TURKPULSE No 31....................  MARCH 9^th 2001

The eyes of the world, certainly those of the entire Turkish nation, are on Kemal Dervis, the new Minister of the Economy, who has been equipped with unusual powers to pull Turkey out of its present distressed economics, hopefully with some financing from the West. He may well be successful in a short time if only he gets minimal support from the West, let alone $25 billion or $40 billion dangled in front of PM Ecevit’s eyes by the Americans in order to win Turkey over to the new Bush Administration’s “energised sanctions” against Saddam. Kemal Dervis is now in Washington to retire from the World Bank for a “permanent” return to Ankara and he is also making contacts with western finance circles for the rapid disbursal of some financing to Turkey.

The prerequisite of western financing to Turkey is Saddam’s head    

The oral or written messages to Ankara from Washington have all stressed that “the economic and political processes” should continue for the disbursal of western financing to Turkey. Because the Turkish Government did not “understand” these persistent messages, western diplomatic quarters whispered to the mass circulation daily Sabah (5^th) that the continuation of the “political process” meant Turkey’s changing its initiatives about having any relations with Iraq and that Ambassador Pearson had expressly pointed this out to Deputy PM Ozkan.

Indeed, before this press report, Secretary of State Powell told Foreign Minister Cem in Brussels on February 27^th that Turkey should discontinue the frontier trade with Iraq. During his visit to Ankara on the first days of March, Powell’s assistant Edward Walker repeated these views in the MFA (Ministry of Foreign Affairs), but his counterpart, Ugur Ziyal, dwelled on his superior Ismail Cem’s explanations that Turkey had already lost $40-50 billion from the sanctions against Iraq in the last 10 years. The least Ankara could accept in this regard was the trade facilities accorded to Jordan for the last 10 years under Article 50 of the UN Charter about these sanctions. Hitherto, Turkey and the United States have not been able to bridge their differences on this matter. After $25 billion, western quarters spread the rumours of $40 billion financing to Turkey as the price of Ankara’s toeing the line with Washington about Iraq, but still nothing has been changed.

As PM Ecevit, in his press statement on Monday (5^th), has categorically turned down any suggestion of any linkages between the western loans and Turkey’s Gulf policy, the question now is whether Kemal Dervis will be able to get any financing from the West at all and how much and how soon, if any.

The answers to these questions rest with a realistic analysis of Turkey’s current economic conditions and expectations of the West’s pledges.

  Hot money is a scourge, not a blessing for strategically vital Turkey

Actually, contrary to the worldwide press campaign that the Turkish economy is “on the brink”, the fundamentals are rather strong and the current financing difficulties in Turkey’s stock and finance markets are largely artificial. The reasons for the present difficulties are proof of this claim.

The IMF’s 3-year program was a great success in the first half of last year, thanks mostly to the entry of $15 billion hot money into Turkey after the commencement of the disinflation program. But it was abruptly interrupted by the exodus of this money starting in mid-2000 without any reasons other than political ones and it turned into a financial avalanche particularly on two “Black Wednesdays”, November 22^nd, 2000 and February 21^st, 2001.

Which economy with foreign exchange reserves to the tune of $20-30 billion would not be adversely affected by the shocking departure of $7-8 billion in a matter of hours for any reasons? The tigers of Asia could not withstand a similar shock in 1997, nor did the Russian Federation the following year. Even the second biggest economy of the world, Japan, is proving today not to be immune from such a financial breakdown.

Turkey, for its part, has been duly repaying its external debts upon maturity even without the usual rollover facilities. It has also exchanged into hard currency the foreign hot money in the Turkish stock and bonds markets at the pre-announced rates in accordance with the IMF program.

If Turkey had declared the cancellation of the dollar peg during the first Black Wednesday, November 22^nd, about half of the $7-8 billion that left the country at that time would have remained in Turkey, because the dollar would have soared up to over $1 million from TL650,000 or so in that event and it would have been totally legitimately earned money for the Turkish economy. Far from allowing such a thing, the IMF did not even accept any flexibility such as moving forward the corridor of minimums and maximums for the exchange rates from July 1^st, 2001 and Turkey continued to honour its 3-year program commitments without resorting to unilaterally discarding the dollar peg.

When the second Black Wednesday took place on February 21^st, 2001, following the unfortunate event in Cankaya, however, the remaining hot money left Turkey in a matter of hours whereupon the IMF Chief, Stanley Fischer, came to Ankara from Istanbul where he was attending the G-20 conference and insisted that there was no other way than devaluation by discarding the dollar peg or anchor.  Ankara’s tendency at that time was to retain the 3-year program by only moving the corridor forward by four months, thus avoiding the shock of devaluation. This tendency is still holding good, even though Kemal Dervis’s influence in the new economic decisions is not yet known. His current contacts in Washington will shed light on the nature of the readjustments in the 3-year disinflation program, but the IMF has already begun to talk of extending the program to four years, to the end of 2003. It may go against the Ecevit Government’s intention of continuing with the IMF program, despite the IMF.

NATO monitors President Demirel’s Caucasus plans through lip-reading  

Meanwhile, while Ankara has left Kemal Dervis to resolve the current financing problems, it is taking energetic steps to place the economy on sound grounds in the long run. It will be realised by making similar arrangements in this part of the world as Europe has had within today’s EU, which transformed national frontiers in the continent into a virtual reality after two world wars over frontier disputes between Germany and France. Latest developments about these arrangements by Turkey can be summed up as follows:

• By going through and beyond Iraq, Turkey can again make the Gulf its backgarden in trade and economy. Iraq was Turkey’s second biggest trade partner, next to only Germany, and accounting for 20% of the total imports and exports before the Gulf War. Reviving this period will greatly contribute to the solution of Turkey’s current economic problems by narrowing the gap in the balance of payments. The Under-Secretary of Foreign Trade will head a trade mission and 200 Turkish businessmen to Baghdad between March 12^th and 16^th, if there is no last minute change in plans due to American pressure.
• Trade with the Middle East does not seem to be as promising as the Gulf, but playing a constructive role in the Arab-Israel dispute gains momentum to Turkey’s international stature and weight. Palestinian leader Yasser Arafat made a surprise visit to Ankara on February 14^th about the new hardliner Sharon Government in Israel. He supported Turkey’s suggestion made towards the end of last year about stationing unarmed Turkish soldiers throughout Palestine. There are already 16 Turkish military observers in El Khalil within an international team headed by Norway. Ankara suggested Arafat to wait for the formation of the new Israeli Government. Meanwhile, the Norwegian Foreign Minister, Thorbjorn Jagland, came to Ankara a few days after Arafat to discuss this matter. On the other hand, Israeli Chief of the General Staff, Lt. Gen. Mofaz Shaul has postponed for the third time his scheduled visit to Ankara on February 14^th. Turkey tends to take it as Israel’s reluctance to fulfil its commitments for technology transfer to Turkey about Popeye missiles and other military industry arrangements made especially during Netenyahu’s premiership.
• PM Ecevit attended the summit of the Southeast European Countries’ Cooperation Process (SECCP) in Skopje on February 22^nd. A week before the summit, on February 15^th and 16^th, President Sezer was in Plovdiv attending the tripartite summit with Presidents Stoyanov and Iliescu of Bulgaria and Romania. They decided to reopen the “Pan-European Transport Corridor”, which was tragically damaged by NATO’s bombings of Yugoslavia during Milosevic’s rule. The three presidents also agreed to cooperate against terrorism and organised crime, as well as cleaning the Danube. They further decided to cooperate on Yugoslavia’s return to the international community, especially in the Balkans and on their own accessions to the European Union. These decisions of the tripartite summit were translated into action at the Skopje summit only a week afterwards when Yugoslavia decided to fully enter the SECCP by signing the “Good Neighbour Relations, Stability, Security and Cooperation Charter for the Southeast Europe.” At the Skopje summit, the SECCP Charter, signed in Bucharest on February 12^th, 2000, was also accepted by Bosnia Herzegovina whose status rose from observer to participant, in addition to Yugoslavia’s accession to SECCP.
• The most important development in Turkish diplomacy’s activities since the New Year, however, concerned President Demirel’s initiative on the Caucasus Stability Pact as it is linked both to the Gulf through a potential transit route through Eastern Anatolia and Turkey’s Eurasia plans. TESEV, an Istanbul based strategic studies foundation headed by the former Turkish ambassador to London, Ozden Sanberk, sponsored an international seminar in Istanbul on February 17^th and 18^th on the “Search for Stability in the Caucasus” with also the participation of Armenia. Even though it was a semi official conference, Foreign Minister Ismail Cem stressed at the meeting that Turkey’s two most important foreign policy targets were EU membership and “being in the heart of Eurasia as a determining country”. Turkey would continue to contribute to the Eurasia process during its contacts with Europe and the United States, he stressed. As development was impossible in the Caucasus without security Turkey was ready to have a tripartite conference with Armenia and Azerbaijan “whose mutual relations have gratifyingly reached a distinct maturity level,” he affirmed. While the Armenian representative at the conference, Ruben Safrastyan of Yerevan University, promptly turned down the Turkish suggestion for a tripartite conference, western quarters aired their suspicion, much to Moscow’s disenchantment that it meant discarding the Minsk group for the Armenian-Azeri dispute. That is why it was a relief for the Russians when Ambassador Yigit Alpogan of the MFA categorically rejected any such ambition on the part of Ankara. It also allayed the Russian Ambassador’s suspicions when he compared Pres Demirel’s letter to Russia about the Caucasus Stability Pact with that sent to NATO countries. Before the Istanbul conference, the Ambassador in Ankara of a prominent NATO country and the Russian ambassador put Demirel’s letters together and saw that it was not a circular of the same text, but some differences existed between the two texts. The Istanbul conference provided Ankara with the opportunity to allay these anxieties among the participants and it was a big achievement for Turkish diplomacy, as it will pave the way for more fruitful developments for Turkey’s long-term economic plans. uras@ada.net.tr  -   Friday, March 9^th, 2001  

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