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TURKEY


 

 

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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 237,972 182,848 147,700 21
         
GNI per capita
 US $ 2,790 2,500 2,530 92
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 160 - (26/09/10)

A resounding 'Yes' to constitutional change
The government in Turkey secured a decisive victory in a referendum on its reforms to the constitution on September 12. The result has been positively received internationally, but domestic opponents accuse the government of seeking to undermine the independence of the judiciary.

Thousands of supporters joined with Prime Minister Recep Tayyip Erdogan in celebrating the "Yes" vote in the referendum for constitutional reform. The size of the victory came as a surprise to many, and in addressing his supporters Erdogan was eager to appear magnanimous in victory.

Prime Minister Erdogan said 12 September will go down in history as a turning point in Turkish democracy. He told the crowd, "You will be always be remembered for this." He said the date of 12 September was tainted with a constitution from a coup, but has now been turned on to a bright page with this referendum.

Throughout his campaign, Mr. Erdogan claimed the reform package aimed to cut the country's links with the past when following the end of the sultanate,Turkey was run by the military. The present constitution was written by the army in 1982 after it seized power in a coup in 1980.

The 26 reforms include putting the military under the control of civilian courts. Women and trade union rights also were extended.

Several leaders and foreign ministers from the European Union, which Turkey is seeking to join, welcomed the result. A member of the European Parliament's Committee on Turkey, Richard Howitt, says the result sends a powerful message to Turkish critics of its EU bid.

"If there had been a "No" vote, Turkey's opponents in the European Union would be jumping on such a result, saying there was no clear support for reform in Turkey," said Howitt. "I think we should conclude the opposite, that there is clear political will from the Turkish people for reform and future European membership."

But the two main opposition parties claim that proposed reforms to the judiciary will put the courts under the control of the government, and that worries them, because they fear that the governing party's Islamic roots could lead to too much religious influence.

Istiklal street is one of the main shopping streets in central Istanbul. For the people here, deep divisions remain over the referendum.One resident interviewed on the street said he believes Tayyip Erdogan is honest and sincere. He said he voted "Yes" in the referendum and will always support the prime minister, because with this new system all those who create coups will be eliminated.

But this same man said he is concerned. "Maybe the Turkish republic will change to going to an Islamic system, not equal, so it is very bad situation for us."

Prime Minister Erdogan dismissed such concerns, saying he is committed to the country's 87-year-old secular state. Following the referendum victory, Mr. Erdogan has committed himself to further reform, including the completely new constitution.

Bahcesehir University political scientist Cengiz Aktar said that process should start now, and must be politically inclusive. "We should create conditions of a dialogue and a national consensus to go and find out what is the best social contract for this country to become a genuine democracy."

The referendum has given the government a powerful mandate for change.  It also has shown support for the ruling AK Party before next year's general election. At same time, however, analysts say the country remains deeply divided.

In the aftermath of disaster
The full repercussions of the disastrous fracas in the Mediterranean the summer are yet to unfold. The Israeli navy attacked an international flotilla, mainly Turkish vessels going to the humanitarian relief of the Palestinians, outside Israeli waters bearing the white flag. Israel claims (despite the super efficient Mossad) that they were under the misapprehension that it was conveying arms.

It was not. But the Israelis certainly had arms and used them. Nine members of the fleet died, including eight Turks and a US citizen of Turkish ancestry.

The humanitarian flotilla was bound for Gaza for the relief of the besieged Palestinians and obviously to gain world publicity about the Israeli blockade. The event is having the most profound repercussions for Israeli-Turkish relations.

The Turks were utterly outraged. There were vociferous mass demonstrations in Ankara and Istanbul soon afterwards, in which Israeli flags were burnt. Israel has lost its one and only ally in the Middle East. That at least what it looks like now.

This is no small matter for Israel. As a cynic, like Tallyrand, said of Napoleon's execution of the Duc d'Enghein, that one could say of the affair, " it is worse than a crime; it's a blunder." Israel is now wholly dependent for its defence on the US. If there is another Arab-Israeli war, there is now, as there was not before, even a possibility that the Turks would come in on the Arab side. Moreover, the Turks have the most numerous by far and the best trained and armed troops in the Middle East, up to the standards of the very best in NATO, to which they belong.

The Israeli government compounded this atrocious affair by refusing to make an immediate apology, which of course Ankara demanded, along with a UN investigation into the incident.

NATO in crisis – in the Middle East
Washington, as always, sided with Israel. This seems standard form for each US president in their first term – less ‘Ike’, President Eisenhower, who in his first term opposed Israeli maltreatment of Syria and the calamitous Suez adventure in 1956. But then he was the victorious supreme commander in the Second World War, totally confident of re-election.

We are in different times. President Obama is far less popular, conducting until recently a most unpopular war in Iraq - and one none too popular in Afghanistan, facing US voters in state and federal elections soon. Relations between the US and Turkey have turned sour.

Turning turkey on Turkey
US will not participate in the annual joint air force exercise with Turkey in October if Israel is not invited as well..

Anonymous sources have reported that Washington sent a message to the Turkish military that its aircraft will only partake in the exercises held annually between the US, Israel, and Turkey, if the Israeli Air Force is also asked to join.

Turkey cancelled Israel's participation in the air force drill in 2009 in criticism of the Jewish state's actions in Gaza. The US cancelled participation then, too, as a show of solidarity with Israel.

The Israel Navy's raid on the Gaza-bound flotilla further strained relations between the countries, even prompted the recall of the Turkish ambassador from Tel Aviv. Turkey has demanded an apology from Israel and compensation to the families of the nine Turkish nationals killed in the incident.

Tensions have also been intensified between Washington and Ankara over Turkey's vote against increased international sanctions against Iran over the latter's nuclear program. In addition, Turkey has revoked Israel's access to its air space for military drills, sending Israel into the arms of Greece.

The US is particularly irked by Turkey's stance on Iran's nuclear program and its warm relations with Hamas and Syria, although there is more than one position in the US government about links with Syria. Secretary of State Hillary Clinton has met with senior officials from her department to reassess US policy towards Ankara, certainly a key player in NATO. Administration officials noted that this is the first in a series of meetings on the matter, but Turkey will not ‘roll over’ in policy matters affecting its neighbours.

The US Senate is also displeased with Turkey. Republican senators are currently obstructing the appointment of ambassador-designate to Turkey Francis Joseph Ricciardone due to his moderate positions. Both Congress and the Senate are demanding an ambassador who will adopt a more firm stance towards Ankara, but Turkey is likely to point out that their foreign policy towards their next door neighbour Iran, is not to be dictated by its friends and allies. It may be remembered that they would not allow US forces to transit Turkish territory on their way to invade Iraq.

On the backdrop of these tensions, a diplomatic delegation left Turkey for a round of meetings in Washington. Turkish officials told Turkish newspaper Zaman that the delegation promised the US that Ankara will maintain friendly relations with Israel despite the flotilla incident. Turkish Deputy Foreign Minister Feridun Sinirlioglu led the delegation.

In the meantime, the White House has denied unlikely reports published in the Financial Times that US President Barack Obama ‘threatened’ Turkish Prime Minister Recep Tayyip Erdogan with the cancellation of the arms deal between Washington and Ankara over Turkey's problematic relations with Israel. Turkey also denied the report, claiming that US-Turkish relations are "at their peak."

The economy is doing too well
Success brings its own problems. In Turkey, the strength of domestic demand is fuelling one of the fastest recoveries from recession among emerging economies. GDP is growing at 11%, at the moment on an annual basis. But it is also fuelling rapid expansion in the current account deficit, highlighting the return of a persistent imbalance in the Turkish economy.

Gross domestic product probably grew 10 per cent year on year in the second quarter, Mehmet Simsek, Turkish finance minister, told broadcasters on Wednesday. Despite evidence that the recovery is now slowing, that forecast is consistent with economists’ average forecast of a healthy 6 per cent growth rate over the year as a whole. But Simsek’s job will certainly be easier if his prediction is borne out by official data due on Sept 14th.

Tax revenues are outstripping the government’s cautious fiscal projections, but as 2011 elections approach, Simsek will face intense pressure to loosen the purse strings.
But investors have more or less resigned themselves to a pre-election spending spree. A bigger worry for many is the speed with which Turkey’s trade and current account deficits are swelling as imports recover from last year’s slump.

The foreign trade deficit rose from $5.6bn in June to $6.4bn in July, the highest level since August 2008. Illustrating the divergence of Turkish and European growth, auto sector exports fell in July, with overall export growth slowing to 6 per cent year on year, while imports of motor vehicles surged, fuelling a 24.6 per cent surge in overall imports.

Ozgur Altug, economist at BCG Partners in Istanbul, says this latest data suggests the current account deficit could reach $38bn in 2010, more than double last year’s level, and predicts it could balloon to more than $50bn, above 7 per cent of GDP, in 2011.

This is nothing new: Turkey’s current account deficit has persisted throughout the last decade of growth because of a very low savings rate, a dependence on imported energy, and because manufacturers and exporters rely heavily on imported materials.

But a note published by Nouriel Roubini’s Global Economics analysis firm warned: “While the rapid expansion of the deficit is a concern, the real issue is the deterioration in the quality of its financing.”

In recent years, the deficit has been financed largely by foreign direct investment and by Turkish companies overseas borrowing, but now an increasing proportion is plugged by more volatile portfolio investment inflows.

“For the first time in ten years, the figures don’t add up…The risk of Turkish lira depreciation in 2011 has increased significantly,” Altug says.

Turkey’s central bank is alert to the issue, warning in the monetary policy committee meeting minutes of its latest that if Turkey’s robust growth prospects attract further capital inflows, it could “exacerbate the divergence between the pace of recovery in the domestic demand and external demand.” If concerns grew over the financing of the current account deficit, it could “utilize other policy instruments such as reserve requirement ratios and liquidity tools more effectively,” the minutes said.

Ahmet Akarli, an economist at Goldman Sachs whose forecast for Turkish growth is above the average, expects capital inflows to continue, saying: “I don’t think the current account will be a problem any time soon… there is ample liquidity globally.”

But Turkey remains vulnerable to swings in global risk appetite. As Neil Shearing at Capital Economics underlines, the current account deficit “is now at the limits of what might be deemed to be sustainable and the quality of external funding is deteriorating.”

Politicians are unlikely to tackle the reforms needed to address the issue before next year’s elections - but it should be high on the list of priorities for the next government.

Istanbul hosts international finance summit
High-level executives of world's leading banks and companies, decision-makers, institutional finance executives, banking sector representatives and officials from regulatory bodies will meet at an international finance summit in Istanbul between September 28-30, 2010.

The 1st Istanbul Finance Summit will bring together worldwide-known names from the finance sector coming from different parts of the world such as North America, Europe, the Gulf region and Eastern Asia.

The annual summit, organized with the contributions of Germany's Financial Gates GmbH Group, will focus on the current situation in the world finance sector and economy, as well as expectations for the future.

German financial regulator BaFin's head Jochen Sanio, Mexican Central Bank Governor Augustine Carstens, President Ahmad Mohammed Ali Al-Madani of Islamic Development Bank and Citigroup's Chief Economist Williem Buiter will be among the participants of this year's summit.
The target group of the organization is public authorities, banking administrations, private sector representatives, experts and academicians.

Numerous Turkish officials including State Minister & Deputy Premier Ali Babacan, Treasury Undersecretary Ibrahim Canakci, Deputy Undersecretary of State Planning Organization (DPT) Erhan Usta, head of Capital Markets Board of Turkey (SPK) Vedat Akgiray, Central Bank Governor Durmus Yilmaz, chairman of Istanbul Stock Exchange (ISE) Huseyin Erkan and Banking Regulation and Supervision Agency's (BDDK) chairman Tevfik Bilgin will also attend the summit.

 


 

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