TURKEY

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Area (sq.km) 
780,580

Population 
68,109,469

Capital 
Ankara 

Currency 
Lira 

President 
Ahmet Necdet Sezer 

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Update No: 091 - (26/11/04)

Foreign minister Gul is bullish about EU entry
The Turkish Foreign Minister Abdullah Gul is a seasoned diplomat, who has steered a sure course for his country through a difficult time, in which relations with traditional allies have been tense, notably the US. There public opinion took umbrage at the Turkish parliament's decision in March of last year to debar US forces from crossing Turkish territory into Iraq.
Relations with the Europeans are also troubled in that public opinion is at best lukewarm about the prospect of Turkey joining the European Union (EU) any time soon. In France, which is to hold a referendum on the issue, some 70% are opposed in recent opinion polls, auguring badly for its outcome. 
Nevertheless, Gul has said that Turkey's European Union objective is full membership and that there were no other alternatives. He said the pledge of membership did not depend on verbal promises, but on decisions, agreements and top-level assurances. 
Gul submitted his ministry's 2005 budget to the parliamentary Planning and Budget Commission on November 16th and while presenting his budget to the commission gave a detailed briefing on Turkey's foreign relations in terms of countries and international agencies. 
Gul said that his government was committed to implementing the necessary democratisation and human rights reforms to turn the country into a land of freedom, adding, "The wide-ranging reform process that aims to provide the highest living standards for our citizens also includes measures that allows us to proceed towards our EU objective." 
He said significant strides had been made in combating torture, mistreatment and corruption, and that measures had been put into place guarding the freedom of expression and religion, in addition to the abolition of the death penalty and the strengthening of civilian authority. 
Gul said they had passed several constitutional amendments as well as the new Turkish Penal Code (TCK), and he noted that the European Committee for Combating Torture had praised the precautionary measures taken by Turkey. The meaning of Turkey being removed from the inspection watch-list of the European Parliamentary Assembly was that Turkey had fulfilled its responsibilities in harmonizing with EU norms, said Gul, adding, "Turkey has never been this close to its EU membership objective. We see the European Commission's decision to recommend the start of the negotiations as a very important development. We view the commission's findings as constructive steps that will provide a boost to Turkey's membership efforts. Among the commission's recommendations are certain measures that were not asked of other candidates. I believe the continued dialogue will provide a sensible and progressive solution that will please all sides."
Time will tell if this optimism is justified. The first hurdle, a formal invitation by the European Commission, based in Brussels, to enter into negotiations for Turkish entry is expected to ratified in mid-December. The European Commission on Oct 6th recommended the opening of membership negotiations, and EU leaders were expected to give the go-ahead for talks at the EU Council meeting on Dec 17th.
The EU issue in the round; mixed reaction from Europeans
There are many reasons for Turkey's political and business classes to desire its entry into the EU. One of the most potent is economic. The prosperity that Turkish immigrants to the European Union have achieved in personal terms is one that Turkey hopes to achieve in national terms through its bid to become a full EU member. There are 60,000 German-Turkish entrepreneurs in Germany alone. This involves more than €7.5bn in investments, sales of more than €30bn and a part-German, part-Turkish work force of 350,000 people in the Central European country at the core of the EU. 

European business in favour
But for all the political discomfort, European business opinion seems solidly in favour of starting the membership process. For instance, when Prime Minister Recep Tayyip Erdogan of Turkey and a Turkish business delegation came to seek support from the French employers' federation, Medef, in July, Medef's president, Ernest-Antoine Seilliere "told them they were among friends" said Isabelle Mariano, a spokeswoman for Medef. While Medef refused to lobby for Turkey, saying that was not its role, the French co-president of the French-Turkish business council, Louis Schweitzer, spoke in favour of membership.
Schweitzer said that membership would encourage continuity, stability and further economic and political development, Mariana said. Schweitzer is the chief executive of the No 2 French carmaker, Renault, which is one of some 280 French companies with operations in Turkey. Others include the oil giant Total, the drug maker Sanofi-Aventis and the cement producer Lafarge.
If European business backs Turkey, it does so because Turkey's strong economic growth of the past three years and the government's modernisation programs, which are opening important trade and investment opportunities, are rooted in the drive for EU membership. "There is quite frantic economic growth there," said Raphael Kassin, who manages the emerging market fixed-income portfolio at ABN AMRO Asset Management in London, "and a lot of it is in view of eventually joining the EU. The Turks have become quite intent on joining, and they will do almost anything they are asked to do, within reason, of course."
To qualify for Europe, the government has been pushing through a radical restructuring of public services and the banking system, and modernising administrative methods which in some cases have not been updated since the 1920's. Ankara has tightened public spending controls, put monetary policy in the hands of an independent central bank and started to cut away at a jungle of red tape choking private business.
A direct consequence has been a strengthening of the Turkish currency, the lira, in the past two years, and a sharp drop in interest rates. In January next year the currency will be replaced with a new lira, at an exchange rate of one million to one, a symbolic act of confidence in its new stability. This comes after years of deep erosion in the value of the currency.
For financial investors, like Kassin, who holds Turkish foreign currency bonds in his portfolio, this adds up to a profitable, if speculative, mix - a EU convergence bet combining high yields and capital gains. For direct investors, and exporters, it adds up to a window of opportunity. With improving stability and confidence, Turkish consumers are starting to spend. Importers of cars, furniture and other household goods, mainly from Europe, are booming.
Turkey's imports from EU countries rose to US$26bn in the first seven months of 2004, up 47 per cent from the period in 2003, according to government figures, while its exports to the EU rose 24 per cent, to US$17.8bn. Only Russia, which sold US$4.5bn worth of products, mainly oil, challenged Europe's dominance as Turkey's supplier. US exports to Turkey totalled barely US$2.8bn.
Investment flows, though tiny by comparison, show even more impressive growth, and European domination. In the first eight months of the year, direct investment from the EU rose to US$656m from US$179m in the same period of 2003, according to data from the central bank of Turkey. For the eight-month period this year, the EU accounted for 91 per cent of all investment flows into Turkey, up from 71 per cent for the period last year.
The danger, said Kassin, the ABN AMRO fund manager, is that if Turkey - which has had a customs union, or a treaty eliminating duties and tariffs, with the EU since 1996 - is denied entry, or offered something short of full membership, there may be a bitter backlash against Europe.
"They are not keen on economic partnership," Kassin said of the proposal floated by Merkel. "The dangerous part is here. What would you do if you were Turkey, and you've had a customs union going on for a while - you've been given a carrot, and then when it's time to get the real thing, it's pulled away?" If rejected by the EU, said Kassin, Turkey might turn to other partners, perhaps America or Russia, shutting European business out of a dynamic and potentially hugely lucrative market.

OECD approval too
The potential of that market was sharply highlighted in a report by the Organisation for Economic Cooperation and Development (OECD) on October 21st. Turkey's gross domestic product, measuring the total of goods and services produced, rose 8 per cent in 2002, and 6 per cent in 2003. Aided by rising confidence, falling inflation and interest rates and the new stability of the lira, the growth rate could accelerate to near 10 per cent this year, the OECD said.
That would put Turkey in the same growth league as China, another country with a large, and largely poor, population, and a lost decades growth to recover.
Inflation, which hit a 70 per cent rate during the country's 2001 financial crisis, was reined back to 12 per cent by the first half of this year. The OECD said that it expected the inflation rate to continue to slow, to between 8 per cent and 9 per cent in 2005.
But, for all the optimism, there is a catch. Rapid growth in the past three years mainly reflects a breakout from stagnation, or worse, over the previous two decades. With an economic output per person that is less than a third of the average in the EU, Turkey's population of about 68 million is the poorest among the OECD's 30 member states. Worse, for most of the past 20 years, the poverty gap has widened rather than narrowed, the OECD's economists say.
With such a long, and recent, legacy of instability and weakness, and so short a history of recovery, can Turkey be ready to face the challenges of integration into the EU any time soon? Yes, if they keep up their present momentum, said Kassin, the ABN AMRO fund manager. "Currently their economic management is potentially a healthy partner," he said. "As long as the EU gives them some sort of workable timetable, the Turks seem to be willing to make it work."

Cheap sales of land to attract foreign investment
Turkey plans to sell state land at up to one seventh of the going market price in order to attract foreign investments. Officials located 53.2m square metres of land suitable for sale. Its current market value stands at 80.9 trillion Turkish liras (about 43.7m Euro), but they planned to sell at around 15 trillion liras (about 8.1m Euro).
Foreign investment is vital to the economy, which is making progress with a tight economic austerity programme backed by a 16bn Euro International Monetary Fund loan to pull the country out of its worst recession in decades. "Our aim is to increase tax revenue by expanding the city's industrial capacity and to increase employment," Cemal Boyali, the deputy head of the Ankara revenue office, Anatolia News Agency reported

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AVIATION

Turkey set to buy 36 Airbus planes

Turkish Airlines (THY) will sign a deal with the European aircraft maker Airbus on purchasing 36 planes worth US$2.8bn, Turkish daily News reported.
The paper quoted the German government spokesman, Bela Anda, as saying that the deal would be signed during a meeting among Turkish Prime Minister, Recep Erdogan, German Chancellor, Gerhard Schroeder and French President, Jacques Chirac. In July THY announced that it would buy 36 planes from Airbus and 15 from Boeing. THY finalised a contract to buy 15 next-generation 737 passenger planes from Boeing.

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CREDIT RATINGS

Fitch upgrades Turkcell ratings to BB-

Fitch Ratings, the international rating agency, on October 22nd upgraded Turkish GSM telephony provider Turkcell's (Turkcell) senior unsecured local currency rating to BB- (BB minus) from B+. The outlook is stable, Anadolu News Agency reported. 
The outlook was changed as the foreign currency rating is capped by Turkey's B+ country ceiling. The agency affirmed the rating at B+. The US$400m senior unsecured notes due 2005 of Turkcell's guaranteed special purpose financing vehicle Cellco Finance NV (Cellco) were affirmed at B+. The upgrade reflects the strong performance of Turkcell's Turkish mobile operations, on the back of its sustained solid market position and stabilised macro economic trends, which are key drivers of its credit profile. Despite increasing competition, Turkcell has preserved its leading position by capturing, according to publicly available data, more than 50 per cent of the 1.5 million new subscribers during the first nine months of this year. This corresponds to a strong market position exceeding 60 per cent. The ratings consider further competitive pressures not only from the mobile market consolidation but also attempts to liberalise Turkey's fixed-line telecoms sector. The telecoms watchdog granted licences in the long-distance division to around 40 private businesses.
The ratings also consider Turkcell's margin pressures, increasing capital expenditure and the potential cash outflow impact of ongoing legal issues. Fitch has historically rated Turkcell on a stand-alone credit basis as it operates independently under its current ownership structure.
The agency has not relied on significant support under the ownership structure, with Turkcell's own business and financial profiles easing the need for such support.
Turkcell does not fully consolidate these ventures and has not received dividends as of yet. It is listed on the Istanbul Stock Exchange; its American Depositary Shares are also listed on the New York Stock Exchange and SEAQ International.

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FOREIGN ECONOMIC COOPERTION

Turkey, Iraq sign memorandum of understanding on economic cooperation

Turkish State Minister, Kursad Tuzmen, and Iraqi Oil Minister, Thamir Ghadban, signed a memorandum of understanding (MoU) after the Turkey-Iraq 15th Term Joint Economic Commission (JEC) meeting, Anatolia News Agency reported
Tuzmen said: "This is the first JEC meeting which Iraq attended after the war. Decisions which were taken in this meeting will accelerate bilateral commercial and economic relations. Trade volume with Iraq is increasing each day."
"We have reached consensus with Iraq on security, customs, banking, bilateral cooperation and energy issues," noted Tuzmen. 
Meanwhile, Ghadban said that "the memorandum of understanding will be reflected on economic and commercial cooperation of two countries in coming days and it will also trigger cooperation."
"We have many projects in the areas of transportation, service, infrastructure and industry. We will be very pleased to work with Turkish businessmen on these projects," Ghadban said. 
"The Turkish business world is not a stranger to the Iraqi market. Turkish businessmen can contribute to development of Iraq by working together with the Iraqi private sector and they can benefit from business opportunities in Iraq," he added.

Turkish, Slovakian foreign ministers discuss bilateral ties, trade

Turkish Foreign Minister, Abdullah Gul, met his Slovakian counterpart, Eduard Kukan, recently. After the meeting, the two foreign ministers held a joint press conference, Anatolia News Agency reported. 
Gul said that Kukan's visit was important after the European Commission had made public Turkey's progress report. Stressing good relations between two countries, Gul said that he was sure that trade volume worth US$300m between the two countries would increase. Gul stated that Turkey recognized Slovakia after it had gained its independence, and supported the country's NATO membership.
Foreign Minister Gul stressed the importance of Slovakia's support to Turkey's European Union (EU) membership bid, and expressed his wish that Slovakia would also support Turkey during the European Council to be held on 17th December (when the EU would decide whether and when to open negotiations with Turkey).
Kukan said that they were trying to further improve bilateral relations between Turkey and Slovakia. Expressing his appreciation for Turkey's support to his country's NATO and OECD membership, he said that the EU would make a very important decision about Turkey on 17th December, and noted that this decision was important for not only Turkey but also the EU. Kukan said that his country was trying to assume an official attitude towards Turkey's EU membership bid, and therefore, the Slovakian parliament would discuss this matter in the near future. Slovakian Foreign Minister Kukan said that he was sure that the discussion at the Slovakian parliament on Turkey would be positive. 
Meanwhile, the two ministers signed a judicial cooperation agreement on legal and commercial issues.

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