ISTANBUL, 6 October 2003 — The long arm of the crisis in neighboring Iraq, and Turkey’s perennial political crisis is conspiring to have a mixed impact on the Turkish economy, which continues to affect Turkish country and corporate ratings and the cost of financing in the international market.
The generals are on edge yet again in Turkey. This time they are smarting from not being consulted over an alleged deal struck between the government of Recep Tayyip Erdogan and the Bush administration, inking a $8.5 billion soft loan to Ankara on condition that Turkish troops are withdrawn or not dispatched to northern Iraq. Prime Minister Erdogan denies the linkage and stresses that the government did not include the loan in the current budget. Not a single dollar has yet been disbursed. “We have not made budget calculations on this loan. The Turkish economy stands on its own feet,” explained Erdogan at a news conference a few days ago.
The war in Iraq has opened the possibility of a new political dispensation, with northern Iraq already under the control of the democratic Kurdish parties with the full support of Washington. The Iraqi Kurds are also full participants in the nascent Iraqi interim Governing Council.
What is equally important is that Ambassador J. Cofer Black, the US Coordinator for Counterterrorism, confirmed in Ankara after talks with Turkish officials that “the PKK/Kadek is designated by the United States as a terrorist organization. There is no place for it in Iraq.” Turkish officials go even further talking about a joint action plan with the US to eradicate the organization from Northern Iraq. The Supreme Court recently upheld a complaint alleging fraud by the Kurdish Democratic Party (DEHAP) in last November’s general election in Turkey. The case of whether the DEHAP should be proscribed and its votes redistributed to other parties under a complex system of proportional representation is now before the Higher Election Board.
The prospects of an early election has already caused a dip in the Istanbul Stock Exchange index by 4 percent and a further weakening of the Turkish lira against the dollar. The uncertainty has also led to the Turkish Central Bank (TCB) buying up excess liras from the market to stave off inflation. This is quite a reversal of only a few weeks ago when the TCB sold more than $200 million worth of liras when the prospects for sustained economic recovery led to a high demand for the local currency.
There are also concerns over Turkey’s current account deficit, although Economy Minister Ali Babacan stresses that the government’s 6.5 percent surplus target is still attainable. Business leaders stress that although an early election would not create serious economic upheavals, it could bring political instability, which in turn could influence Turkish credit risk and rating perceptions.
While the macro-economic indicators are showing signs of jitters, the Turkish private and corporate sector continues to show its unique resilience. International rating agency Fitch has just upgraded the local currency rating of Turkcell, the country’s largest mobile phone operator, and that of the Istanbul Greater Municipality; and affirmed the ratings of many top Turkish corporates.
However, despite the continuing fallout from the Iraq War, Iraqi reconstruction holds out good prospects for Turkish exports, with companies such as Otokar, the automobile producer, mopping up short-term contracts whenever they become available, but real planning for the medium-term when the hope of a political solution and improved economic and security prospects should be better.
According to Turkish Foreign Trade Minister Kursat Tuzmen, Turkish exports to Iraq for the year ending Sept. 15 totaled $500 million — up 42 percent on the previous year.
The figure is projected to reach over $1 billion in 2003 as demand for supplies from the early phases of Iraqi reconstruction increases.
Turkey is also projecting tourism revenues to reach a staggering $48.5 billion over the next year, despite the negative impact of the aftermath of the Iraqi crisis.
