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Update No: 060 - (18/04/02)

The Turks are recoiling from a massive economic crisis that broke out last year. GDP is down by 7% year-on-year and inflation is at 73.1%. With a huge trade deficit of over US$9bn, the economy is in poor shape.

Iraq in the sights
But the IMF is committed to massive assistance, while so is the US. Vice-President Cheney was in town recently to drum up Turkish support for future moves against Iraq. But the Turks are most unwilling to see another Gulf War, which first time round has cost them US$30n in lost trade.
A delegation to Baghdad has just signed US$500m worth of deals. The aim is to see trade with Iraq rise to US$2bn and eventually the old level of US$3bn, from the present one of US$1bn.

Closer to Europe
What Ankara would most like to see is movement on entry with the EU. Negotiations are opening up in the course of the coming Spanish presidency. But there are many hurdles. The very size of the Turkish population is number one at 65-70m, compared with an average eight million for other candidate entrants. Turkey's dubious human rights record is another, involving allegations of torture and brutal oppression of the 20m Kurds, plus unnecessarily harsh treatment of the Islamicist political party, which has been banned.
The omens are good for improvements here. The 550-seat parliament has approved measures to make it more difficult to ban political parties.
One obstacle to EU entry has been largely removed, the outright opposition of Greece. Rapprochement between Ankara and Athens has been under way for some time. A possible peace accord in Cyprus is bringing the Greeks and Turks on the island together. Premier Bulent Ecevit and Foreign Minister Ismail Cem are adamantly pro-opening up to Greece, which means compromises all round, including over disputed Aegean islands.

A brighter future
Things can only improve for the Turks. At least the IMF is committed to a massive credit programme of US$16bn or more, the largest on its books. 
The economy minister, Kemal Dervis, is much respected abroad and is pushing economic reforms. The future looks rather brighter than last year.

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AVIATION

Turkish Airlines finds route to profit

In a year when the aviation industry had US$15bn in losses world-wide and two venerable European flag carriers went bankrupt, Turkish Airlines defied the odds by earning a slim profit, the International Herald Tribune has reported.
And though it is state-controlled, Turkish airlines did it without the government support that kept some airlines in other countries float.
The airline's efforts to make itself more responsive to the market were reflected in the US$6.7m profit for 2001 it posted on 25th March, compared with a loss of US$103m in 2000.
"This move into the black is sustainable because we have restructured ourselves and because the government has liberated us from intervention," Cem Kozlu, the airline's chairman, said.
Some of the measures it took are familiar. Unprofitable flights were reduced, excess aircraft sold, orders for new planes cancelled or delayed. In-flight meals were pared, and the airline stopped offering free newspapers on domestic flights. 
Other steps were innovative. Labour unions at the airline accepted a 10 per cent wage cut for three months in exchange for a freeze on layoffs. Such agreements are rare both in the aviation industry and among Turkey's state-owned enterprises, where political sensibilities usually outweigh market considerations.
Large discounts on tickets for members of parliament and the press were eliminated in January and service to unprofitable airports was discontinued, two riskier steps that are still drawing protests but were deemed essential to long-term profitability.
The company is not out of the woods, however. Only 10.4 million passengers used the airline last year, down from 12 million in 2000.
When business starts to grow again, new capital will be needed to expand the fleet, trimmed to 68 aircraft last year from 74 in 2000. Gains from the sale of six airbus aircraft to Iranian Airlines helped put Turkish into profit.
In a sense, the Turks had a head start on the industry when it came to dealing with the havoc created by the aftermath of the terror attacks in September. A plunge by the Turkish currency in February 2001 created an economic crisis that knocked domestic passenger loads down almost one-third, followed by a 10 per cent drop in international traffic.
The airline responded by winning new flexibility from the government, which owns 98.2 per cent of its stock Most significantly, Parliament passed legislation allowing the airline to set its own fares for the first time. In the past the government often blocked fare increases to curry public favour, executives said.

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ENERGY

Turkish province produces 2.1m barrels of crude oil in first three months

A total of 2.1m barrels of crude oil were produced in southeastern Adiyaman Province and its environs in the first three months of the year, Anatolia News Agency has reported. 
Turkish Petroleum Corp (TPAO) produced 90 per cent of the oil and the remainder was produced by private companies. 
The oil production takes place in Adiyaman, Karakus, Cemberlitas, Bati Firat, Guney Karakus, Cendere, Besikli, Tokaris, Dogu Besikli, Ikizce, Ozan Sungurlu, Karadut, Caylarbasi, Lilan, Yanankoy, Bozova and Akgun fields.

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ENVIRONMENT

AMEC announced withdraw from Turkish dam project

A British company has stated that it will pull out of a highly controversial plan to build a dam in Turkey, New Europe has reported. AMEC said it would no longer participate in the Yusufeli Dam and Hydroelectric Power Plant Project on the River Coruh in the north east of the country.
The decision was made as environmentalists, including Friends of the Earth and the Kurdish Human Rights Project, fight the scheme. They argue that the Yusufeli Dam, if built, would flood 18 towns and villages as well as precious archaeological sites. Also, they say it would flood undisturbed habitat, home to endangered species such as the red vulture and brown bear.
The groups say the dam would flood the homes of 15,000 people, most ethnic minority Georgians. The company said that for over two years it had been a minority participant in the international joint venture with companies from France, Spain, Belgium and Turkey. A spokesman said: "Today, following a commercial review of the project's progress to date, the remaining resource requirement to financial close, weighted against potential returns, AMEC has concluded that its resources would be better deployed in other areas including the furtherance of its strategy to develop an international base of service-related activity. Accordingly, AMEC has decided not to participate further in the project."

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FOREIGN INVESTMENT

Ankara forced to slash red-tape for US$16.3bn loan

One of the conditions of the US$16.3bn loan from the International Monetary Fund is that Turkey improves conditions for investment, the Financial Times reported in late March.
A plan was drawn up with the help of the World Bank's Foreign Investment Advisory Service and approved by the coalition government in late January. The aim is to reduce red-tape and increase transparency. Establishing a company, whether domestically or foreign-owned, currently involves 19 different bureaucratic steps and takes at least 10 weeks. Even the government admits that the granting of licences and permits is "unnecessarily complicated due to conflicts of authority" among state institutions.
The fact that the plan was approved by the Turkish government with virtually no publicity could be attributed to a certain embarrassment.
As Johannes Linn, the World Bank's vice-president for eastern Europe and central Asia, told an Ankara conference, he had attended a similar gathering on the problem 18 months earlier and "since then not much has changed….It is now time to stop talking… and to really move forward."
But this time the government seems more committed to taking action. Kemal Dervis, the economy minister, says the government also plans to convene a top-level investment council on July 18th. By this time, he expects the government will have implemented many of the required administrative changes.
Both James Wolfensohn, president of the World Bank, and Hoerst Koehler, managing director at the IMF, have confirmed their attendance at the council and another 20 chief executives of European, US and Japanese corporations have been invited.
Mr Dervis hopes to convene the same group once a year, with any recommendations they make to be followed up, perhaps with the help of a small permanent secretariat.
With the help of foreign advisers, Turkey is also planning to establish an Investment Promotion Agency, inspired by Ireland's success in dramatically increasing inward investment.
But after years of Turkish governments paying lip-service to the need for more inward investment, Ankara's intentions are still viewed with suspicion.
Bureaucratic habits are hard to break without a strong commitment from the highest political level. "At the top level in Ankara, you've got technocrats who are world-class," says John McCarthy, head of ING Barings, the investment bank, in Istanbul, and part of the taskforce to create he Investment Promotion Agency. "But, lower down in the bureaucracy, there is still a logjam, which means that implementation of laws is still lagging behind their adoption.
The likelihood of the plan receiving strong political backing is limited by the lack of a common economic vision within the government. Officials at foreign trade organisations, which are controlled by the National Action Party, the second largest coalition partner, have sought to redress Turkey's trade balance by putting up additional bureaucratic obstacles to imports.
Meanwhile, Husamettin Ozkan, right-hand man to Bulent Ecevit, the prime minister who leads the Democratic Left party, is criticised for having pushed through parliament a rival project that would offer tax incentives within industrial zones. This, in itself, say critics, undermines the programme's central goal of creating a one-stop shop for foreign investors.
Given so many grounds for scepticism why should the government's latest campaign to attract foreign investment succeed? Apart from the plan's link to a much wider IMF-backed reform programme, optimists detect a change in attitudes within the Turkish business community.
"We have come a point where a majority in the Turkish business community think they need reforms designed to remove obstacles to domestic and foreign investment alike," says Abdurrahman Ariman, secretary general of the Foreign Investors Association of Turkey.

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FOREIGN LOANS

EIB extends 90m Euro loan for storage facility

The European Investment Bank (EIB) is advancing a €90m loan to the Turkish National Oil and Gas Company for the establishment of Turkey's first major gas storage facility. This is the first EIB operation under the new "Special Action Programme," which makes financing available for up to €450m during the period 2001-2004, in favour of a key investment in Turkey's energy sector, New Europe has reported.
The project, which will provide about 1.9 Giga cubic metres of working gas capacity, concerns the conversion of two depleted gas fields, one onshore and one offshore, located in the Thrace region near the city of Silivri, some 60km west of Istanbul, into an integrated gas storage facility. There are presently no gas storage facilities in Turkey, other than storage tanks of limited capacity located at an LNG terminal across the Bosphorus from Istanbul.
The main purpose of gas storage is to match seasonal demand fluctuations (winter demand for gas is more than twice the summer level in Turkey) with supply given an optimal, usually constant level of imports and production. Winter demand is now met by interrupting supply to large industries and power plants that can use alternative, but more expensive and more polluting fuels. This project will reduce national fuel costs and provide a degree of supply security in case gas imports are temporarily disrupted.

TOBB awaits 1m Euros in funding for SME's

The European Union has agreed to finance, through the European Investment Bank (EIB), an economic development programme by the Turkish Union of Chambers and Stock Exchanges (TOBB), New Europe has reported. 
The 1m Euros grant (US$876,000) will be used to fund TOBB's initiative to develop small and medium-sized (SMEs) in Turkey, Cumhuriyet reported. 
Last December the EIB said it would lend the country 185m Euros (US$166m) for reconstruction works in central Anatolia's Eskisehir province, devastated by the earthquakes in 1999. Of that total, 110m Euros would be given to the Eskisehir Municipality for the construction of a new light rail system (LRT) and the rehabilitation of amenities in conjunction with the Porsuk River that runs through the city.

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TRANSPORT

Japan agrees US$90m loan for Istanbul bridges

Japan has agreed to loan US$90m to Turkey to strengthen bridges and viaducts in Istanbul that were hit by two earthquakes in 1999, New Europe has reported.
Turkish Treasury officials said the money would be used to reinforce the Bosphorus and Fatih bridges, which link Asia and Europe, as well as the Golden Horn bridges and nearby viaducts.

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