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TURKEY


 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 182,848 147,700 199,300 24
         
GNI per capita
 US $ 2,500 2,530 3,080 95
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km) 
770,760

Population 
66,493,970

Capital 
Ankara 

Currency 
Lira 

President 
Ahmet Necdet Sezer 

  

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 No: 081 - (01/02/04)

On January 6th an important breakthrough in Middle Eastern politics occurred when President Bashar Assad of Syria visited Ankara. The two countries, which both opposed the Iraq war, have begun to put their differences behind them.
Despite lingering disputes over Syria's claims to Turkey's Hatay Province and over the sharing of water from the Euphrates River, the two countries have signed military and security accords over the last three years. They both feel threatened by the two Kurdish enclaves in Iraq, which they see as setting a dangerous precedent of virtual autonomy that could encourage secessionist activities among their own Kurdish minorities.
Syria feels particularly isolated right now, having refused to give up its WMD unless Israel does, something it must know will never happen. Turkey is a vital intermediary between Syria and both the US and Israel.

EU insists on Cyprus breakthrough
The European Union (EU) has been hesitating for a long time to give the Turks a definite date for the start of accession talks and this was shown at its December summit meeting, when the matter was fudged again. This is further complicating the situation for the moderately Islamicist ' Justice and Development Party '(AKP) government and converting the Cyprus issue into a "hot potato." 
The scheduled Greek parliamentary elections in May and the forthcoming March local polls in Turkey may have an impact on the Cyprus talks process, as political parties in both countries have the tendency to exploit foreign policy issues for domestic consumption. This possible danger, makes it all the more important for the UN, EU and Washington to get the Cyprus talks started before the political climate in both "motherlands" heats up with poll fever.
In the Turkish capital the New Year began with renewed pressure from Turkey's NATO allies, urging the government there to reach a settlement on Cyprus before the scheduled unilateral EU accession of the Greek Cypriot side in May. American and European intermediaries have been preparing to unleash fresh pressures on Ankara, Athens and Greek and Turkish Cypriots in anticipation of getting the wheels of Cyprus diplomacy rolling towards the target of a settlement by May.
The EU may be lukewarm about Turkey, but NATO regards it as a most valuable member. 

Istanbul the new terrorist target
Security for the NATO summit in June will be ultra- strong in Istanbul after recent events. Turkey is still recovering from terrorist attacks there in November. Even if various Europeans, such as Valery Giscard d'Estaing, head of the commission that has devised a new constitution for the EU, do not deem Turkey sufficiently European to join the club, there are numerous Islamic fundamentalists that regard it as over Westernised and as replete with fit targets for retribution to right wrongs done to Islam. The epitome of Western corruption of Turkey for them is the former capital, Istanbul.
Istanbul is the meeting point of East and West. Nowhere else but in the former capital of the Ottoman Empire, indeed formerly as Constantinople the capital of the Roman Empire itself (latterly Byzantium), is there such a cross-roads of different peoples and cultures. Jews and Armenians, Greeks, Syrians, Lebanese and Iraqis mingle with the Turks, as do Westerners from all over the place. No city could better belie the dictum of Kipling: " East is East and West is West; and never the twain shall meet."
Hence the logic of making it the new site of terrorist attacks, with two outrages within a week of each other in November. The terrorists were clearly attacking the idea of conjoining West and East. This was shown in their choice of targets.
On November 15th there was an attack on two synagogues in Istanbul, leaving 20 Jews dead, an act perpetrated apparently by Islamic fundamentalists of Turkish origin, making the facile equation of Jews and Israel. Then five days later came a suicide bombing attack on the UK consulate and the HSBC bank's main branch, killing 27, including Roger Short, the consul, and wounding 400. The killers were said to be from groups trained by al-Qaida in Chechnya and Afghanistan, coming from areas of the south-east. Other reports have mentioned 20 suspects picked up in Syria. It is too early to say definitely who was responsible.
That the main branch of the UK HSBC bank was a prime target, however, is for evident reasons. It is a symbol of Turkey's opening to the West. It has managed to install or buy a branch in every Turkish town. The general manager is a woman, Piraye Antika. She has presided over the largest foreign investment in the Turkish banking system. On several counts an affront to the traditionalists.

Government embarrassed on several fronts
The government is moderately Islamicist itself, and certainly deplored the deeds. Indeed, it finds them acutely embarrassing. The co-ordination of Turkish and foreign security forces to combat the threat of future attacks is going to be given a massive boost.
On December 2nd the appeals court sentenced former premier Necmettin Erbakan to 28 months in jail for misappropriating party funds. He as among 70 Islamists charged with misappropriating 1,000bn lira ($700,000) for the Welfare Party, the forerunner of the present party in power, ADK. 
The premier, Teccip Erdogan, had his own brush with the law when he was a popular mayor of Istanbul. This was for reciting poetry deemed to incite religious bigotry and ethnic hatred. His prison record debarred him at first from being premier on his party's victory in 2001. But the necessary legislation was soon put through parliament to permit his assumption of the premiership, the locum tenens, Abdullah Gul, becoming foreign secretary.
Erdogan as the former mayor is the very man to pull Istanbul through its ordeal, as Mayor Giuliani was New York after 9:11. 

Setback to EU hopes
The blasts might seem to represent a setback for hopes of Turkey entering the EU any time soon, in the light of its security problems, complex enough already with the Kurdish problem. But this has never been very realistic. The EU has enough on its plate to digest, what with ten new members next year. Clearly, there are other countries in the Balkans with less problematic claims for inclusion, for example Bulgaria and Romania. 
Only after the EU has been able to absorb the 120 million people in the former communist world of Central and Eastern Europe, and demonstrably successfully, would Turkish membership become a serious proposition.
Another main factor in accession talks is that the Kurds of Turkey are a minority which has long suffered from discrimination. At least this is so, not only in their own eyes, but also those of the Europeans to the north and west of the country with whom the Turks want to be united in the EU. Human rights abuses need to be addressed, in particular the use of torture against detained Kurdish militants.
The Kurdish problem needs to be seen in a wider context, that of Iraq not least.

No Turkish troops for Iraq after all
The Turkish government has withdrawn its offer to send Turkish troops to Iraq. This is in line with popular sentiment that was running strongly against the war in the spring and has not receded subsequently in its hostility to helping the Americans in their occupation of the country, as it is viewed. The bomb blasts have only accentuated the risks troops would be running in Iraq.
The idea of Turkish troops in Iraq was highly unpopular in the neighbouring country itself, where memories of the Turkish Empire are fresh. Iraq for centuries was three Turkish provinces and the experience has gravely marked it. The division of the state into three portions, the Kurds, the Sunnis in the centre and the Shi-ites in the south dates from then and was inherited by the British in the aftermath of the First World War.
There is no love lost between the Turks and the Iraqis. But then nor is there between the Turks and the Kurds, who straddle the frontier, four million of them in Iraq and upwards of thirteen million in Turkey. 

The offer of Kurdish help
The one indubitable success story by and large of US intervention in Iraq is the creation of two Kurdish enclaves in the north which are well on the way to self-government and reconstruction. Indeed this has been true for more than a decade, with US and UK air cover to protect their independence from the Saddam regime since 1992. With the regime ousted from Bagdhad the Kurds of Iraq can breathe more freely at last.
Kurds of any nationality now look on the US as their benefactor and ally. The new cordiality they feel towards the Americans doubtless explains what would have been unthinkable a year ago, an offer of help from the successor to the Kurdish Workers' Party (PKK), which until its transformation two years ago was run on Leninist lines and engaged in what the US deemed terrorism. The vice-president of the new political organisation of the Kurds, the Congress of Kurdish People, is Osman Ocalan, brother of Abdullah Ocalan, imprisoned in Turkey for three years for terrorism, having been reprieved from the death penalty. Osman Ocalan has declared;"The Americans and ourselves have two enemies in common, radical Islam and nationalist Arab chauvinism. That is why, if they ask for it, we are prepared to aid them in controlling the frontier between Iran and Iraq to prevent (the passage across it) of Islamic militants of Ansar al-Islam or any other organisation opposed to the American presence in Iraq."
This offer is disingenuous to say the least. The Kurdish leader is well aware of the delicate state of US-Turkey relations, which would make any acceptance of assistance highly provocative to the Turkish government. Ankara has responded categorically to these overtures to the US as "propaganda which aims only at trying to render oblivion to the crimes of the PKK, the Kadek (a military offshoot of the PKK) and the pseudo-congress which are one and the same terrorist organisation." 
The Americans are certainly behaving gingerly here with good reason. But they have not made any move to disarm the 4,000 heavily armed combatants of the military branch of the ex-PKK, spread in a dozen camps in the mountains of Qandil, which separate for hundreds of miles Iraq from Iran. The Congress, led by Zubeyir Aydar, a Kurdish lawyer who lives in exile in Switzerland, has taken great care to make-over its image. It condemned the recent outrage against the synagogues in Istanbul as "monstrous terrorist acts" and offered condolences to the victims. It has foresworn any ambition to create an independent Kurdistan, the main idea of the old PKK, and does not even demand the immediate release of "President Ocalan," but only an improvement of the conditions of his detention.
It remains to be seen if this mollifies the Americans. General Richard Myers, leading US troops in the area, has made no demands for disarmament, according to Mr Ocalan, the younger brother of the "President." Official links at a subaltern level have been made, say the same sources, and "we hope they lead to something."

The pay-off for the Ceyhan oil route
The Americans have several good reasons for keeping the talks going, even if they do not lead to any official recognition or a removal of the PKK from the US list of "terrorist organisations." The Kurdish militias have not targeted the US troops, indeed keep out of their way. They could do damage to the prospects for an oil pipeline from the Caucusus to the Mediterranean port of Ceyhan on the Turkish coast, one reason for Western bankers to be wary of financing the project so far. It is even in Ankara's interests to keep the Kurdish militias happy to forestall any sabotage of the pipeline.
This is particularly true since various threats to resume the armed struggle have issued from various sources close to the ex-PKK leadership. It is playing a careful game of its own here. Remove any threat and it would remove any motive for conciliation. The tactics of the IRA are being adopted, with a military wing and a sanitised political one putting out different stories. There is probably a co-ordination of policy between them for all that. The Government in Ankara has a difficult task to perform itself. 
Its foreign minister, Abdullah Gul, is a skilled diplomat who knows how to walk across hot coals. He is certainly doing that in this affair.

IMF funds forthcoming
The IMF is continuing its large funding programme of Turkey, the largest in its portfolio at $17.5bn. Another tranche of $500m is on the way. This is the more welcome as the March decision of the Turkish parliament not to allow the US to use northern Turkey for the transit of its troops to Iraq saw the loss of a potential $ 20bn or more in aid. 
The economy is in dire straits, even if recent figures are positive. They need to be after a drop in GDP of 9% in 2002. The economy was looking up in 2003, not before time with a 5% growth in prospect for next year too. The rate of inflation, at 20% in 2003, is due to come down to 5% in 2004.

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ENERGY

Turkey, Greece sign agreement on natural gas networks

Turkey and Greece signed an agreement on interconnection of natural gas networks through a 280 kilometres of pipeline, Anatolia News Agency reported. 
Energy and Natural Resources Minister, Hilmi Guler, Greek Development Minister, Apostolos Athanasios Tsokhatzopoulos, administrators of Petroleum Pipeline Corporation and Greek DEPA company signed the agreement. 
Under the agreement, 209 kilometres of the pipeline will be constructed in Turkey. The construction is expected to cost US$80m. 
The rest of the pipeline will be constructed in Greece and it is expected to cost 15m Euro. 
Seven hundred and fifty million cubic metres of natural gas will be transferred to Greece a year at first stage. 
Eleven billion cubic metres of natural gas, including 3bn cubic metres to Greece and 8bn cubic metres to South Europe via Italy, is targeted to be transported through the pipeline in following years.

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FINANCIAL NEWS

Turkey to limit state guarantees on bank deposits from July - premier

Prime Minister, Recep Tayyip Erdogan, has said that from July 2004, the state guarantees on bank deposits will be limited. He also announced that payments to Imar Bank depositors will begin in the near future, but that no payments will be made for Treasury bonds, TRT 2 television reported. 
The prime minister was speaking in Istanbul, at the graduation ceremony of a programme sponsored by his party entitled "The Academy of Politics and Local Administrations." On the developments concerning Imar Bank, the prime minister pointed out that the BDDK [Banking Regulation and Supervision Agency] talked about a risk of US$600m to US$700m, while the figure that has emerged is US$6.5bn. This huge difference, Erdogan stressed, is the citizens' money. 
Announcing that the Treasury guarantees on bank deposits will be lifted, Erdogan said: A certain limit will be announced on the amount of deposits that will be guaranteed. The rest cannot be guaranteed. Yes, but on the other hand there is a Union of Banks. This body can set up insurance companies and pay the necessary premiums so that the deposits can be insured. 

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FOOD & DRINK

Nestle set to sell dairy operations in Turkey

Swiss food giant, Nestle, recently said it will sell its dairy business in Turkey to France's Groupe Danone for an undisclosed amount. In the deal, which requires regulatory approval, Nestle Turkey is to sell its chilled dairy and milk production, a factory and the Mis brands, to the French dairy giant, reported Dow Jones Business News.
Nestle is to remain in Turkey through its Nesquick and Nestle Cocuk milk brands. Danone said the deal would double its revenue in Turkey and added that the deal would include Nestle's UHT milk operations in Turkey. Separately, Danone said it would buy the 50% it does not already own in its joint venture with Turkish conglomerate Sabanci Holding. The joint venture was set up in 1997 to produce water, soft drinks, milk and milk products.

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FOREIGN INVESTMENT

Turkish Central Bank data shows decline in foreign investment 

Direct foreign investments in Turkey remained below the total amount of capital transferred to other countries in the first ten months of 2003 for the first time after a long period. Thus, Turkey, which is trying to lure foreign investors, has become an exporter of capital instead. Meanwhile, portfolio investments, which are termed as short-term capital movements, continue an upward trend, Milliyet reported recently. 
According to balance of payment figures released by the Central Bank, encouraging macroeconomic figures were not accompanied by an increase in flow of foreign capital to Turkey. The total amount of foreign investments attracted by Turkey in January-October 2003 was only US$369m whereas Turkish investments in other countries reached US$403m during the same period. Thus, net capital outflow from Turkey in the first ten months of the year was US$34m. In other words, Turkey became an exporter of capital until the end of October. 
Ninety eight million dollars is accounted for by loans. Based on a breakdown by years, direct foreign investments in Turkey, where foreign capital inflow was considerably higher than capital outflow since 1992, yielded a negative balance for the first time in the past 12 years. 
According to Central Bank data, US$98m of foreign capital inflow consisted of loans borrowed by foreign-invested companies in Turkey from their affiliates abroad. During the period in question, foreign investors transferred US$5m abroad and invested US$276m in the mining, manufacturing industry and services industries. Capital transferred to Turkey in the first ten months of 2002 was US$1,032m while Turkish businessmen invested US$55m in other countries. Thus, net inflow of capital was US$917m. 
Foreign investors, who brought capital totalling US$12,796m into Turkey between 1992 and 2002, transferred US$1,288m abroad due to various reasons. Therefore, net foreign investments in Turkey during that period was US$11,508m.
Meanwhile, portfolio investments of foreign investors, who did not prefer direct investment, continue to rise. 
Portfolio investments, which registered a net increase of US$326m in October 2003, reached US$2,791m between January and October. A total of US$672m invested in short-term financial instruments was transferred abroad in the corresponding period of 2002. The substantial increase in those indirect investments is attributed to extremely high real yields on securities in Turkey. 
Foreign-based investors purchased stock worth US$762m from the stock market and Treasury notes worth US$1,049m from the domestic bond market between January and October this year.

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FOREIGN LOANS

IMF releases US$502m loan

The Executive Board of the International Monetary Fund (IMF) completed on 18th December the sixth review of Turkey's economic performance under the Stand-by Arrangement and approved the disbursement of an amount equivalent to US$502m, Anatolia News Agency has reported. 
A statement from the IMF said that in completing the review, the executive board granted Turkey's request for waivers for the non-observance of two structural and one quantitative performance criteria. 
The statement noted that the waivers related to the end-September structural performance criterion on reducing over-employment in state economic enterprises; and the end-October criteria for legislation improving the effectiveness of the Banking Regulation and Supervision Agency (which was later passed in December) and the cumulative primary balance of the consolidated government sector. 
Turkey's Stand-By Arrangement was approved on 4th February 2002 for a total amount of US$19bn. So far, Turkey has drawn US$16bn under the arrangement. 
International Monetary Fund (IMF) Managing Director, Horst Koehler, said that Turkey's economic programme had delivered a remarkable strengthening of market confidence while interest rates had fallen sharply.
Koehler made a statement after IMF Executive Board released US$502bn of loan for Turkey. Director Koehler said that for the second year running, both economic growth and inflation look set to surpass programme projections. 
The Central Bank of Turkey had increased its international reserves while the Treasury's debt rollover had also improved, Koehler noted. 
Koehler stated financial market reaction to the terrible bombings in Istanbul had been relatively limited - a sign of the economy's greater resilience to outside shocks. 
Nevertheless, a significant reform agenda lied ahead, and there was no room for complacency, Koehler said. 
Koehler pointed out that the government's commitment to meeting the 6.5 per cent of Gross National Product (GNP) primary surplus targets for 2003 and 2004 had contributed importantly to recent positive developments. 
The recent passage of a supplementary budget with strict controls over spending for the remainder of the year demonstrated the government's commitment to meeting the 2003 target, Koehler said. 
Koehler stated that the government had also proposed the budget for 2004 consistent with meeting the primary surplus target. 
Maintenance of fiscal discipline would remain of paramount importance in demonstrating full programme ownership, and facilitating lower interest rates and debt sustainability, Koehler noted. 
Koehler drew attention to the Central Bank of Turkey's conduct of monetary policy which had been impressive, with inflation rates falling to their lowest levels in 25 years. 
The growing credibility of the Central Bank, the government's continued commitment to fiscal discipline, and wage moderation in the public and private sectors, all should help in achieving next year's 12 per cent inflation target, with the prospect of single digit inflation soon thereafter, Koehler said. 
Koehler pointed out that the Turkish authorities had made considerable progress in direct tax and other fiscal structural reforms. 

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IRAQI RECONSTRUCTION

Turkish company wants to bid for transport, communications contracts

The minister of transport and communications in the Kurdistan Democratic Party-led regional government, Haydar Shaykh Ali, and the ministry's undersecretary, Nawzad Hadi Mawlud, welcomed a delegation from the Turkish company ASIAD, Khabat has reported. 
In a meeting, ASIAD expressed a desire to bid for the ministry's transport and communications contracts next year. The ministry asked ASIAD to submit bids in the field of transport and communications. 
It is worth mentioning that the ministry has plans for a large number of transport and telecommunications projects in 2004. The projects are expected to start in the near future.

USA to inform Turkish companies about Iraq reconstruction projects

The United States will organize a series of seminars in Ankara, Istanbul and Izmir to inform Turkish companies that want to do business in Iraq after Turkey has been included in the list of countries that will take part in reconstruction contracts of Iraq, Anatolia News Agency reports. 
The US embassy in Ankara noted that the "United States government is committed to facilitating business and economic ties between Turkey and Iraq. Increased trade and investment in Iraq are critical to the development of an independent Iraq and beneficial to Turkey's economy." Adding "the US Department of Commerce has launched a regional programme to support the Iraq Reconstruction Initiative under the leadership of Secretary of Commerce Don Evans. Under the initiative, the US government will work with local business associations, governments, and nongovernmental organizations in Turkey to encourage increased trade and investment in Iraq." 
"As part of this effort, the US commercial service in Turkey, in cooperation with local chambers of commerce and industry, will organize a series of seminars in Ankara, Istanbul, and Izmir on to provide detailed information to Turkish firms on how to do business in Iraq. 
In addition, a large number of Turkish firms will participate in 'Outreach 2004', a trade fair on Iraqi reconstruction to be held in Amman, Jordan. There are significant opportunities for Turkish companies to participate in Iraq's reconstruction, both through the rehabilitation of Iraq's infrastructure and by taking advantage of growing bilateral trade. In fact, many Turkish firms are already active in the Iraqi market. Since April 2003, the US government has bought nearly US$150m in fuel for Iraq from Turkey and the Turkish government reports that Turkish exports to Iraq have nearly tripled in 2003. Turkish companies are eligible to bid on more than US$18bn in Iraq reconstruction contracts. Information on those contracts is available at www.rebuilding-Iraq.net," the embassy noted.

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