERGY

7.9m barrels of crude oil produced in southeast in 11 months


A total of 7.9m barrels of crude oil was produced in 11 months from 163 wells in southeastern Adiyaman province which has the biggest oil reserves in the country. 
Turkish Petroleum Corporation (TPAO) produced 90 per cent of the oil and private companies produced the remaining oil, Anatolia News Agency has reported. 
TPAO and the private companies get the oil from the wells in Adiyaman Karakus, Cemberlitas, Bati Firat, Guney Karakus, Kuzey Karakus, Cendere, Besikli, Tokaris, Dogu Besikli, Ikizce, Ozan Sungurlu, Karadut, Caylarbasi, Lilan, Yanankoy, Bozova and Akgun.

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FOREIGN INVESTMENT

Importers lay siege to Turkish trade barriers


Foreign donors are demanding a greater commitment by Turkey to dismantling non-tariff barriers, which foreign companies say are one of the greatest obstacles to more investment in the country, the Financial Times reported on 4th December.
Complaints about cumbersome bureaucracy and official red tape have reached fever pitch ahead of talks with the IMF. The talks will tie new loans of up to US$20m next year to a three-year programme of economic reform.
The issue is also likely to come up in discussion on the extension of Turkey's customs union with the European Union when officials from Brussels visit the country.
Abdurrahaman Ariman, the secretary-general of Yased, the foreign investors' association of Turkey, said that his members were pinning their hopes on a new three-year IMF standby deal. Measures to improve the investment climate are likely to feature among the conditions for additional IMF loans, which will make Turkey the fund's biggest borrower by far. "If the government does not take these measures than IMF money will not flow to Turkey," argued Mr Airman. 
The butt of foreign companies complaints is the Turkish Standards Institute (TSI) which has come under attack while under the control of the National Action Party, an ultra nationalist coalition partner seen as lacking in economic sophistication.
Citing obsolete regulations, the institute has held up imports already subject to long customs procedures. In some cases expensive imported goods have been damaged when taken in for testing by the institute.
"Hundreds of companies face this kind of trouble, and it is not just foreign companies but Turkish companies that import machinery and equipment for investment," said Mr Ariman. "The TSI is like a machine that generates non-tariff barriers."
An EU official expressed similar frustration, saying: "The standards question has been on the agenda for the past two years and it has got worse….. Standards are a good means to display a protectionist reflex when you don't have quotas and tariffs."
Paradoxically, or perhaps as a crude protectionist response to Turkey's worst economic slump since 1945, the red tape has worsened since imports collapsed following a devastating devaluation in February, companies say. But the standards problem has several broader ramifications.
It has already prompted complaints from the EU as a violation of the customs union ahead of talks aimed at expanding the union's scope to services and public procurement. It also illustrates the sort of bureaucratic and political obstacles that has discouraged foreign direct investment in Turkey and which the government is now promising the IMF and World Bank it will streamline.
A study by the World Bank's foreign investment advisory service earlier this year reckoned that investors in Turkey spend 20 per cent of management time dealing with red tape, compared with eight per cent in eastern and central Europe and four per cent in Latin America.
Mr Ariman cited the example of 3M, the US company, whose Post-it paper notes were impounded for radiation checks under regulations aimed at computers.
Another importer said a German consignment essential to the completion of a five-star hotel was impounded for 45 days after being tested by a Turkish competitor on behalf of the poorly equipped standards institute. The World Bank report said that firms including Panasonic and JVC "recently decided against investing in Turkey, largely due to standards-related trade restrictions." The matter was raised as recently as November by the EU at a regular meeting to review progress with the customs union. The European Commission is to start two separate sets of trade liberalisation talks with Turkish officials in early December. One is to negotiate an extension of the customs union, which covers manufactured goods, to include services; the other aims at a mutual opening of public procurement markets.
Turkish officials have told the EU that the standards problem will be solved when parliament adopts a law in January recognising EU standards, together with implementing regulations. But others are not so sure.
A law drawn up by the government as part of a sweeping action plan to facilitate foreign investment has been found wanting by the World Bank. While it is being reworked, the law is unlikely to be adopted by mid-January, the deadline set out by Ankara in a letter of intent to the IMF published at the end of November.

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FOREIGN LOANS

JBIC loan awaiting World Bank US$1.3bn approval


In order to award almost US$1.5bn in loans to Turkey, the Japan Bank for International Co-operation (JBIC) is waiting for approval of a US$l1.3bn World Bank (WB) finance sector adjustment loan (FSAL).
JBIC will act in parallel with the approval of the FSAL that the WB committed itself to give to Turkey in December 2000, sources were quoted as saying by the Anadolu Agency. Following approval of the US$1.3bn of FSAL, JBIC is expected to give nearly US$1.5bn in loans to Turkey within the framework of co-financing.
Sources noted the JBIC experts would visit the country early next year to observe developments in the finance sector. Officials said that progress on the WB loan was continuing, and that Turkey could receive the loan in question only next February as a result of various delays.

Turkish officials, World Bank delegation discuss Turkey's financial needs

A delegation from the financial and private sector sections of the World Bank arrived in Turkey and started activities in Ankara on 6th December. 
The delegation first had meetings with Banking Regulation and Supervision Agency officials and they were briefed about the financing need of the financial sector. 
The World Bank delegation will also have contacts with the IMF delegation who is also in Turkey and they will investigate the additional financing need of the financial sector for 2002, 2003 and 2004. 
It was reported that the bank could offer Turkey an additional credit of US$500m next year and this amount could increase depending on the implementation of structural reforms. 
The amount of the additional credit will become clear after the meetings between the World Bank and the IMF. The bank had promised to pay a total of US$6.2bn to Turkey in the next three years as part of the Country Aid Strategy (CAS).

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TELECOMMUNICATIONS

Transport minister, IMF officials discuss Telekom privatisation


Transport Minister, Oktay Vural, said on 6th December that the IMF delegation which is in Turkey said that the work carried out for the achievement of the economic programme was very responsible, Anatolia News Agency has reported.
Speaking to reporters after receiving the IMF delegation in his office, Vural said that he informed the IMF delegation about the privatisation of Telekom. 
Stressing that Telekom will first of all become a company and then be privatised, Vural said that the "consultant firm which will start the work at the beginning of this year will start to implement the plan to make Telekom turn into a company in 35 weeks. This will be a three stage plan." 
Vural said that the committee of auction has to be formed by the end of the year, for which the Transport Ministry will choose two persons and the Treasury chose one person. He said that the Privatisation Board has not chosen two persons yet. 
Vural stated that 6,500 personnel in Turkish Telekom had submitted their petitions for retirement, adding that "there will be a source of nearly 120 trillion liras due to that development, and this is important for increasing the value of Telekom." 
On a question about decreasing the number of State Railways' personnel by 50,000 workers, Vural said, "our studies continue in the issue, yet this is not included in the economic programme. A reconstruction process from State Railways to Post Telegram and Telephone (PTT) has started." 
Meanwhile, it has been noted that the auction for Telekom won't be held for two years.

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