No “Hero of Haarlem” in Ankara

With Mary Mapes Dodge’s Hans Brinker, or the Silver Skates, the English-speaking world took to heart the tale of a Dutch boy who saves his beloved homeland from certain flood by plugging a leaky dike.  Briefly: Happening home as dark approached, the lad espied a leak in one of Haarlem’s many dikes. Grasping the potential calamity, the boy stemmed the flow with his finger, suffering cold and solitude through the night until the townspeople discover him and mend the leak. The boy becomes a hero, having saved Haarlem from deluge.

The boy-cum-hero was more than brave. He demonstrated prescient awareness, grasping the potential magnitude of the situation. He responded with appropriate measure, running for help or stuffing the dike with soil would have left the danger unguarded. The boy then readily called for help at first chance.

The analogy to Ankara?  With Turkey’s economy threatened by turbulent waters, President Recep Tayyip Erdogan continues to pose as his country’s indispensable protector. However,  he shows poorly in comparison to Haarlem’s little savior. The president’s most recent maneuver to keep the country’s economic ship aright—an enormous transfer of state-owned corporate shares to Turkey’s first sovereign wealth fund—will fail to achieve its intended aims. Any dissenting counsel to this undertaking will be prone to the president’s usual dismissal.  

The republic’s economy will instead likely worsen. As growth slows and consequent discontent rises, Erdogan will not retreat from his autocratic drive to direct the economy himself. For now, Turkey’s once-emerging democracy will instead continue to deconsolidate as Erdogan adds further economic power to his already dominant political role.

The Economy:  Red Sky at Morning

On February 6, the Justice and Development Party (AKP) government’s privatization administration announced the transfer of billions of dollars worth of  government-owned shares into a new sovereign wealth fund (SWF). These involve several of Turkey’s best performing companies and banks, including Turkish Airlines  and Halkbank with a combined value of $3 billion, in which the state has 49.1 and 59.1 percent of the shares, respectively. Also included in the mass transfer were the Borsa stock exchange and BOTAS—the state-owned natural gas pipeline operator. The stated purpose of this asset transfer is to reassure foreign lenders whose confidence in Turkey has steeply declined.

Why will this move fail? Turkey’s SWF is a sharp departure from the international norm. SWFs are commonly funded out of revenue generated by a country’s natural resources or foreign exchange reserves and established when there exists a significant budgetary surplus.  Moreover, SWFs typically invest globally. In contrast, the assets transferred this month come from domestic banks and firms, not from commodity revenues or reserves.  Although Turkey’s budget deficit is currently somewhere between 1-2%, 2016 saw a marked increase in budget expenditures on health, welfare, and pensions; and none are poised to abate. Furthermore, the AKP government is likely to use the SWF as leverage to borrow for mega-infrastructure projects at home, rather than pursue investment opportunities abroad. Such a build-up of debt is likely to decrease rather than increase investor confidence in the Turkish economy.

There are few indicators suggesting that the Turkish economy will resume the robust growth that propelled it to become the world’s 17th largest economy. The attempted coup on July 15, 2016, and its aftermath greatly shook investors and creditors alike. In the third quarter of 2016, Turkey’s economy contracted for the first time in several years to levels lower than predicted. Last September, Moody’s Investor Service downgraded Turkey’s sovereign credit rating to junk status.  The Turkish lira has dramatically declined against the dollar, falling 23.73 percent between September 2016 and February 2017.

Not all of Turkey’s current economic woes are linked to July 15th fallout. Turkey continues to struggle with a growing current account deficit. It is forecasted at $34.3 billion for 2016 (an increase of $2.1 billion from the previous year). This is nothing new—Turkey has been struggling to keep its current account out of a deep red since 2010.  And due to Russian boycotts and terror attacks, Turkey’s tourism industry was already suffering mightily before the attempted coup. Tourism’s contribution to GDP dropped from  twelve percent in 2014 to 4.5 percent in 2015. Employing eight percent of the country’s workforce, this industry’s shrinkage is being felt.  

Governance: Bad Crescent Moon Rising

The sweeping shift of wealth into Turkey’s SWF is the latest step in Erdogan’s drive to centralize authority under his own personal executive control. Should he win April’s referendum on the expansion of Turkey’s presidential powers, authority over the SWF would no doubt transfer to him, since the position of its current overseer, the prime minister, would be abolished. This is especially dangerous, as SWF transactions will be unaccountable to either parliament or Turkey’s High Court of Auditors, thereby giving a uniquely dominating president tremendous sway over the use of state funds.  

This would conform with a consistent pattern of incremental power consolidation, in economic affairs as well as in the political realm. The AKP party has unrelentingly relied on the crony issuance of tenders for unnecessary infrastructure projects as a key means of securing political influence; Turkey’s SWF is simply another chapter. Furthermore, AKP’s leader regularly disregards sound economic counsel in favor of political expediency. For example, Erdogan has for years shouted down top economic advisors seeking to stem inflation by increasing interest rates, a widely accepted remedy. The Gulenist witch hunt following the July 15 coup attempt provides a further example of damaging market interference. By executive order under a state of emergency, hundreds of businesses were shuttered, eliminating in many cases competitors of AKP-aligned enterprises and banks.

Given the breadth of Turkey’s current economic challenges, Erdogan’s continued reliance on his tried playbook will turn up insufficient. The demographic bulge that fueled Turkey’s post-2002 Wirtschaftswunder is coming to a close. Of Turkey’s top ten export destinations, six are presently European Union member states, a trade zone whose “outlook is surrounded by higher-than-usual uncertainty” and moderate recovery remains nascent. Nor will the resumption of trade with Russia via the recent rapprochement do much. At best, the countries may return to the same steady levels that preceded the crisis-provoking downing of a Russian jet in November 2015. And don’t expect a return of Russia’s tourist masses as long as ISIS and PKK terror attacks continue. This insecurity and Turkey’s noteworthy political risk are especially damaging to prospects of foreign direct investment at a time when multinational corporations appear on a full-fledged retreat worldwide.

Despite Turkey’s autocratic regression over the past several years of AKP rule, Erdogan and his party could become vulnerable. When polled, Turks regularly assign their greatest concerns to security and the economy. Although the AKP won 40.9 and 49.5 percent in the last two multiparty parliamentary elections, there is now no end in sight to the current fighting with the Kurdish Workers Party (PKK). If, added to this, there is a severe contraction of Turkey’s economy, it could cost AKP and the president dearly at the ballot box.

In sum Erdogan’s “finger in the dike” does not seem likely to bar the flood. And, absent an uncharacteristic change of tack—such as a willingness to better heed sound economic counsel or greater inclusion of private sector actors unsupportive of his political agenda—the dyke could well give way.

Unfortunately, Erdogan’s reliance on political charisma and personal power-projection tends to preclude rethinking or retreat, particularly before the looming mid-April referendum. Unfortunately for our Turkish friends, it may thus be a long time before they see a red sky on the evening’s horizon.           

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Turkey’s Greater Unknowns

On July 15 at approximately 10 PM, an attempted coup d’etat was staged by elements of Turkey’s military. Parliament and the presidential palace were bombed. An assassination attempt was made on President Recep Tayyip Erdogan. Tanks took to streets, seizing the Bosphorus Bridge, now renamed the 15 July Martyrs Bridge in memory of the 230 Turks who died that night. Surviving the attack, Erdogan implored people to take to streets in response. Of the deceased, 145 were people protesting the attempt.

A 90-day state of emergency has been declared, giving the state sweeping powers in its pursuit of those allegedly complicit in the action. To date, approximately 60,000 soldiers, police officers, teachers, and civil servants have been suspended, detained, or placed under investigation. 6,000 arrested in a sweep anti-Gulen dragnet. 2,431 schools, unions, charities, and health care centers have been closed. Thirty-five percent (124 of 358) of Turkey’s generals and admirals are under arrest. Forty-two journalists were indicted. Gulen-related businesses are being shuttered. The government suspended the European Human Rights Convention. There are calls to reintroduce the death penalty.

The military and other state institutions have been significantly weakened and are now vulnerable. This is happening while jihadists kill scores of Turkish civilians, outright war is being fought against the Kurdistan Workers’ Party (PKK) insurgents in the southeast, and the Turkish military is nominally engaged in the coalition against ISIS.

What is the likelihood of Fetullah Gulen’s extradition?

Fetullah Gulen is the clerical leader of the global Hizmet. A murky Islamic-social-educational movement comprised of various service-based organizations, its unifying theme is interfaith and cultural dialogue.  Gulen provides spiritual and executive direction from his Pennsylvania estate, where he has lived in exile since 1999. While Gulen was an erstwhile ally of the ruling AK Party (AKP), Erdogan is at present placing all blame for the attempted coup on Gulen and his followers and has asked the US to extradite him to Turkey.

The US and Turkey have had an extradition treaty since 1979. Officials at the Department of Justice are responding to Turkey’s extradition request. The Turkish state will have to bear the burden of proof, which includes an arrest warrant, statement of facts, and evidence that the offense is prosecutable in the US, although it occurred in Turkey. In sum, it is possible.

Current and past efforts to evidence crimes against the state were a categorical mockery; i.e. in the Sledgehammer cases of 2012, prosecutors presented the alleged 2003 coup plans on documents generated by Microsoft Word 2007. AKP needs to do better than that to win in a US federal magistrate’s court. And if Amnesty International can verify the accusations of suspected coup-plotters being beaten, raped, and tortured, then submitted confessions won’t count for much.

In case of no extradition – What’s the impact on US-Turkey relations?

If a federal judge denies the extradition request, the judgment will likely be problematic for US-Turkey relations. The latter will see it as a political decision, rather than a genuine legal ruling.

At greatest risk would be the end the government’s (i.e. the ruling and two largest opposition parties’) tolerance of continued US material and financial support of a ground force highly effective in killing ISIS recruits in Syria – the Kurdish People’s Protection Units (YPG).

Then, there’s the US Air Force’s use of the Incirlik air base in southeast Turkey, from which at least 25 sorties are flown daily. Without it, American strike capabilities in Syria would be drastically limited.

Finally, there’s the concern of Turkey withdrawing from NATO. The USSR is no more, anti-Americanism is running exceptionally high, the European Community staggers from crisis to crisis (and it is not likely Turks believe they’ll someday be living in an EU Member State, according to polls), so what’s the point as long as there is trade? Diminished sovereignty in exchange for what, exactly?

Yet another go at alliances on eastern horizons?

Something rather extraordinary happened in late 2013. After centuries of wars between the Russian and Ottoman Empires, topped off with decades of teeth bared at the border between the USSR and Turkey, then prime minister Erdogan proposed the idea of a Turkish bid to join the Shanghai Cooperation Organization (SCO). Comprising member states such as Russia, China, and Uzbekistan, this Eurasian political, military, and economic group is as far in aims and practices from the EU as it is geographically. Primarily a swipe at the EU’s foot-dragging on Turkey’s EU membership accession process, it nonetheless struck a rather anxious chord in the West.

Fed up with constant cries of an increasingly “authoritarian” Turkey in the halls of European capitals, worn of limited sovereignty, and boiling mad over what will be a lengthy extradition process regardless, might Erdogan throw up his hands and be done with whole affair?

And enmity between Turkey and Russia over the former’s downing of the latter’s jet in November last year? Well, a genuinely authoritarian Turkey would be a boon to the geostrategic interests of Putin, whose cronies seize each and every opportunity to weaken the Trans-Atlantic Alliance and the EU. Values are a feel-good luxury when one is a political animal of such ruthless caliber. Case in point: Erdogan finally came around to apologizing for the affair to Putin just last month and is set to fly to Moscow on August 9.

Is a broader witch hunt coming?

This remains to be seen. If the ruling party’s previous court-approved purges such as Ergenekon and the aforementioned Sledgehammer afford a guide, then the spies are in the shadows and evil-doers at every pass. The sheer magnitude of detentions, arrests, and investigations suggest that a greater net may be soon cast.  

Yet there is a silver lining. Turkish entities once considered enemies of AKP rejected the attempt outright. Backed into a corner, Erdogan took full advantage of the video chat application FaceTime—despite his repeated attacks on social media—to call citizens to the streets. This was broadcast live by CNN-Turk, previously lambasted by the president with accusations of working to undermine the government. On July 24 the main opposition party CHP and AKP held the joint “Republic and Democracy” rally in Istanbul on the following day. The following Monday, Erdogan met with the leaders of all major political parties (except the People’s Democratic Party – HDP) to discuss post-coup plans and measures. Could the base for a limited-but-unifying common ground be forming in a society otherwise toxically divided?

Consider that Turks of every political and social color came out in solidarity to protest the Friday coup attempt. The message was this:  We’re done. We’ve moved on from those days. Our rights to democratically participate in our own governance won’t be denied yet again.

These are the same Turks who voted down the mighty AKP in June 2015, forcing them to try to form a coalition government after years of parliamentary dominance. Why? AKP was bruised by corruption scandals and, perhaps more importantly, polls consistently indicated that Turks were weary of their president’s efforts to corral and then enlarge executive powers. Unfortunately, the renewed war with the PKK in the south changed that trend with November’s elections. People quite like stability, after all. Yet coupled with last summer’s election and strikingly unified stances taken on and after July 15, there is a genuine sign of hope, and one most deserving of our respect.

Editor’s Note: In view of the current ambiguities in Turkey concerning academics and journalists, the author wishes to remain anonymous.

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