Turkey's Prime Minister Ecevit in the US

Turkey

Economic News

22 Jul 2010
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The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US. Despite meetings with President George Bush and Vice-President Dick Cheney only some of his hopes have been realised. Meanwhile at home, the Turkish Lira has continued to slowly strengthen against the US Dollar and the shake-up of the banking sector has continued, as observers have expressed hope that Turks may finally be able to see the light at the end of the tunnel.



Ecevit arrived in Washington at the start of last week, together with a number of ministers and economists, and held talks with Cheney on January 15th before separately meeting Bush and Secretary of Defence Donald Rumsfeld the following day. High on the list of topics under discussion with the US leaders was US support for a new loan to Turkey from the IMF, which should total around $10bn. But the support that Turkey has given the US in its continuing campaign against terrorism was also under discussion, with Ecevit trying to get further US support for the country's economy, which contracted around 8.5% in 2001.



In a speech to the US Chamber of Commerce on January 15th Ecevit claimed that Turkey had lost over $50bn in trade as a consequence of the Gulf war against Iraq. It is naturally hesitant to support further American action against Iraq, fearful that its economy will suffer more setbacks and that political instability may increase in the south-east border regions, as any campaign against Iraq would involve use of Turkish territory and airspace. The illicit trade in Iraqi diesel fuel to south eastern Turkey only just restarted in early January- following a halt after September 11th, restoring hope for the local economy. Turkey appears to have been gradually softening its stance against such military action, largely as bargaining has continued over other US economic concessions to Turkey.



The list of economic demands that the prime minister took with him to Washington is lengthy, and optimistic, as some Turkish media critics pointed out shortly before the visit. Turkey has around $5bn in military debts that it wants the US to scrap and it wants improved market access for important Turkish exports such as textiles and steel, which would involve the US raising quotas and desisting from anti-dumping duties respectively.



However, with the number of countries pushing for economic relief or concessions from the US in return for support in combating terrorism, Turkish requests are unlikely to be fulfilled. As some American analysts have pointed out, with such a long list of demands the chances of disappointment are high. Amongst others Pakistan, Bangladesh and India have also pushed for greater access to the US market for their textiles exports, at a time when the US textile lobby in Congress is strong and the administration is trying to push through "fast track' authority for the president in trade decisions. Most analysts have expressed equally pessimistic opinions about the chances of Ankara having its military debt written off. Turkey is due to take over the peace-keeping operation after the British army has completed its tour, but again significant US financial support is unlikely, even though some commentators speculate that the size of the Turkish commitment will depend on the size of American help.



Aside from the American argument that recompense for its coalition partners in the campaign against terrorism is limited, the US officials have also pointed out that Turkey should capitalise on the IMF loans it has been granted and push ahead with the painful economic reforms. Furthermore, they have pointed out that Turkey can expect to benefit from the multi-billion dollar reconstruction programme in Afghanistan. A further proposal to try and placate Turkey is the recently-announced creation of a US-Turkey Economic Partnership Commission, which will look at ways to develop economic and trade ties between the two countries. The administration has also promised that it will look into establishing Qualified Industrial Zones in Turkey, such as those in Jordan and Israel, which could produce goods to be exported to the US.



The prospect of new loans from the IMF has kept Turkish confidence high in the last few weeks, with the Turkish Lira appreciating against the US Dollar by a total of around 11% and pushing the Istanbul Stock Market to highs not seen in over a year. This $10bn loan has essentially been approved by the IMF but on January 17th the fund announced that the vital board meeting to officially approve the loan would be postponed from late January to early February as Turkey continued to implement pre-conditional reforms. On the same day the IMF European Director warned in Washington against over-optimism in Turkey about the perceived economic recovery, pointing out that there had been a short-term recovery between the last two economic crises.



In Turkey the reform of the banking sector has continued with the parliament passing the IMF-supported bill to spend around $5bn on recapitalising the private sector banking industry. Aside from the usual criticism about the IMF's involvement in Turkish affairs concerns have been raised about the potential for corruption. The Turkish government has already spent around $30bn rehabilitating state banks and taking 19 private sector banks into receivership.



One hope had been that foreign banks would be interested in buying into the Turkish banking sector, by taking over a struggling local bank, but this ideal was dealt a further blow when Turkey's Fiba Holding, which owns Finansbank, announced on January 16th that talks with BNP Parisbas had failed. According to the CEO of Fiba Holding Husnu Ozyegin interviewed on CNNTurk the talks broke down because of a disagreement in rice and because the French giant only wanted the group's banks in Turkey. Following optimism just a few months ago, BNP Parisbas has joined Societe Generale of France and Intesa of Italy in withdrawing from take-overs of Turkish banks, leaving only HSBC with Demirbank.

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