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Turkish financial crisis adds to region’s chaos

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More than coincidence accounts for the visit to Iran by Turkish Prime Minister Recep Tayyip Erdogan on January 28, the same day that his economic policy collapsed in a most humiliating way.

As the Turkish lira collapsed to levels that threatened to bankrupt many Turkish companies, the country’s central bank raised interest rates, ignoring Erdogan’s longstanding pledge to keep interest rates low and his almost-daily denunciation of an “interest rate lobby” that sought to bring down the Turkish economy. Erdogan’s prestige was founded on Turkey’s supposed economic miracle.

Hailed as”the next superpower” by John Feffer of the Institute for Policy Studies, and as “Europe’s BRIC” by The Economist, Turkey has become the Sick Man of the Middle East. It now appears as a stock character in the comic-opera of Third World economics: a corrupt dictatorship that bought popularity through debt accumulation and cronyism, and now is suffering the same kind of economic hangover that hit Latin America during the 1980s.

That is not how Erdogan sees the matter, to be sure: for months he has denounced the “interest rate lobby”. Writes the Hurriyet Daily News columnist Emre Deliveli, “He did not specify who the members of this lobby were, so I had to resort to pro-government newspapers. According to articles in a daily owned by the conglomerate where the PM’s son-in-law is CEO, the lobby is a coalition of Jewish financiers associated with both Opus Dei and Illuminati. It seems the two sworn enemies have put aside their differences to ruin Turkey.”

US President Barack Obama told an interviewer in 2012 that Erdogan was one of his five closest overseas friends, on par with the leaders of Britain, Germany, South Korea and India. Full disclosure: as the Jewish banker who has been most aggressive in forecasting Turkey’s crisis during the past two years, I have had no contact with Opus Dei on this matter, much less the mythical Illuminati.

Erdogan was always a loose cannon. Now he has become unmoored. Paranoia is endemic in Turkish politics because so much of it is founded on conspiracy. The expression “paranoid Turk” is a pleonasm. Islamist followers of the self-styled prophet Fetullah Gulen infiltrated the security services and helped Erdogan jail some of the country’s top military commanders on dubious allegations of a coup plot. Last August a Turkish court sentenced some 275 alleged members of the “Ergenekon” coup plot, including dozens of military officers, journalists, and secular leaders of civil society.

Now Gulen has broken with Erdogan and his security apparatus has uncovered massive documentation of corruption in the Erdogan administration. Erdogan is firing police and security officials as fast as they arrest his cronies.

There is a world difference, though, between a prosperous paranoid and an impecunious one. Turkey cannot fund its enormous current borrowing needs without offering interest rates so high that they will pop the construction-and-consumer bubble that masqueraded for a Turkish economic miracle during the past few years.

The conspiracy of international bankers, Opus Dei and Illuminati that rages in Erdogan’s Anatolian imagination has triumphed, and the aggrieved prime minister will not go quietly. As Erdogan abhors old allies who in his imagined betrayed him and seeks new ones, the situation will get worse.

One of the worst ideas that ever occurred to Western planners was the hope that Turkey would provide a pillar of stability in an otherwise chaotic region, a prosperous Muslim democracy that would set an example to anti-authoritarian movements. The opposite has occurred: Erdogan’s Turkey is not a source of stability but a spoiler allied to the most destructive and anti-Western forces in the region.

It seems unlikely that the central bank’s belated rate increase will forestall further devaluation of the lira. With inflation at 7.4% and rising, the central bank’s 10% reference rate offers only a modest premium above the inflation rate. About two-fifths of Turkey’s corporate debt is denominated in foreign currency, and the lira’s decline translates into higher debt service costs. Turkey is likely to get the worst of both worlds, namely higher local interest rate and a weaker currency.

Now Erdogan’s Cave of Wonders has sunk back into the sand. Few analysts asked how Turkey managed to sustain a current account deficit that ranged between 8% and 10% of gross domestic product during the past three years, as bad as the Greek deficit during the years before its financial collapse in 2011.

The likely answer is that Turkey drew on vast amounts of credit from Saudi and other Gulf state banks, with strategic as well as financial motives. Data from the Bank for International Settlements show that Turkey financed a large part of its enormous deficit through the interbank market, that is, through short-term loans to Turkish banks from other banks.

Western banks report no such exposure to Turkey; the Gulf banks do not report regional exposure, and anecdotal evidence suggests that Sunni solidarity had something to do with the Gulf states’ willingness to take on Turkish exposure.

Relations between Turkey and the Gulf States are now in shambles. Saudi Arabia abhors the Muslim Brotherhood, which wants to replace the old Arab monarchies with Islamist regimes founded on modern totalitarian parties, while Erdogan embraced the Brotherhood. The Saudis are the main source of financial support for Egypt’s military government, while Ankara has denounced the military’s suppression of the Muslim Brotherhood.

Whether the Gulf States simply ran out of patience or resources to support Erdogan’s credit binge, or whether their displeasure at Turkey’s misbehavior persuaded them to withdraw support, is hard to discern. Both factors probably were at work. In either case, Erdogan’s rancor at Saudi Arabia has brought him closer to Teheran.

Turkey should have restricted credit growth and raised interest rates to reduce its current account deficit while it still had time. Erdogan, though, did the opposite: Turkish banks increased their rate of lending while reducing interest rates to businesses and consumers.

Given the country’s enormous current account deficit, this constituted irresponsibility in the extreme. Erdogan evidently thought that his mandate depended on cheap and abundant credit. The credit bubble fed construction, where employment nearly doubled between 2009 and 2013. Construction jobs increased through 2013, after manufacturing and retail employment already had begun to shrink.

I predicted the end of Erdogan’s supposed economic miracle in the Winter 2012 edition of Middle East Quarterly, comparing Erdogan’s boomlet to the Latin American blowouts of the 1990s:

In some respects, Erdogan’s bubble recalls the experiences of Argentina in 2000 and Mexico in 1994 where surging external debt produced short-lived bubbles of prosperity, followed by currency devaluations and deep slumps. Both Latin American governments bought popularity by providing cheap consumer credit as did Erdogan in the months leading up to the June 2011 national election. Argentina defaulted on its $132 billion public debt, and its economy contracted by 10 percent in real terms in 2002. Mexico ran a current account deficit equal to 8 percent of GDP in 1993, framing the 1994 peso devaluation and a subsequent 10 percent decline in consumption.

In the meantime, Turkey has entered a perfect storm. As its currency plunges, import costs soar, which means that a current account of 8% of GDP will shortly turn into 10% to 12% of GDP – unless the country stops importing, which means a drastic fall in economic activity. As its currency falls, its cost of borrowing jumps, which means that the cost of servicing existing debt will compound its current financing requirements. The only cure for Erdogan’s debt addiction, to borrow a phrase, is cold turkey.

The vicious cycle will end when valuations are sufficiently low and the government is sufficiently cooperative to sell assets at low prices to foreign investors, and when Turkish workers accept lower wages to produce products for export.

One might envision a viable economic future for Turkey as the terminus on the “New Silk Road” that China proposes to build across Central Asia, with high-speed rail stretching from Beijing to Istanbul. Chinese manufacturers might ship container loads of components to Turkey for assembly and transshipment to the European and Middle Eastern markets, and European as well as Asian firms might build better factors in Turkey for export to China. Contrary to conventional wisdom, Turkey’s path to Europe lies not through Brussels but through Beijing.

That is Turkey’s future, but as the old joke goes, it can’t get there from here.

Turkey has a small but highly competent professional class trained at a handful of good universities, but the Erdogan regime – the so-called “Anatolian tigers” – have disenfranchised them in favor of Third World corruption and cronyism. The secular parties that bear the faded inheritance of Kemal Ataturk lack credibility. They are tainted by years of dirty war against the Kurds, of collusion with military repression, and their own proclivity towards a paranoid form of nationalism.

Erdogan’s AKP is a patronage organization that has run out of cash and credit, and its fate is unclear. The highly influential Gulen organization has a big voice, including the Zaman media chain, but no political network on the ground.

No replacement for Erdogan stands in the wings, and the embattled prime minister will flail in all directions until the local elections on March 30.

The last thing to expect from Erdogan is a coherent policy response. On the contrary, the former Anatolian villager thrives on contradiction, the better to keep his adversaries guessing.

Turkish policy has flailed in every direction during recent weeks. Erdogan’s Iran visit reportedly focused on Syria, where Turkey has been engaged in a proxy war with Iran’s ally Basher al-Assad. Ankara’s support for Syrian rebels dominated by al-Qaeda jihadists appears to have increased; in early January Turkish police stopped a Turkish truck headed for Syria, and Turkish intelligence agents seized it from the police. Allegedly the truck contained weapons sent by the IHH Foundation, the same group that sent the Mavi Marmara to Gaza in 2010. The Turkish opposition claims that the regime is backing al-Qaeda in Syria. One can only imagine what Erdogan discussed with his Iranian hosts.

Some 4,500 Turks reportedly are fighting alongside 14,000 Chechnyans and a total of 75,000 foreign fighters on the al-Qaeda side in Syria. Ankara’s generosity to the Syrian jihadists is a threat to Russia, which has to contend with terrorists from the Caucasus, as well as Azerbaijan, where terrorists are infiltrating through Turkish territory from Syria. Russia’s generally cordial relations with Turkey were premised on Turkish help in suppressing Muslim terrorism in the Caucasus. There is a substantial Chechnyan Diaspora in Turkey, aided by Turkish Islamists, and Moscow has remonstrated with Turkey on occasion about its tolerance or even encouragement of Caucasian terrorists.

I doubt that Erdogan has any grand plan in the back of his mind. On the contrary: having attempted to manipulate everyone in the region, he has no friends left. But he is in a tight spot, and in full paranoid fury about perceived plots against him. The likelihood is that he will lean increasingly on his own hard core, that is, the most extreme elements in his own movement.

Erdogan has been in what might be called a pre-apocalyptic mood for some time. The long term has looked grim for some time, on demographic grounds: a generation from now, half of all military-age men in Turkey will hail from homes where Kurdish is the first language. “If we continue the existing [fertility] trend, 2038 will mark disaster for us,” he warned in a May 10, 2010, speech reported by the Daily Zaman.

But disaster already has arrived. In some ways Turkey’s decline is more dangerous than the Syrian civil war, or the low-intensity civil conflict in Iraq or Egypt. Turkey held the North Atlantic Treaty Organization’s eastern flank for more than six decades, and all parties in the region – including Russia – counted on Turkey to help maintain regional stability. Turkey no longer contributes to crisis management. It is another crisis to be managed.

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Israeli contrasts: Likud’s favoured soccer teams veers left as Bibi turns further right

Dr. James M. Dorsey

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The contrast could not be starker. As Israel plays a dangerous game of US politics by restricting or banning visits by controversial Democratic members of Congress to seemingly please President Donald J. Trump’s prejudiced electoral instincts, the owner of a notorious Jerusalem soccer club draws a line in the sand in confronting his racist fan base.

The contrast takes on added significance as prime minister Benyamin Netanyahu woes Israel’s far-right in advance of elections on September 17 given that storied club Beitar Jerusalem has long been seen as a stronghold for his Likud party.

Mr. Netanyahu’s barring of Congresswomen Rashida Tlaib and Ilhan Omar was as much a response to Mr. Trump’s tweeted suggestion that they should not be allowed to visit Israel as it was catering to his right-wing base that includes Beitar’s fans.

Beitar is the only Israeli squad to have never hired a Palestinian player. Its fans, famous for their racist slogans and bullying tactics, have made life impossible for the few Muslim players that the club contracted in its history.

Messrs. Netanyahu and Moshe Hogeg, the Beitar owner and tech entrepreneur who founded social mobile photo and video sharing website Mobli and crypto transactions platform Sirin Labs, are both treading on slippery ground.

Mr. Netanyahu, who initially raised out of respect for the US Congress no objection to the planned visit by Ms. Tlaib and Ms. Omar, has ensured that Israel for the first time in decades can no longer be sure of bi-partisan support in the Congress and beyond and is likely to become a partisan issue in the run-up to next year’s US presidential election.

His pandering to Mr. Trump sparked rare criticism from the American Israel Political Action Committee (AIPAC), Israel’s most powerful and influential lobby in the United States even though AIPAC agrees that Ms. Tlaib and Ms. Ilham support the Boycott, Diversification and Sanctions (BDS) movement that targets Israel.

“We disagree with Reps. Omar and Tlaib’s support for the anti-Israel and anti-peace BDS movement, along with Rep. Tlaib’s calls for a one-state solution. We also believe every member of Congress should be able to visit and experience our democratic ally Israel first hand,” AIPAC tweeted.

A breakdown of bi-partisan support for Israel may not be what Mr. Netanyahu wants, but it may be, in a twist of irony, what Israel needs. It would spark a debate in the United States with a potential fallout in Israel about whether Mr. Netanyahu’s annexationist policy and hard-line approach towards Palestinian aspirations serves Israel’s longer-term best interests.

Israel’s toughening stand was evident on Tuesday when police broke up an annual soccer tournament among Palestinian families in East Jerusalem on assertions that it was sponsored by the Palestinian Authority, which is barred from organizing events in the city. The tournament’s organizer denied any association with the Authority.

In a dismissive statement, Israeli public security minister Gilad Erdan’s office scoffed: “We’re talking about scofflaws who lie and blame the agency that enforces the law when they know full well that the Palestinian Authority is involved in the event that Minister Erdan ordered halted.”

The incident was emblematic of an environment that prompted columnist and scholar Peter Beinart, writing in The Forward, a more than 100-year old, left-wing Jewish weekly, to argue that “the United States has a national interest in ensuring that Israel does not make permanent its brutal occupation of the West Bank and blockade of the Gaza Strip.

By taking on La Familia, a militant Beitar Jerusalem fan group that has driven the club’s discriminatory policy, Mr. Hogeg is going not only against Mr. Netanyahu’s policies that emphasize Israeli Jewish nationalism at the expense of the rights of Palestinians with Israeli citizenship as well as those subject to occupation.

He is also challenging a global trend spearheaded by civilizational leaders like Indian prime minister Narendra Modi who, two weeks after depriving Kashmiri Muslims of their autonomy, is planning to build detention camps for millions of predominantly Muslim Indians suspected of being foreign migrants, Victor Orban who envisions a Muslim-free Hungary, and Xi Jinping who has launched in China’s troubled, north-western province of Xinjiang the most frontal assault on Islam in recent history

The degree of polarization and alienation that civilizational policies like those of Messrs Netanyahu, Modi, Xi and Orban is highlighted by the fact that Mr. Hogeg’s battle with his fans is over a name.

Ali Mohammed is Beitar Jerusalem’s latest acquisition. The only Muslim thing about him is his name. Mr. Mohammed is a Nigerian Christian.

That wasn’t good enough for the fans who demand that he change his name. During Mr. Mohammed’s first training session fans chanted “Mohamed is dead” and “Ali is dead.”

Unlike his predecessors, Mr. Hogeg seems unwilling to back down. He has threatened to sue the fans for tarnishing Beitar’s already battered reputation and demand up to US$500,000 in damages. Lawyers for Mr. Hogeg have written to fans demanding an apology.

“They are very good fans; they are very loyal. They love the club and what it represents … but they’re racist and that’s a big problem,” Mr. Hogeg said.

Convinced that the militants are a minority that imposes its will on the majority of Beitar fans, Mr. Hogeg takes the high road at a time that the likes of him threaten to become an endangered species.

“I was surprised to find that Mohamed is not Muslim, but I don’t care. Why should it matter? He’s a very good player. As long as the player that comes respects the city, respects what he represents, respects Israel, can help the team and wants to play then the door will be open. If those radical fans will fight against it, they will lose. They will simply lose,” Mr. Hogeg said.

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“Today Saudi Arabia finally lost the war on Yemen.”

Eric Zuesse

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On August 17th, an anonymous German intelligence analyst who has perhaps the world’s best track-record of publicly identifying and announcing historical turning-points, and who is therefore also a great investigative journalist regarding international relations (especially military matters, which are his specialty) headlined at his “Moon of Alabama” blog, “Long Range Attack On Saudi Oil Field Ends War On Yemen”, and he opened:

Today Saudi Arabia finally lost the war on Yemen. It has no defenses against new weapons the Houthis in Yemen acquired. These weapons threaten the Saudis economic lifelines. This today was the decisive attack:

Drones launched by Yemen’s Houthi rebels attacked a massive oil and gas field deep inside Saudi Arabia’s sprawling desert on Saturday, causing what the kingdom described as a “limited fire” in the second such recent attack on its crucial energy industry.  …

The Saudi acknowledgement of the attack came hours after Yahia Sarie, a military spokesman for the Houthis, issued a video statement claiming the rebels launched 10 bomb-laden drones targeting the field in their “biggest-ever” operation. He threatened more attacks would be coming. 

New drones and missiles displayed in July 2019 by Yemen’s Houthi-allied armed forces

Today’s attack is a check-mate move against the Saudis. Shaybah is some 1,200 kilometers (750 miles) from Houthi-controlled territory. There are many more important economic targets within that range.  …

The attack conclusively demonstrates that the most important assets of the Saudis are now under threat. This economic threat comes on top of a seven percent budget deficit the IMF predicts for Saudi Arabia. Further Saudi bombing against the Houthi will now have very significant additional cost that might even endanger the viability of the Saudi state. The Houthi have clown prince Mohammad bin Salman by the balls and can squeeze those at will.

He went on to say that the drones aren’t from Iran but are copies from Iran’s, “assembled in Yemen with the help of Hizbullah experts from Lebanon.”

He has been predicting for a long time that this war couldn’t be won by Crown Prince Mohammed bin Salman al-Saud (MbS). In the present report, he says:

The war on Yemen that MbS started in March 2015 long proved to be unwinnable. Now it is definitely lost. Neither the U.S. nor the Europeans will come to the Saudis help. There are no technological means to reasonably protect against such attacks. Poor Yemen defeated rich Saudi Arabia.

The Saudi side will have to agree to political peace negotiations. The Yemeni demand for reparation payments will be eye watering. But the Saudis will have no alternative but to cough up whatever the Houthi demand.

The UAE was smart to pull out of Yemen during the last months.

If he is correct (and I have never yet found a prediction from him turn out to have been wrong), then this will be an enormous blow to the foreign markets for U.S.-made weapons, since the Sauds are the world’s largest foreign purchasers of those, and have spent profusely on them — and also on U.S. personnel to train their soldiers how to use them. So (and this is my prediction, not his), August 19th might be a good time to sell short U.S. armament-makers such as Lockheed Martin.

However: his prediction that “the Saudis will have no alternative but to cough up whatever the Houthi demand” seems to me to be the first one from him that could turn out to have been wrong. If the Sauds have perpetrated, say, $200 billion of physical damage to Yemen, but refuse to pay more than $100 billion in reparations, and the Housis then hit and take out a major Saudi oil well, isn’t it possible that the Sauds would stand firm? But if they do, then mightn’t it be wrong to say, at the present time, that: “Today Saudi Arabia finally lost the war on Yemen.”? He has gone out on limbs before, and I can’t yet think of any that broke under him. Maybe this one will be the first? I wouldn’t bet on that. But this one seems to me to be a particularly long limb. We’ll see!

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The message behind the release of Iranian oil tanker

Mohammad Ghaderi

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The Gibraltar court ordered the Iranian oil tanker Grace 1 to be released. The tanker was seized by the British Royal Marines about a month ago. 

This verdict was the ending of an elaborate game designed by John Bolton National Security Advisor of the United States and Mike Pompeo, carried out by the Britain government. 

With seizing the tanker, Bolton was trying to put psychological and political pressures on Iran and force other countries to form a consensus against Iran, but he couldn’t fulfill any of these goals. 

Iran’s firm, logical and wise answer to the seizure of Grace 1 (like making solid legal arguments) and the seriousness of our country’s armed forces in giving a proper response to Britain’s contemptuous act, made the White House lose the lead on reaching its ends. 

Washington imagined that the seizure of Grace 1 will become Trump’s winning card against Iran, but the release of the tanker (despite disagreement of the U.S.) became another failure for the White House in dealing with Iran.  

Obviously, London was also a total loser in this game. It is worth noting that U.S. was so persistent about keeping the oil tanker in custody that John Bolton traveled to London and insisted on British officials to continue the seizure of the ship. Their failure, however, clearly shows that the White House and its traditional ally, Britain, have lost a big part of their power in their relations with Iran. 

Clearly, the illegal seizure of the Iranian oil tanker by Britain proceeded by the seizure of a British tanker by Iran and the following interactions between the two countries is not the whole story and there is more to it that will be revealed in coming days. 

What we know for sure is that London has to pay for its recent anti-Iran plot in order to satisfy Washington; the smallest of these consequences was that Britain lost some of its legal credibility in international arena as it illegally captured an Iranian oil tanker. 

The order of the Gibraltarian court revealed that London had no legal right to seize the Iranian oil tanker and nobody can defend this unlawful action. Surely, Iran will take all necessary legal actions to further pursue the matter.  

In this situation, the Islamic Republic of Iran is firm on its position that it doesn’t have to follow the sanctions imposed by the European Union on other countries (including Syria). 

No entity can undermine this argument as it is based on legal terms; therefore, Iran will keep supporting Syrian nation and government to fight terrorism. This is the strategic policy of the Islamic Republic and will not be changed under the pressure or influence of any other third country. 

Finally, it should be noted that the release of Grace 1 oil tanker was not only a legal and political failure for Washington and London and their allies but it was also a strategic failure. Undoubtedly, the vast consequences of this failure will be revealed in near future. 

From our partner Tehran Times

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