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Economist Charles Robertson discusses the issues behind Turkey's currency turmoil.

At the end of a volatile week for the embattled Turkish lira, President Recep Tayyip Erdogan has called on Turks to convert foreign currency savings into the country's currency. The lira, which has fallen about 15 percent this year, hit a low of 4.93 against the US dollar on Wednesday, before Turkey's central bank raised its top interest rate by three percentage points to 16.5 percent in an attempt to help stabilise the currency.

Erdogan has been struggling to stop the currency crisis ahead of the snap presidential and parliamentary elections on June 24.  On Wednesday, credit ratings agency Moody's cut Turkey's economic growth forecasts. Offering his take on Turkey's economy, Charles Robertson, chief global economist at Renaissance Capital, explains that the big swings in the currency are due to "a massive build-up of private sector debt in Turkey over the last 10-15 years." 

He says that in recent years there's been growing concern that "at some point in the medium term, like now, you're going to see a lending stop, growth stop, and then people flee Turkish assets because people have been buying into Turkey under the assumption it would grow five percent forever and the risk is it's going to slump into recession."

These are tough [economic] times for Turks now.
Charles Robertson, chief global economist, Renaissance Capital

While Turkey's private sector debt is around 70 percent of GDP , the "particular size of the borrowing is not the issue ... China is double that," he says. "It's the scale of the increase over 10 years, which usually coincides with excess borrowing, bad borrowing decisions - perhaps into real estate or something similar - and that tips over. We saw that a lot in the global financial crisis across Eastern Europe countries and to some extent the US had that problem in the global financial crisis."

Asked about Erdogan's recent comments describing high-interest rates as the "mother of all evil", Robertson says, "Erdogan was the market's darling for a decade or so. And there was always local concern that he was encroaching his powers getting too great. He's now been empowered for so long that there is very little constraint upon him ... But it's the central bank which has people concerned the most because Turkey relies on foreign capital to fund its current account deficit ... It needs foreign capital. So to say 'we don't want to pay the interest rates required to attract that capital has frightened the markets."

This week, the central bank finally announced a streamlining of interest rate tools to focus on having one single main rate to reassure investors.

"The 300 bases point rate hike has helped, having interest rates up at around 16 percent has helped, but also for a number of years the central bank has been trying to raise rates but not tell the electorate in Turkey that they're raising rates to try and keep the President [Erdogan] happy," says Robertson.  "This repo rate, which was sitting at around at eight percent, and has now been raised to 16.5 percent or so. That is a sign that finally orthodoxy seems to have won. And in the longer run that will work, like it worked for Russia."

"Orthodoxy does win in the end and it looks like Erdogan has given up ... The central bank is being allowed to do what orthodox people would suggest and what the market wanted to see."
But in the short term, Robertson believes that we will "see inflation rise and that's going to hurt poor people. It usually hurts the poorest."

He predicts that growth will be slow, "at best two to three percent this year. And the population is growing [at the rate of] one to two [percent], so per capita, that's really not much of a gain. These are tough times for Turks now."


Post-election Turkey provides a great opportunity for the country to move from an emerging economy, to a fully industrialised nation. Turkish politics is not for the faint at heart, they say. This seems to be especially true during election time. As Turkey is once again headed towards an election, presidential candidates are already making passionate statements and ambitious campaign pledges. 

Campaign manifestos reveal different trajectories for the country. But, there is one theme that all spectators seem to agree on; new elections may mark the beginning of a new economic paradigm for Turkey.

Over the last two decades, Turkey has experienced an impressive growth record. While Turkey's GDP per capita multiplied fivefold (a growth miracle by any standard), large segments of Turkish society have moved out of poverty. 
However, Turkey’s biggest challenge to become an industrialised nation still lies ahead. In order to accomplish high levels of per-capita income, Turkey needs to develop its productive capacity in industrial technologies and transform its economy from labour-intensive sectors to high-value-added manufacturing. The upcoming elections could be an economic turning point.

Economists have identified a number of trends in the development of emerging economies. With some exceptions, most emerging countries transform their economies from agriculture to labour-intensive manufacturing in the early phases of economic development. As people migrate from rural to urban areas, labour gets cheaper and labour-intensive sectors become attractive for investors. Countries that can successfully promote these industries, attract capital inflow, and find markets for their exports experience high growth in their take-off period of economic growth.

Turkey has been very successful in hitting these milestones in recent decades. One of the main tenants of the Justice and Development (AK) Party government, which first came to power in 2002, has been integration into world trade and financial markets. Consequently, while foreign direct investmentsreached unprecedented levels, exports soared.

Furthermore, government commitment to fiscal and monetary discipline, Turkey’s consistently high inflation rate had been reduced to unprecedented single digits (it has only recently increased to around 12 percent), and public debt has been substantially reduced. This has meant two decades of macro-economic stability and higher prosperity for every layer of Turkish society.

As early opportunities for economic growth via structural transformation and integration into the global economy have depleted, Turkey now needs to make its leap towards capital intensive production. Otherwise, it may become another victim of what is known as the middle-income trap. Economists now know that most developing countries, including Brazil, South Africa and Indonesia, struggle to pass beyond per capita income levels of 10-12 thousand dollars and join the group of high-income countries. The lesson here is that any successful long-term growth strategy has to define a way to make its transition to high-value-added industrial production.

The Turkish economy is still a mass importer of intermediate goods and high-tech products. Even the automotive industry, one of the lucrative sectors of Turkish manufacturing, imports more than it exports.  Turkey’s trade imbalance is compounded by Turkey's energy import dependency. Unlike some of its neighbours, Turkey has had bad luck with natural resources. The country imports almost 75 percent of its total energy use, which makes up around half of Turkey’s total trade deficit. And, note that Turkey’s energy usage has almost doubled within last two decades in line with its high economic growth.

Consequently, even though Turkey has accomplished important successes in multiplying its export volume and total output levels, it still has a current account deficit problem, which makes the economy vulnerable to short-term capital movements. This vulnerability manifested in the recent fluctuations of the exchange rate. This is another indication that Turkey needs to transform its economy, and do it quick.

I would argue that Turkey is ready to make its transition to become a developed country with an economy driven by high-tech engineering. The levels of capital accumulation realised over the last two decades, experience acquired by the private sector thanks to better integration with global markets, and improvements made in the sophistication of financial institutions give Turkey amply ground to move to more sophisticated production.

However, this requires greater effort, courage and political will from policy makers – which is why the elections may mark an important turning point. The constitutional changes, which the Turkish people voted for two years ago, provides a clear-cut division of labour between the parliament and the president, and decorates the president with executive power for a 5 year term in office.

This means that although the new president, unlike his predecessors, will not have the power to legislate, he will be able to single-handedly design and implement economic policy (after a budget is passed by parliament) over a considerable period of time. Last year, it was announced that government, in an attempt to increase market share of domestic high-tech products, will be supporting production of Turkey’s first domestically designed and manufactured automobile. Furthermore, Turkey’s R&D investments in defence industry have already started to pay-off. Today, domestic production accounts for 60 percent of the Turkish military's requirements and aims for 100 percent by 2020, compared to only 25 percent two decades ago. Turkey just recently signed a deal for the sale of Turkish-designed and produced attack helicopters to Pakistan.

Turkey have also started to make some aggressive investments in renewable energy resources. While solar energy production tripled within 2017, Turkey’s already produces 8 percent of its energy from wind power.

Turkey should genuinely endeavour to invest in high-tech sectors, improve its human capital through education, and become a hub for engineering in all sectors. Election manifestos show that there is more awareness and willingness from politicians than ever before. Long-term political stability, expected after the elections, is a great opportunity to take advantage and transform the economy. It is time for Turkey to move into the big league.


In the past few weeks, a conflict between Ankara and Baghdad over Turkey’s role in the liberation of Mosul has precipitated an alarming burst of Turkish irredentism. On two separate occasions, President Recep Tayyip Erdogan criticized the Treaty of Lausanne, which created the borders of modern Turkey, for leaving the country too small. He spoke of the country’s interest in the fate of Turkish minorities living beyond these borders, as well as its historic claims to the Iraqi city of Mosul, near which Turkey has a small military base. And, alongside news of Turkish jets bombing Kurdish forces in Syria and engaging in mock dogfights with Greek planes over the Aegean Sea, Turkey’s pro-government media have shown a newfound interest in a series of imprecise, even crudely drawn, maps of Turkey with new and improved borders.

Turkey won’t be annexing part of Iraq anytime soon, but this combination of irredentist cartography and rhetoric nonetheless offers some insight into Turkey’s current foreign and domestic policies and Ankara’s self-image. The maps, in particular, reveal the continued relevance of Turkish nationalism, a long-standing element of the country’s statecraft, now reinvigorated with some revised history and an added dose of religion. But if the past is any indication, the military interventions and confrontational rhetoric this nationalism inspires may worsen Turkey’s security and regional standing.

At first glance, the maps of Turkey appearing on Turkish TV recently resemble similar irredentist maps put out by proponents of greater Greecegreater Macedoniagreater Bulgariagreater Armeniagreater Azerbaijan, and greater Syria. That is to say, they aren’t maps of the Ottoman Empire, which was substantially larger, or the entire Muslim world or the Turkic world. They are maps of Turkey, just a little bigger.

But the specific history behind the borders they envision provides the first indication of what’s new and what isn’t about Erdogan’s brand of nationalism. These maps purport to show the borders laid out in Turkey’s National Pact, a document Erdogan recently suggested the prime minister of Iraq should read to understand his country’s interest in Mosul. Signed in 1920, after the Ottoman Empire’s defeat in World War I, the National Pact identified those parts of the empire that the government was prepared to fight for. Specifically, it claimed those territories that were still held by the Ottoman army in October 1918 when Constantinople signed an armistice with the allied powers. On Turkey’s southern border, this line ran from north of Aleppo in what is now Syria to Kirkuk in what is now Iraq.

When the allies made it clear they planned to leave the empire with a lot less than it held in 1918, it led to renewed fighting in which troops under Mustafa Kemal Ataturk defeated European forces to establish Turkey as it exists today. For the better part of the past century, Turkey’s official history lauded Ataturk for essentially realizing the borders envisioned by the National Pact (minus Mosul, of course), as recognized with the Treaty of Lausanne. It was an exaggerated claim, given the parts of the pact that were left out, but also an eminently practical one, intended to prevent a new and precarious Turkish republic from losing what it had achieved in pursuit of unrealistic territorial ambitions. Indeed, while countries like Germany, Italy, Bulgaria, and Hungary brought disaster on themselves by trying to forcibly rewrite their postwar borders, Turkey — under Ataturk and his successor — wisely resisted this urge.

Erdogan, by contrast, has given voice to an alternative narrative in which Ataturk’s willingness in the Treaty of Lausanne to abandon territories such as Mosul and the now-Greek islands in the Aegean was not an act of eminent pragmatism but rather a betrayal. The suggestion, against all evidence, is that better statesmen, or perhaps a more patriotic one, could have gotten more.

Among other things, Erdogan’s reinterpretation of history shows the ironies behind the widespread talk in the United States of his supposed “neo-Ottomanism.” A decade ago, Erdogan’s enthusiasm for all things Ottoman appeared to be part of an effective strategy for improving relations with the Muslim Middle East, a policy that some U.S. critics saw as a challenge to their country’s role in the region. But refashioning the National Pact as a justification for irredentism rather than a rebuke of it has not been popular among Turkey’s neighbors. Criticism of Erdogan’s neo-Ottoman foreign policy is now as likely to come from the Arab world as anywhere else.

Criticism of Erdogan’s neo-Ottoman foreign policy is now as likely to come from the Arab world as anywhere else. Erdogan’s use of the National Pact also demonstrates how successfully Turkey’s Islamists have reappropriated, rather than rejected, elements of the country’s secular nationalist historical narrative. Government rhetoric has been quick to invoke the heroism of Turkey’s war of independence in describing the popular resistance to the country’s July 15 coup attempt. And alongside the Ottomans, Erdogan routinely references the Seljuks, a Turkic group that preceded the Ottomans in the Middle East by several centuries, and even found a place for more obscure pre-Islamic Turkic peoples like the Gokturks, Avars, and Karakhanids that first gained fame in Ataturk’s 1930s propaganda.

Similarly, in Syria and Iraq, Erdogan is aiming to achieve a long-standing national goal, the defeat of the Kurdistan Workers’ Party (PKK), by building on the traditional nationalist tools of Turkish foreign policy — namely, the leveraging of Turkish minorities in neighboring countries. The Sultan Murad Brigade, comprising predominantly ethnic Turkmens, has been one of Ankara’s military assets inside Syria against both Bashar al-Assad’s regime and the PKK. Meanwhile, the Turkmen population living around Mosul and its surrounding area has been a concern and an asset for Ankara in Iraq. Turkish special forces have worked with the Iraqi Turkmen Front since at least 2003 in order to expand Turkish influence and counter the PKK in northern Iraq.

Over the past century, the Turkish minorities in northern Greece and Cyprus have played a similar role. That is, their well-being has been a subject of genuine concern for Turkish nationalists but also a potential point of leverage with Athens to be used as needed. (Greece, of course, has behaved similarly with regard to the Greek minority in Turkey. Not surprisingly, both populations have often suffered reciprocally as a result.) In the case of Cyprus, for example, Turkey’s 1974 invasion was as much about defending its strategic position as it was about protecting the island’s Turkish community. Following his statements about Lausanne, Erdogan further upset Greece by stating, “Turkey cannot disregard its kinsmen in Western Thrace, Cyprus, Crimea, and anywhere else.” Yet Athens might take comfort from the case of the Crimean Tatars, which reveals the extent to which geopolitics can lead Turkey to do just this: Although Ankara raised concerns over the status of the Crimean Tatars after Russia seized the peninsula, it seems to have subsequently concluded that improved relations with Moscow take precedence over ethnic affinities.

But Erdogan has also emphasized a new element to Turkey’s communitarian foreign-policy agenda: Sunni sectarianism. In speaking about Mosul, he recently declared that Turkey would 
not betray its “Turkmen brothers” or its “Sunni Arab brothers.” Like secular Turkish nationalism, this strain of Sunni sectarianism has an undeniable domestic appeal, and Erdogan has shown it can also be invoked selectively in keeping with Turkey’s foreign-policy needs. Erdogan’s new sectarianism is evident in Mosul, where Turkey has warned of the risks to Sunnis should Shiite militias take control of the city. But the policy’s influence is clearest in Syria, where Turkey has been supporting Sunni rebels aiming to topple the Assad regime (including those now struggling to hold the city of Aleppo). In both Iraq and Syria, however, Turkey’s sectarianism has not been allowed to trump pragmatism. Ankara has been keen to maintain a mutually beneficial economic relationship with Iran despite backing opposite sides in Syria and in the past year has also expressed its willingness to make peace with Assad if circumstances require it.

More broadly, Turkey’s current interventionism in Syria and Iraq fits within an established pattern.  Turkey’s current interventionism in Syria and Iraq fits within an established pattern.   Not only do countries regularly find themselves sucked into civil wars on their doorstep, but the points at which Turkey has proved susceptible to irredentism in the past have all come at moments of change and uncertainty similar to what the Middle East is experiencing today. In 1939, Ankara annexed the province of Hatay, then under French control, by taking advantage of the crisis in Europe on the eve of World War II. Then, after that war, Syria’s newfound independence prompted some in the Turkish media to cast a glance at Aleppo, and the transfer of the Dodecanese Islands from Italy to Greece also piqued some interest in acquiring them for Turkey. Similarly, Ankara paid little attention to Cyprus when it was firmly under British control, but when talk of the island’s independence began, Turkey started to show its concern. Subsequently, it was only when it appeared Greece might annex the island that Turkey invaded to prevent this change in the status quo. In this light, Turkey’s recent rhetoric is perhaps less surprising following several years in which events and commentators have repeatedly suggested that the entire political order of the modern Middle East is crumbling.

More specifically, though, Turkish policy in the Middle East is driven by an urgent concern stemming from its conflict with the PKK, which has been exacerbated by the group’s gains in northern Syria. The PKK has long shaped Turkey’s relations with its southeastern neighbors. Most notably, Turkey nearly invaded Syria in 1998 in an ultimately successful effort to force Damascus to stop sheltering the group’s leader. Similarly, Turkey has kept military forces in the area of Mosul for the better part of two decades, in order to conduct operations against the PKK. Ankara has always portrayed this intervention, with little controversy in Turkey, as a matter of national security and self-defense. Today, self-defense remains Turkey’s main justification for its activities in Iraq, with Erdogan repeatedly 
emphasizing that the presence of Turkish forces there “acts as insurance against terrorist attacks targeting Turkey.” As long as the PKK maintains an open presence in Iraq, this is also the most compelling justification, domestically and internationally, for military involvement beyond its borders.

Indeed, to all the specific ethnic, sectarian, and historical rationales he has offered for Turkey’s interest in Mosul, Erdogan has been quick to attach one additional argument: The United States and Russia continue to play an outsized role in the region despite lacking any of these connections to it. Erdogan noted that some countries were telling Turkey, which shares a 220-mile border with Iraq, to stay out. Yet, despite not having history in the region or connection to it, these same countries were “coming and going.” “Did Saddam [Hussein] tell the United States to come to Iraq 14 years ago?” he added.
Behind the history, in other words, Ankara is all too aware of the fact that the power to do so remains the only rationale for foreign intervention that matters. In this regard, the legitimacy of Turkey’s plans for Mosul remains to be seen.

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RE: TURKEY VISION 2053 - by globalvision2000administrator - 12-21-2022, 09:53 AM

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