Thursday, 19 December 2013

Ruling Party Rocked By Corruption Claims

Many years ago when I had just returned to Turkey to work in the financial sector a very senior Turkish bureaucrat gave me valuable advice about how to operate in that country.

“I know very well that the rules and regulations in this country are antiquated, contradictory, and often obscure. It seems simple to take advantage of this confusion and make a great deal of money through, shall we say, ‘irregular’ channels. My advice? Avoid this temptation at all costs. Do everything in your power to stay inside the rules. One thing we (Turkish officials) are good at is finding out about the little games people play to get very rich. Whether or not we do anything about it depends entirely upon circumstances at the time. But trust me, if you ever cross anyone in power, displease them in any way, they will pull out your file and make your life miserable as they reveal all your activities.”

In other words, “You can get away with anything you want. But do understand that someone, somewhere knows exactly what you are doing. And when it suits them they will lower the boom right on top of your head.” I have seen this happen time and again in Turkey.

This admonition came to mind when I read about the latest corruption scandal to rock Turkey. In an operation that seemingly was a surprise to the prime minister – who notoriously hates surprises of any kind -- police officials arrested a number of people close to the government, including the sons of three cabinet ministers, on corruption charges. When searching the home of the general manager of a state bank officials found shoe boxes filled with $4.5 million. The allegations are continuing to spread and now involve the Minister for European Affairs.

Rumours of corruption in high places have been circulating in Turkey for years. But up to now it was in no one’s interest or ability to do anything about it. Word of pay-offs to get projects completed would be greeted with a shrug of the shoulder. “What’s new? This is just the price of doing business.”

Suddenly, out of the blue, someone has decided the time has come to lower the boom. Turkey is no blushing virgin in matters of corruption, and this is not the first time people close to the government have been have been caught lining their own pockets. But why did this come out right now? What brought these claims to surface now in such a dramatic fashion? Who are they really aimed at? Who is behind them? How could this investigation have been going on for a year without anyone in the government realizing what was happening?The Minister of the Interior apparently learned about his son’s arrest on television. And this man is in charge of the police?! Either he is completely incompetent or strong forces outside the government’s control are at work here.

Needless to say the country is filled with rumours of great conspiracies involving the usual suspects of Israel and the United States. Also coming into the spot light is the reclusive Islamic scholar Fetullah Gülen whose followers allegedly control much of the police and judiciary. Gülen was one of Prime Minister Erdoğan’s early supporters. But the two fell out when Erdoğan moved to close the private college preparatory schools, many of which were run by Gülen’s people. Gülen has adamantly denied any involvement in the latest investigation. But those denials do not find many believers in Turkey.

The government’s first response to this investigation was straight from the pages of George Orwell. They fired about 30 senior police officials, including the police chief of Istanbul, involved in the investigation. “How dare you do your job?!!”  This is the same police chief who earned Erdogan's high praise for cracking down hard on the protesters around Gezi Park last spring. No one has said a word about the substance of the investigation. There was not even a ritual statement about the evils of corruption. No, all they could do was claim that the investigation was somehow ‘dirty’, the result of a plot to undermine the government.

An added twist is the involvement of a shadowy Iranian Turk who was allegedly involved in the illegal, sanctions-busting gold trade with Iran. According to initial allegations he was also directly involved in bribing certain Turkish ministers for several items like building permissions and help with getting passports and visas for relatives.

The only thing that is clear right now is that this investigation could not come at a worse time for Prime Minister Erdoğan. He faces three key elections – municipal, presidential, and general – in the next 18 months. While he could shrug off massive protests last spring from the urban, liberal segment of Turkey, he may have more trouble with this one. His party came to power claiming to bring a new, clean style of governing to Turkey. As these corruption revelations continue to dominate headlines even his strong supporters could begin to rebel at the seeming hypocrisy of those claims.

For the first time since he came roaring to power more than 10 years ago the prime minister seems to be on his back foot. Where does he draw the line on support for some of his closest allies, many of whom have become very rich? Can he escape the fall-out from the steady revelations of corruption in high places? Can he continue to claim the ethical high ground?

Meanwhile the press and social media in Turkey are consumed with speculation about this investigation. Pictures of cash counting machines and millions of dollars hidden in shoe boxes in the suspects’ apartments dominate the front pages. There are claims that four ministers are about to resign or get fired. Who will be next? And then there is the billion-dollar question. Who is behind this drama? 

Monday, 18 November 2013

Strange Days In Turkey

What on earth is going on in Turkey these days? At a time when the country has serious economic, foreign and domestic policy problems the government seems to be focusing on minor issues that threaten to unravel the aura of progress and omnipotence created by the ruling Justice and Development Party (AKP) over the last 10 years.

Vindictive reprisals continue against anyone accused of being associated with the Gezi Park protests last spring. Students suspected of involvement have been thrown out of university dormitories. Others have had their state grants revoked. The list of journalists fired by easily intimidated media bosses continues to grow. Companies that are accused of not toeing the government’s line are threatened with massive tax inspections.

Businessmen I have spoken with are convinced their telephones, emails and faxes are tapped. One business leader said his employees do not use mobile phones or faxes. “We’ll talk when I am in London next month,” was his response to a question. Such is the paranoia among business leaders outside the charmed government circle that when you do get an interview you are likely to be asked to remove the battery from your mobile phone. “They can listen to anything you know.” George Orwell where are you?
Prime Minister Tayyip Erdogan
Prime Minister Tayyip Erdoğan has now carried his vendetta against university students to new levels in decreeing that co-ed dormitories or even private apartments will no longer be allowed. The ensuing uproar among his fellow countrymen living in the 21st century did not faze the prime minister. He may well have calculated that any uproar in that segment of society will only strengthen his base before the upcoming municipal elections.

But in a bizarre move that threatens to break open the long-festering dispute within the ruling party the prime minister recently moved to close the so-called dershanes, private cram courses to prepare students for the critical university entrance exam. The move ostensibly was aimed at levelling the playing field for university applicants by removing the advantage of wealthy children who can afford the courses.

The problem for Erdoğan, and indeed for his entire party, is that the move directly challenges one of his major supporters, the shadowy but powerful Islamic scholar Fetullah Gülen who established many of the dershanes. From his farm in the United States, where he fled from legal action in Turkey many years ago, Gülen controls a vast ‘movement’ of supporters in Turkey and other countries.

Fetullah Gulen
Gülen says he symbolizes the ‘soft’ power of Islam and devotes his efforts to sponsoring schools and health care facilities around the world. The dershanes are a key part of his program in Turkey. In addition to providing the required exam tutoring many people in Turkey say Gülen also uses the school to recruit members for his ‘movement’.

Gülen and Erdoğan, who hates any competing power base, have never been close. But as long as Erdoğan was working for increased religious influence in the Turkish government Gülen lent his support. But now that Gülen’s movement has gained power within Turkey through strong positions in the judiciary and police it can more easily oppose Erdoğan.

Where Erdoğan was strident, harsh and unrepentant Gülen would appear to be softer, more conciliatory. During the Gezi Park protests last spring when Erdoğan was relying on tear gas and police batons Gülen would issue impenetrable statements seeming to urge – as far as anyone could understand them in Turkish or English – dialogue and conciliation. Gülen, whose supporters have been accused of driving the so-called Ergenekon case against alleged coup plotters, has recently urged that the elderly plotters should be released from their long prison sentences. Divisions between President Abdullah Gül, Deputy Prime Minister Bülent Arınç and Erdoğan surfaced during the demonstrations with Gül and Arınç urging more tolerance. Since then Gül has missed no opportunity to distance himself from Erdoğan’s increasingly divisive policies.  

Which way will President Gul move?

Now, with the policy on the dershanes, Erdoğan is forcing an open break with the Gülen movement. Gülen has used the newspaper Zaman, to condemn the move against the dershanes and to urge his supporters to remain strong the face of opposition.

It is difficult to see a clear winner in this contest between two camps within the religiously oriented AKP. Ministers assumed close to the Gülen movement are dropping broad hints that Erdoğan has only a short time left in active politics and that the jockeying for power has begun within the post-Erdoğan AKP. President Abdullah Gül has been particularly coy about his plans. Will he run for president again? Or will be step down and become Turkey’s next prime minister? At moment he is the most popular politician in Turkey. He will calculate his next step very carefully indeed.

In theory, internal party rules ban Erdoğan and 72 other AKP members of parliament, from running again. This apparently leaves Erdoğan no choice but to run for the non-partisan presidency. While no one doubts that he could change the party rules in a minute, Erdoğan has often said he will do no such thing.

The rub for Erdoğan is that currently the presidency is largely a ceremonial post with no real power. He is trying desperately to change that and create an executive presidency along French lines.  But is by no means clear that he has the required support in parliament for the constitutional change required for a change in the nature of the presidency. Again, certain ministers close to the Gülen movement are dropping hints that the issue is off the table. President Gül, for one, has publicly stated his opposition.

Are we witnessing the frantic actions of someone facing the end of his absolute control? Or are these manoeuvres aimed merely at solidifying his base to repel all challengers? It is too early to tell for sure. But meanwhile, serious issues for Turkey continue to mount. And time is one luxury the country certainly does not have.

Sunday, 20 October 2013

Welcome To The Washington Political Theatre

The Tea Party in the United States has accomplished an extremely difficult task. It has made politicians in Greece look positively statesmanlike. Whatever bumbling and fumbling we have seen in Athens over the last several years has now been more than equalled in Washington.

My foreign friends shake their heads is dismay, confusion and anger about what they have been seeing. What is this thing called the Tea Party? How can this group bring the world’s one remaining super-power to the brink of implosion? They watch in amazement as the fanatics in the Tea Party accomplish what no foreign power or terrorists have been able to do – create the impression of an incompetent giant as much of a threat to itself as anyone else in the world.

The best response I can come up with is that much of this nonsense is pure theatre – nothing else. Not very good theatre, but still theatre.There is very little chance that the leading actors of this far-right fantasy will ever get their hands on the levers of real power or change the direction of the American government. The government is already so big with so much inertia and so many vested interests in the status quo -- from retired people, to local governments that desperately need federal assistance, to farmers, to the military/industrial complex, etc, etc. --  that serious, fundamental change is almost impossible. Maybe you can tinker at the margins, but that’s about all.

The Master Of Political Theatre
No less than Republican stalwarts like Ronald Reagan and George Bush came to power claiming they would reverse the spread of ‘big’ government. They soon gave up that quixotic effort. Just consider two major budget items, Social Security and Medicare. Every conservative worthy of the name has railed against these two programs and promised to ‘cut them down to size.’ Never happens. They soon learn that threatening to touch these two is like touching the third rail in a metro system – instant political death. And efforts to cut other government hand-outs are instantly met with loud squeals of protest that can easily transform into votes against the offending politician. Much easier not to rock the boat too much.

The Tea Party act may play well locally, but it weakens dramatically in state-wide contests, and disappears from sight in national elections. The Tea Party is such an appealing target in national elections that if it didn’t exist, President Obama would have to create it. It is the perfect foil for the Democrats, the perfect bogeyman that allows them to scare enough normal people to vote Democratic to keep their benefits. We will probably find out in a few years that the Tea Party poster child Sen. Ted Cruz of Texas is actually on the White House payroll.

Sen. Ted Cruz: Is He Secretly Working For The Democrats?
Just consider the national demographics to realize the futility of the Tea Party protests. The so-called Red States are indeed Red and likely to stay so. Trouble is not many people live in those places, and they don’t really count in national elections. If I were a Democratic strategist I would easily give you relatively empty Wyoming, Montana, and Utah in return for the heavily populated Northeast, California, Illinois and Michigan. The Democrats could probably nominate Darth Vader for president in 2016 and still win.

This is not the first time this very bad play has run in the United States. Through the relatively short history of the country from time to time some clever politician, now aided by the very loud and pugnacious trolls on cable TV, taps into an underlying streak of distrust, fear, and isolationism that runs throughout parts of the US. Big government, big business, big anything, and foreigners of all shapes and colours are blamed for what is wrong with the country. If we get rid of the bums and stick our heads in the sand everything will be all right and go back to the way it was in 1955. The mythology underlying this trend is that the ‘Last Honest Man’ lives anywhere outside corrupted urban areas in a permanent set from the old TV show Leave It To Beaver.

The ultimate cynicism, sell-out if you will, is that most of those Congressmen who rant the loudest about the evils of Washington and other urban areas usually stay in those cities when their political terms are finally over. The lists of lobbyists and leaders of the ‘trade associations’ are filled with former members of Congress who use their Rolodex to slide into multi-million dollar jobs. Somehow the charms of Little House On The Prairie fade in comparison to the seduction of the bright lights and brighter bank accounts in Washington. Anyone who wants to rock this boat with real political convictions is treated like a charter member of Al Qaeda. 

Just consider the case of former Sen. Jim De Mint of South Carolina. Once a leading light of the ‘We-hate-Washington’ Tea Party brigade he resigned his Senate seat last year to become president of the conservative Heritage Foundation located in, you guessed it, Washington. He claimed the move was to ‘expand’ the conservative movement. Right. I don’t know about the expansion of the conservative movement, but his financial situation certainly expanded with a sharp pay increase.

For a full explanation of the incestuous and seductive nature of Washington I recommend Mark Leibovich’s recently published book This Town. It is an engaging tale of how Washington absorbs and molds many who come there with fervent expectations and hopes to change the ‘Town.’ More often than not, it is the ‘Town’ that changes them.

Tuesday, 15 October 2013

President Hillary Clinton's Inaugural Speech

The tones of Hail to Chief waft over the crowd as President-elect Hillary Clinton takes the podium at her inauguration in 2017.

First of all my fellow Americans, I would like to thank Senator Ted Cruz of the great state of Texas and Senator Mike Lee of the beautiful state of Utah for making this historical moment possible. Without their unstinting efforts to create an America where no middle aged white male is left behind in his country club we would not be here.

Like every newly-elected president I, too, would like to extend my hand in true bipartisan spirit and invite all 20 surviving members of the Republican congressional delegation to a small dinner at the White House. And, contrary to their expectations, I will bake the cookies served for dessert.

 Now, onto my agenda. First, I think the current Supreme Court works too hard – too many cases and not enough people to share the load. Therefore, I propose increasing the number of justices from nine to 11. I will nominate two people with outstanding qualifications that the Senate, with its Democratic majority of 85, should have no trouble confirming. Former presidents Bill Clinton and Barrack Obama have graciously agreed to join the Supreme Court and continue its stellar work of upholding the best of the Constitution.
Practising Her Speech

Then, to show that there are no hard feelings for those who hold sharply different views than my own, I will nominate Rush Limbaugh as our new ambassador to Iran and Glenn Beck as ambassador to the newly created nation of Antarctica. I am sure that with their well demonstrated cultural sensitivity and deep interest in other religions and life styles they will represent the best that America has to offer. I want to assure both men that we will work diligently to correct whatever infrastructure deficiencies like the lack of cable TV or the shortage of a decent golf courses that these two outstanding countries may suffer from.

My other foreign policy initiatives include a fast track toward citizenship for all those rushing to America for a better life style. We will indeed deliver a chicken in every pot -- and a Democratic party registration card -- to all those deserving souls. It is also time, my fellow Americans, to end the decades-long embargo of Cuba. The possibilities for trade in valuable items like cigars, rum, and American voting rights with the attached Democratic Party registration cards are simply too valuable to ignore much longer.

In recognition of America’s pre-eminent position in the world I think it is only fair that we allow the opportunity for other carefully qualified non-Americans to participate in our great elections. Every pre-qualified non-American will get one-half of a vote compared to a full vote for all red-blooded full Americans. Of course, those qualifications will include the willingness and ability to sign the aforementioned Democratic Party registration cards.

Now we all know that one of the first jobs for any American president is to create jobs. Therefore, I am proposing that former House Speaker John Boehner be offered the job as under-gardener in the Rose Garden – the White House Rose Garden. It is indeed tragic that his long service in the House was cut short by the upset win of the gay lesbian rock star Total Tatoo. But I want to assure Mr. Boehner this surprising loss will not mean that he has to leave Washington or join the ranks of the unemployed. I am sure that his well known ability to spread fertilizer will serve him well in his new job.

I know you all want to help our great city of Detroit out of its financial problems. I think we can relieve the pressure on cities like Detroit with a large-scale population transfer of those citizens to the wide-open spaces of Utah, parts of Texas, and Nebraska. I am sure that the good citizens of those states will welcome their new neighbours with open arms instead of loaded arms. Vice President Michelle Obama will be working tirelessly on this effort.

Now you might wonder where the money to fund all these new, exciting programs will come from. I think a surtax of about 50% of the profits of hedge funds – except those who contributed more than $1 million to my campaign – will certainly help plug that funding gap. If this doesn’t do the trick another, temporary of course, surtax of 80% on incomes over $2 million should do the trick.

I would also like to take this opportunity to assure my fellow Americans that we have not sold Alaska back to the Russians  to pay our national debt. There were some preliminary discussions, but these quickly fell apart when Russian President Putin demanded that former governor Sarah Palin be included in the deal. I told him there was no way that we could part with such a national treasure. We countered that we would throw in Idaho and a few counties in Texas instead of Sarah Palin. But he stuck to his demands, so no deal was done.

Again, I must offer my thanks to the Tea Party for its great efforts on my behalf. Is this a great country, or what?

Sunday, 6 October 2013

The Old Continent Still Has Much To Offer

Have you ever been at a party where your suburban neighbour is going on and on about his recent adventure trip to Nepal, the Antarctic or the South American rain forests where he got to live among natives who travel piranha filled rivers in flimsy wooden canoes? These monologues are usually accompanied by a digital camera filled with photos of our intrepid traveller gasping for air at 22,000 feet on some Nepalese mountain or wrapped in layers of goose down setting out across the frozen wastes of Antarctica looking like some snow-bound Michelin man.

Calling Room Service At 20,000 feet
During all this you sort of slink in the corner, made to feel that your recent trip to Paris was little more than going to Walmart for a new outdoor grill. Your neighbour’s hard-won souvenirs might include the blackened, frost bitten toes or the permanently disrupted digestive system of a real traveller. All you have to show for your efforts might be an elegant new hand bag, a fashionable dress, and a very satisfied, content digestive system. Your luggage might even include a couple of bottles of delicious claret which, admittedly, might not have the kick of your neighbour’s fermented yak milk. But it goes much better with boeuf  bourguignon.

Do not get dismayed! The Old Continent still has much to offer. You can enjoy splendid architecture, unparalleled museums, glorious concerts and superb scenery and, this is very important for travellers of a certain age, still enjoy the marvels of indoor plumbing and comfortable beds. Not to mention food that you recognize.

It is easy to take a car on a train through the Channel Tunnel and wind up in Calais in about half an hour. From there you can go on the excellent French motorway system to any part of the country or onto surrounding countries. There’s an added bonus if you travel on Sundays because, unlike the UK, very few trucks are allowed on continental motorways on Sunday.

As we zipped comfortably through northern France on beautifully made wide roads I was reminded of another road trip I took several years ago from New Delhi to Udaipur. We were in a gaily coloured minibus with an unnaturally serene driver and a hyperactive assistant. The assistant’s job became clear when the driver attempted to overtake on this narrow two-lane road filled with trucks, minibuses, and assorted sacred animals that brought all traffic to a screeching halt to allow them to cross the road unharmed. There was much less concern for the fate of humans. After overtaking in the face of a solid wall of oncoming traffic the driver would attempt to pull in on the correct side of the road. At this point the assistant would frantically wave his arm out the window to open up a tiny space in the dense line of traffic for us to enter seconds before the oncoming articulated lorry would reduce our minibus to scrap metal.

Having made it safely to the Süd Tirol in Italy you are confronted with the magnificent soaring crags of the Dolomites brilliantly illuminated in a rainbow of colours every evening as the sun sets. You have the option of doing absolutely nothing other than sitting an enjoying the scenery while being waited upon hand and foot. Or you can set off on one of the hundreds of well-marked hiking trails. These trails are designed for all levels of energy from the semi-ambulatory to serious rock climbers and mountain bikers. We were walking along one intermediate trail when we came upon a group of oddly smiling people running fast off a cliff in full faith and hope that their paragliders worked. We watched them circle around like giant hawks, but we never did see one actually land.

Sunset In The Dolomites
One of the really nice things about these Dolomite walks is that you never have to walk very far to one of the good restaurants in the mountains. You’ve made it this far and then reward yourself with a good lunch and a bit of wine. Then the only question is whether to walk back down or take the handy cable car. It’s not that hard a decision.

A short trip takes you to Verona where, in addition to the inevitable visit to Juliet’s house with its much-photographed balcony, you can enjoy an opera staged in the Roman arena. One advantage of an opera in a large setting is the opportunity for enormous stage sets. In Rigoletto the sets of medieval Mantua were much more realistic than anything in venues like Covent Garden in London.

The Italians may have speed limits on the autostrada but if they exist no one seems to pay a great deal of attention. On the way to a friend’s house in Ivrea at the mouth of the Val d’Aosta we were doing about 80 mph – in the slow lane. Most of the invasion routes into Italy over the centuries seem to have come down the Val d’Aosta, and those armies left castles, fortresses, and roads scattered all over the hills and towns of the area.
Roman Walls In Aosta
A very scenic trip up the valley, past the Courmayeur ski area and through the 6.5 mile Mt. Blanc tunnel takes you back into France. The toll for the tunnel is expensive, €41, but, given the alternative of going over the Grand St. Bernard pass, it’s not unreasonable. After a while you enter the gentle rolling hills of Burgundy where everyone was getting ready for the vendage.

A leisurely trip back across northern France after two days sampling the many delights of Burgundy rounded out our trip through Europe. Granted, there were no Amazonian piranhas, no frozen mountain peaks, and very few suicidal lorry drivers to generate stories for the barbeque. But despite those drawbacks we found that the Old Continent still has much to offer.

Tuesday, 27 August 2013

Confessions of Turkey's 'Infamous' Interest Rate Lobby

In searching for people to blame for Turkey’s recent economic problems Prime Minister Tayyip Erdoğan has lashed out at the so-called ‘interest rate’ lobby which, according to him and his cronies, is nothing more than a shadowy group of domestic and international financiers who want to derail the Turkish economy. The following contribution to Levantine Musings is from a charter member of this group of financiers – one of the many brilliant young Turkish analysts and fund managers who work for major international financial institutions around the world. I know many of them, and these are the very people that Turkish officials should be proud of instead of mindlessly demonizing. Although the prime minister will never admit it, Turkey desperately needs this ‘interest rate’ lobby to finance the country’s yawning deficits. As this note implies the Turkey has benefitted a great deal over the last decade from the huge amount of global liquidity. As this condition ends the Turkish government is at risk of confusing good luck with good policies.


Even though no one knows what Turkish Prime Minister Erdoğan meant when he talked about the “interest rate lobby” during the protests surrounding Gezi Park in Istanbul, this ‘evil’ group of people has become the number one enemy in Turkey, ahead of the International Monetary Fund, Bashar Assad and General Al-Sissi in Egypt.  Deputy Prime Minister Ali Babacan, in charge of the Treasury, added to this mystery when he said “those in the interest rate lobby know who they are”.  After a lot of rakı (the Turkish national alcoholic drink before the prime minister declared otherwise a few months ago) and serious thought, I realized that I am actually part of this evil group, as I have been making a living by investing in interest bearing instruments over the last two decades, and the owner of this blog would call us “the basis point people".  Most probably, by being a “comprador bourgeoisie”,  I must be the lowest of all, as I sold out my great Turkish nation to this malicious group, in return for an (ever diminishing) annual bonus and paying more than half of it to Her Majesty’s Revenue & Customs. 

First of all, let me try to explain how we operate.  We are part of a group called Emerging Markets Fixed Income investors.  On average, we meet with ten government and central bank officials, company CEOs/CFOs weekly from a universe of about 50 countries and well over 600 companies, all of which want to lure us to get financing at cheaper rates, so that they can provide better services for their populations and better returns for their shareholders.  Our motto is very simple “give money to those who can pay you back”.  We are a very sensitive to interest rates, and our unit is “basis point” which is 0.01%.  Even if we have one basis points (0.01%) higher return than our competitors, it would have a big impact on the size of AUM (assets under management).  Our investors are a greedy bunch as well; they range from the sovereign wealth funds to retired teachers from Japan to dentists in Brazil, who want to have higher returns for their savings so that their quality of life is better.  Anyone, who has ever dealt with the Sovereign Wealth Funds of interest free economies of the Saudis and Kuwaitis would tell you how sensitive they are to “basis point”, as they understandably want their nations’ savings to have higher returns.

Now, about our relations with Turkey.  Ever since the first the road show that  Abdüllah Gül (now president of Turkey) and Babacan did before the November 2002 elections, we meet with Turkish government ministers, Central Bank governors and Treasury officials on a regular basis.  (It is interesting to note that that first road show was organized by Mehmet Şimşek who was an analyst at Merrill Lynch back then. He has since moved up in the world and is now Turkey’s Minister of Finance.) Only last year alone, we had the opportunity to meet with three different ministers and at least five high level government officials.  The reason for Turkish officials’ interest in us is very simple: every single day Turkey has to find/borrow US$500 million to cover the short fall in its foreign currency earnings - the infamous Current Account Deficit and refinancing existing debt.  Turkey desperately needs foreign cash, the cost of which depends on how well the government sells the Turkish story enabling Turkey to earn dollars in the future. 

Until very recently the ruling Justice and Development Party (AKP)  government had done a good job.  From the very first day that AKP was leading the opinion polls and Mr. Gül told us the story of “Conservative Democracy” in 2002, we invested in Turkey and we made good returns, even though interest rates fell from 100% to 6%. (Yes, actually, interest rate lobby makes money from falling interest rates).  The day Turkey was upgraded to Investment Grade by Moody’s earlier this year, we heard from Minister Şimşek about Turkey’s ambitions of being better in technology than Germany, better in fashion than Italy.  And we bought it. Before the start of the Gezi protests, we had couple of billion US dollars invested in a Turkish government bonds and corporate bonds - - which are unfortunately worth much less than that amount at the moment. 

But now, for the first time since 2002, we see a really bleak outlook for Turkey. So far the Turkish government has been extremely lucky with the global economic situation. With global interest rates at historic lows, it was not very difficult to attract cash into Turkey. However, the rules of the game have changed profoundly.  And,for me, the biggest sign of trouble is not the current account deficit, the unorthodox Central Bank policy or even the political mess Erdoğan put himself into after his extreme reaction to the Gezi Park protests, but the fact that the government officials are becoming extremely dependent on conspiracy theories and imaginary enemies. When such thing happen you know it is the beginning of the end. The only hope for Turkey now is smooth transition of leadership within the AKP, with the hope of common sense prevailing, eventually.

Monday, 26 August 2013

It's Time To Look Beyond The Headlines In Greece

The difficult economic and political situation in Greece is well known by this time. Perhaps if you lived on a mountain top in Nepal you could have avoided the constant barrage of bad news about the country, but the rest of us are confronted with the same story every day over our breakfast cereal.  It seems that every time editors are faced with the problem of what to put in tomorrow’s newspaper or on tonight’s news show they can always rely on – or manufacture – yet another story about how Greece must leave the Euro or how unsustainable (editors love this word) the debt burden has become. No wonder those few people who still read newspapers prefer to start with the sports pages and comics.

There's much more to Greece than this
Having spent the better part of the last three months on an island in Greece I have to take serious issue with the general view of Greece. The situation is indeed serious, but far from hopeless. Buried in the avalanche of depressing news are many examples of excellence, fortitude, and unrivalled beauty that should attract many more people than it does.

The stories about Greece have understandably focused on the completely dysfunctional public sector with its kleptomaniac so-called public servants. A friend of ours was recently given what has to be the most difficult – if not impossible – job in Greece: Minister for Administrative Reform. Such reform is definitely required, but extremely difficult in an environment where people confuse the need for administrative reform with the hated austerity that has caused real incomes to drop. Reform is even more difficult in Greece because it is the only country I can think of where the so-called political Left is fighting tooth and nail to preserve the status quo – a status quo that has driven the country to bankruptcy. Karl Marx must be turning over in his grave.

However, if one looks beneath the drastic headlines there are a few signs that things are beginning to pick up. If one bothered to look, one would find a number of companies that are doing quite well, thank you. These tend to be smaller companies that are flexible and imaginative enough to find new export markets and cope with a difficult financial situation where suppliers demand cash, insurers increase premiums because of the ‘Greek risk’, and normal working capital loans are scarce or non-existent.

The important tourism sector is showing signs of life as receipts were up more than 15% for the first five months of the year. Officials expect the number of tourists to increase from 16 million in 2012 to 17 million this year. Prices, especially compared to Turkey just across the Aegean, have certainly come down sharply. An article in Turkey’s Hürriyet newspaper on Sunday reported that a meal in a fish restaurant in a small Aegean town starts at about $80 per person. A hamburger will set you back more than $25. And these prices are without any wine or beer whose prices have skyrocketed because of heavy taxes. Prices on the hot spot of Mykonos in Greece may approach this level, but everywhere else we ate was far less expensive. Hotels in central Athens have responded to the crisis by lowering prices and seeing their occupancy rates increase.

Tourists would find even lower prices if they were willing to go farther afield than the usual destinations of Mykonos, Santorini and other locations noted primarily for ear-splitting techno music. The beautiful Sporades islands of Skopelos, Alonissos, or  Trikera offer spectacular scenery unlike any other island I have seen in Greece. Where the usual Aegean island is fairly barren and often short of water, these islands are covered with dense forests that march down to dramatic cliffs plunging into the sea. I was reminded of the coast of Maine in my native New England with one major exception. You can happily dive into the sea surrounding these islands without suffering the threat of cardiac arrest from freezing water.

Alonissos at sunset

Dense forests . . . and the sea is warm
On a more personal note we have just completed major renovation of my wife’s 160-year-old family home. I have never seen better work anywhere – not in the United States and not in Britain. The workers showed up six days a week, on time, worked meticulously, and at the end of each day cleaned up the mess of broken plaster they had removed from the underlying solid stone structure. Old, broken mouldings were beautifully restored. All of this was done with local labour from the island. The contractor told us two years ago the work would take two months. He was only two weeks off because we had to replace more plaster than anticipated, and it took time to dry before we could paint. And the entire project was completed within the budget the contractor set long before the job began. Meanwhile the town had finally completed the job of placing utility cables underground, and we could do away with the web of about 10 different cables that had been attached to the front of the house.

By no means do I wish to suggest that Greece has climbed out of its deep financial hole or that it is happily on its way to functioning like a Scandinavian country where most people pay taxes and bureaucrats actually serve the people instead of the other way around. But there are unmistakable signs of change, however small and fragile at the moment. Anyone willing to look beyond the headlines will be pleasantly rewarded.

Friday, 9 August 2013

The Trials In Turkey Settled Nothing

The long-awaited verdicts in the so-called Ergenekon case against alleged coup plotters in Turkey have finally been handed down. Those convicted of attempting to overthrow the elected government have been given heavy sentences. According to theory Turkey is now free of the threat of yet another military coup and can move happily to the sunny uplands of real democracy. If only.

Zealous prosecutors quickly expanded what began with the discovery of an arms cache in an Istanbul suburb more than five years ago into a broad hunt for any and all potential plotters against the government.  The search for plotters went into all realms of Turkish life and quickly assumed the name Ergenekon – a valley in Central Asia where ancient Turks sought refuge and were guided by the legendary grey wolf who became an important figure in Turkish nationalist mythology. The hunt even went into the hitherto untouchable realm of the army general staff. Indeed one of those sentenced to life imprisonment is the former chief of the general staff.

The net gathered hundreds of suspects who were thrown into jail long before any trial. During the process there were serious questions about prosecutorial misconduct, tainted evidence, and gross procedural errors. Given the tight veil of secrecy that shrouded much of the proceedings the truth of those allegations may never come out until the lengthy appeals process that most assuredly will wind up in a European court of appeals.

Furthermore, as Emma Sinclair-Webb notes in an excellent essay in The International Herald Tribune, the trial did nothing to shed light on the shadowy para-military groups in Turkey that for years have been accused of ruthlessly hunting, torturing and murdering alleged enemies of the State.

The initial effect of the verdicts has been to deepen the already deep social and political divisions in Turkey. Those protesting the verdicts are convinced they are nothing more than vicious revenge and pay back by Turkey’s Islamic-oriented government against the heavy-handed secular pro-Ataturk military/bureaucratic elite that ran the country for decades. Do unto others what they did unto you. Others, equally vociferous if seldom accurate, maintain the verdicts were a case of simple justice – a message that what happened in Egypt will never again happen in Turkey.

Both views miss the point. Even in the hard-to-accept case that all the evidence was valid and the prosecutors didn’t trample over the defendants’ rights nothing fundamental has changed in the relationship of the people vs. The State – the almighty, the sacred Devlet. The only thing that has changed is who wields the Iron Fist. It is hard to say the country has progressed very far along the road of democracy when an illiberal, authoritarian, paranoid military-backed regime is replaced by an illiberal, authoritarian, paranoid Islamic-oriented government that uses the ballot box as effectively as the military uses tanks to silence opponents.

It is the height of irony to hear Prime Minister Tayyip Erdoğan bellow about the alleged death of democracy in Egypt when he himself is doing his very best to squash whatever seeds of real democracy are trying to grow in Turkey. The louder he squawks the more obvious it becomes how little he understands that real democracy involves empowering the individual against the state. Since the wide scale protests in May he has done everything in his power to stifle individual expression and dissent from his unique vision of the national will. Protestors have been beaten and arrested. Those who beat up and even murdered protestors have yet to be found. Police who fired tear gas and chemical-laced water were praised for their ‘brave’ duty. Dozens of journalists who dared to criticize the government’s over-reaction have been fired by owners afraid of a government backlash on their other business interests. Social media not under the government’s direct control have been heavily criticized.

Corporations deemed insufficiently pro-government have been targeted for abusive tax investigations. Professional organizations who dare to question the government’s plans are stripped of their official consulting role. In an incredible example of cutting off your nose to spite your face Erdoğan has ordered that all student loans should be cancelled for anyone who participates or supports the demonstrations. Exactly who is going to propel the Turkish economy upward if not these students who can no longer afford to learn anything??

His nervousness about dissent in any form has also descended to sport. The Beşiktaş football club now wants anyone who buys a ticket to sign a pledge not to engage in or instigate any chanting that might have political overtones. The government must be terrified of a repeat of the scenes during the protests when football supporters from all the major clubs joined the protestors.

The foolishness doesn’t stop there. The State’s intrusion into private lives now includes all women. The prime minister recently re-iterated his call that it is every woman’s duty to have three children.

The basic problem the prime minister has is that a very large part of the young Turkish population is now well educated, well travelled, and well aware of how real democracies operate. They are no longer willing to sit idly and watch their rights trampled. In the long run they will succeed in adjusting the balance of power between the individual and the State. The sooner the prime minister accepts this fact the smoother the transition will be. 

Sunday, 28 July 2013

Only In Turkey

During my many years in Turkey I have witnessed countless instances of weird conspiracy theories, national paranoia, and distrust of any and all foreigners. But an incident reported recently in The Daily Telegraph of London has to take first prize.

Residents of a village in eastern Turkey thought that a kestrel – a fairly large bird of prey – soaring back and forth over their village could be an Israeli spy. Apparently they caught the bird and found that it was wearing a metal band stamped with the words ‘24311 Tel Avivunia Israel.’ The dreaded word Israel was all it took to drive the local spy-catchers into high gear.

The offending bird was frog-marched off to a local hospital where it was promptly registered as an ‘Israeli spy.’ I am not making this up. It was only after intensive medical examination – including X-rays – that the bird was identified as, well, just a bird. There were no microchips or other devices that might transmit vital information about an extremely barren part of Turkey back to the hated Mossad. All in all, I suppose the bird was lucky it wasn’t slapped into an orange jump suit complete with ear muffs and shipped off to Guantanamo.
An Israeli Spy?
I was reminded of my own experience in another small eastern Turkish town many years ago where I was working as a teacher. Because I was foreign, because I spoke a little Turkish, and because I sometimes went to the capital Ankara the locals were convinced I was a foreign agent. The only question was who I was working for – the CIA, the Israeli Mossad, the Russian KGB, or the British MI 6. Every denial on my part only reinforced their conviction. “He would deny it, wouldn’t he?” Finally, a fellow teacher put the issue to rest one evening in the local coffee house. “What in the name of Allah,” he asked “is in this small town that is worth spying on? How many goats you have, Ahmet? Where you hide your tools, Orhan? Is America so rich that it can afford to send people to every small town in the world to find out useless information?” The others had to nod their heads in reluctant agreement, somewhat annoyed that their evening’s entertainment had been taken away.

All of this would be merely humorous if it didn’t reflect the attitude of senior members of the Turkish government today. Prime Minister Tayyip Erdoğan and certain members of the cabinet have been acting ever more erratically while ranting and raving about foreign and domestic conspiracies ever since large scale protests broke out in May. First it was the perfidious, and always useful, foreign agents, who were stirring up trouble. Then it was agents from the opposition political parties. When the stock market and the local currency began to slide then the well known – to the prime minister at least – interest rate lobby – was hard at work undermining the Turkish economy. One cabinet minister pulled out the always useful Jewish conspiracy to explain the economy’s problems. These activities are all part of the larger conspiracy, you see, organized by people who want to slow down Turkey’s growth.

Since taking office more than 10 years ago the prime minister has travelled the world. Unfortunately, he seems to have learned very little on his travels. His guiding principles seem to be the same ones he developed growing up in one of Istanbul’s notoriously tough neighbourhoods – never take a back step, absolutely never apologize, intimidate your opponents by yelling loudly and fiercely. Compromise is not a word he recognizes. He also learned that you never lose votes in Turkey by blaming foreigners for the country’s problems. There was the famous case after the devastating earthquake in 1999 when the nationalist health minister refused to accept foreign blood donations that could dilute ‘pure’ Turkish blood.

The prime minister was furious about an open letter recently published in The Times of London that sharply criticized his violent words and crude police behaviour during recent protests. The letter was signed by luminaries including Sean Penn, Susan Sarandon, Ben Kingsley, the historian David Starkey, and many others. A more rational politician would have shrugged this off and accepted the criticism as the price of being in office. Not Tayyip Erdoğan. He went off the handle accusing dark forces for being behind the letter. Demonstrating his complete ignorance of the concept of freedom of speech he threatened to sue the newspaper. One hopes that cooler heads in Turkey can prevent him from making a complete fool of himself on the international stage.

No one is exempt from the paranoia of the witch hunt against anyone thought to be supporting the protests against him. Doctors, teachers, foreign and domestic journalists, economists, leading Turkish companies, and professional organizations have all been targeted as agents of those who want to undermine Turkey. Even Turkey’s largest company, the Koç Group is not exempt from his fury. Not only is prime minister annoyed at Koç University but he is furious that the group’s Divan Hotel offered shelter to people running away from police tear gas during the demonstrations. Therefore, it came as no great surprise when the group’s refinery Tüpraş was subjected to a surprise tax audit. Only fanatical Erdoğan supporters believe this is a coincidence. And the prime minister wonders why very few people are rushing to invest in Turkey.

Is Turkey's Largest Refiner On The Lengthening 'Enemies' List
Can anyone within the ruling Justice and Development Party (AKP) curb this brutal and damaging abuse of power? Can President Abdüllah Gül curb the prime minister’s behaviour before it undoes everything the AKP has accomplished? Or, more properly, does he want to curb this behaviour? When you take on Tayyip Erdogan you better be ready for a bare knuckle battle. The answer will go a long way to determining Turkey’s near-term future.

Monday, 8 July 2013

What Lessons Will Turkey Take From Egypt?

Sometimes you have to feel sorry for Turkish Prime Minister Tayyip Erdoğan. You really do. He has had a horrible summer so far.

First, many thousands of his own citizens rebelled for days against his own narrow, very limited vision of democracy and his arrogant assumption that he and only he knows what is best for that complex country of almost 80 million people.

Second, and most alarming, his fellow Islamists in Egypt get booted out of power. Days of mass anti-government rallies culminated in the army removing the Moslem Brotherhood government and attempting to install a more professional cadre.
Not everyone voted for the Egyptian president
Erdoğan’s indignation kicked into high gear as he railed against this ‘shocking’ anti-democratic move. He and his henchmen predictably blasted Western nations for not reacting for more forcefully against the coup. To Erdoğan’s people, the Egyptian coup was nothing more than the work of ‘anti-democratic’ forces around the world. They conveniently ignore that there was nothing remotely democratic about the short rule of the Moslem Brotherhood in Egypt. In addition to being administratively incompetent the Brotherhood froze all other elements of Egyptian society out of the governing process. In short, they made it easy for their opponents to drive them from power and forcefully deliver the message that real democracy only begins at the ballot box. The most glaring example of this abuse of ballot box power was Adolf Hitler who was, after all, elected. It didn't take him long, however, to destroy the democracy that brought him to power.

Erdoğan even went so far as to claim that the Moslem Brotherhood government had been undermined by an economic boycott during its short time in power. I have no idea where this groundless claim came from, but once again it shows his complete disregard for any facts. But, as his reactions to the unrest in Turkey show, he will simply make up facts to suit his thundering arguments. When all else fails he and his sycophants can always fall back on the tried and true ‘Jewish, international, financial conspiracy’ theory to explain problems in Turkey and Egypt.

So far he has remained tactfully silent about the support that Saudi Arabia and Qatar have shown for the Egyptian army’s move. We shall also forget for the moment Turkey’s own support for that notorious despot Omar al-Bashir of Sudan (subject of an international arrest warrant for genocide in Darfur) or that Erdoğan himself was the honoured recipient of the Gaddafi International Prize for Human Rights just before that dictator was driven from power.

The backdrop to Erdoğan’s unhappiness about the Egyptian situation is, of course, Turkey’s own history of military intervention.  He is all too familiar with the military justifying its actions by saying it was protecting the secular character of Turkey’s government against inroads by radical Islamists. His answer to this risk was to lock up several leading military figures and throw the key away. As usual he misses the fact that his own democratic credentials were severely dented by jailing hundreds of his opponents for years without the benefit of a trial – which might, after all, show that the charges were false or fabricated in the first place.
No longer a real threat in Turkey
Erdoğan’s erratic and increasingly shrill behaviour just might reflect the looming domestic threats to his own legacy and the collapse of his grand vision of Turkey’s role in the Middle East.

 His ruling Justice and Development Party (AKP) prides itself on Turkey’s rapid economic development during their rule. Up to a point that’s true. But as more and more economists are noting, the wildly touted growth numbers don’t stand up to rigorous analysis. They are good, but not great. Much has been said about the relatively low level of government debt. Again, true as far as it goes. But the government spokesmen never mention the explosion in private sector foreign debt. But most of all, Turkey’s economic performance rests largely on the ephemeral confidence of international investors who provide the $200 billion external financing that the country needs every year. And nothing removes that confidence faster than political unrest coupled with the merest hint of monetary tightening by major central banks. International investors are getting restless and starting to question the wisdom of their Turkish investments. The stock market is down more than 20% since the end of May. The currency has depreciated more than 10% since the beginning of the year and is approaching the once-unthinkable level of 2:1 against the US dollar. As far as the AKP is concerned a weakening economy is far more dangerous to the party’s future than the almost non-existent threat of military intervention à la Egypt.

Not too long ago Turkey’s smug foreign minister Ahmet Davutoğlu was crowing about a resurgent Turkey’s key role in the Middle East as a balance to the deteriorating relations with the European Union. Now Turkey has to look long and hard to find a Middle East ally beyond, of course, Hamas in Gaza. The new rulers of Egypt will hardly appreciate Turkey’s loud support for the deposed Moslem Brotherhood. Wealthy countries like Saudi Arabia and Qatar will continue to support the coup in Egypt regardless of Turkey’s objections. And who can predict how Syria will turn out. Turkey has gambled heavily on the fall of Basher al-Assad who, so far against all odds has avoided the fate of Gaddafi or Mohammed Morsi.

Turkey faces a critical period over the next several months with delicate Kurdish negotiations, possible changes to the constitution, juggling the economy, and meeting the demands of its own people for real democracy and inclusion. Has  the prime minister learned anything from the unrest in his own country as well as Egypt? Will he be able to meet these challenges with something more than his usual bombast and conspiracy theories?

Friday, 21 June 2013

Where Does Turkey Go From Here?

Not very long ago the future of Turkey seemed assured. The country was widely praised for its seemingly strong economy and stable, ‘moderately Islamic’, politics. After a month of nation-wide protests, excessive police reaction, and continued vehemence from the prime minister the country’s future no longer seems so assured.  The social fabric has been badly split, cracks have appeared in the broad coalition of the ruling Justice and Development Party (AKP) coalition,  the long-term well-known (by all except the prime minister) vulnerabilities of the economy have become even more apparent, and the vision of Turkey in the European Union is fading fast.

What happens now? Where does the country go from here? There are several issues, but four come to mind immediately.

1.      The Opposition: The opposition political parties have been handed a huge gift. But, as usual, they have no idea what to do with it. A simple statement along the lines that they offer ‘real’ democracy compared to the ‘so-called’ democracy of Prime Minister Tayyip Erdoğan, that they respect all the different, complex religious and ethnic factions in Turkey, that they will in fact listen to people would go a long way to making the opposition credible. Unfortunately, none of this seems to be happening.

2.      The AKP: Here the situation is more complex. The AKP is a very broad coalition of true believers in Tayyip Erdoğan, more pragmatic members from former conservative political parties, technocrats, and devout Moslems who resented the heavy-handed secular Kemalist bureaucracy of previous decades. Now a gap is opening between the person of Tayyip Erdoğan and the party as a whole. Erdogan enjoys wide support, but there is some question about how deep this support is.There are signs that the pragmatists are getting nervous that the prime minister’s incoherent rants and repression will cost the AKP dearly. 

Prime Minister Tayyip Erdogan In A Familiar Angry Speech

The party risks losing everything it has struggled to gain in the last 10 years. President Abdüllah Gül has expressed this very fear. In his statement “You are risking our gains of 10 years” it was unclear – perhaps on purpose – whether the ‘you’ in that sentence was directed at the protesters or the prime minister. Deputy Prime Minister Bülent Arınç is rumoured to have stormed out of a cabinet meeting after being criticized by Erdoğan for his criticism of the police over reaction. A loyal AKP business owner in central Turkey sent buses filled with his employees to the recent pro-Erdoğan rallies. But he expressed total disgust with the prime minister and was quoted as saying “We will never make him president. He is ruining us.” Even the AKP mayor of Istanbul is backtracking quickly. He now says the people will be consulted over everything from bus stops to park development.

President Abdullah Gul Plays His Hand Carefully
All major political players in the AKP and elsewhere are playing a long game with their eyes on the 2014 elections and developments about the presidency. Everything they say now is nuanced and influenced by their plans for those elections. Erdoğan desperately wants a constitutional change giving the president strong executive powers. It now looks doubtful that such changes will get through parliament. In that case if he still wants the presidency will he be satisfied with the largely ceremonial role? If there is a popular vote for president could he even be elected? A recent poll showed that President Gül is by far the most popular politician in the country. Erdoğan is seen as divisive. Gül is playing his cards very carefully and not saying just what he wants when his term is over – another term as president or perhaps moving to the more powerful position of prime minister.  For the time being he seems content to play the ‘Good Cop’ to Erdoğan’s ‘Bad Cop.’

3.      The Economy: This is Erdoğan’s real Achilles Heel. He continues to rant and rave about ‘foreign plots’ and the so-called ‘interest rate lobby’ working to undermine Turkey’s economy. But the real vulnerability is the very structure of the Turkish economy. It depends entirely on $200 billion per year of foreign investment – and most of this is short term so-called hot money. Since the Federal Reserve indicated a possible end to the quantitative easing program all markets, especially emerging markets, have been hard hit. The Istanbul Stock Exchange dropped more than 18% in the last month, yields on Turkish bonds have increased sharply, and the currency has dropped to an all-time low against the U.S. dollar. It is true that Turkey has been harder hit than most emerging markets, but that has nothing to do with his ridiculous conspiracy theories. These developments have led one anti-AKP economist to predict that ‘They will go as they came” – i.e. on the back of falling economy.

4.      Witch Hunt: The worst part of the prime minister’s furious, vengeful reaction to the protesters is the witch hunt against any who oppose him. University rectors were told to identify any faculty members who joined the protests or encouraged their students to do so. The Koç group, owners of the Divan Hotel, were threatened because protesters sought refuge in the hotel. Bank executives who supported the protests were lectured. State controlled companies withdrew their deposits. Other executives who failed to support Erdoğan suddenly found tax officials on their door step. Even the imam of a mosque was arrested when he failed to back up the prime minister’s outrageous lie that protesters entered the mosque with beer cans. Even after he learned the truth Erdoğan continued to repeat this lie.

It is not yet clear how Turkey will emerge from this turbulence. But what is clear is that the protests that began in small Gezi Park are having a profound, long lasting political, economic, and social impact. It remains to be seen whether Tayyip Erdoğan has the ability to learn anything, or whether he will merely become a footnote in Turkish history.