BOSPORUS BLOG: A thin-skinned Turkey

By bne IntelliNews May 25, 2012

bne -

If you were the Turkish prime minister, you'd probably be used to dealing with a little criticism now and again. But the famously prickly and thin-skinned Recep Tayyip Erdogan just can't seem to stop himself reacting badly to outside criticism, which in May came from Standard and Poor's (S&P) and Amnesty International.

In May, S&P revised down its outlook for the country's sovereign credit rating, due largely to concerns over its persistent current account deficit, which is about 10% of GDP, and the effect of a slowdown in the Eurozone. "Less-buoyant external demand and worsening terms of trade - the price of exports compared to imports - have, in our view, made economic rebalancing more difficult, and have increased the risks to Turkey's creditworthiness given its high external debt and the state budget's reliance on indirect tax revenues," S&P said in a statement.

Ever combative, Erdogan responded by suggesting he would cancel the country's contract with S&P and establish Turkey's own rating agency. Credit raters have become a political force, Erdogan says, and their pronouncements hinder growth. "We have protected the economy from the waves of the financial crisis. The banks only suffered a small adverse effect from the financial crisis," Erdogan says. "Our reaction to the crisis with a stimulus package should serve as an example to all countries. It is still our ambition to be one of the world's top-10 economies within a matter of years."

The distaste for S&P and other rating agencies is tied to their unwillingness to give Turkey investment-grade status, despite the country's robust economy, which grew 8.5% in 2011. Erdogan aims for Turkey to be among the world's top-10 economies by 2023, the centennial of the country's founding, and such actions from the rating agencies are not helping.

Compared to most of Europe, at least Turkey is experiencing growth, goes the thinking in Ankara, and Turkey succeeded in attracting $13.4bn in net foreign direct investment in 2011, from both west and east. "At least 25 private equity firms from the MENA [Middle East and North Africa] region are looking at deals in Turkey," Imad Ghandour, managing director of CedarBridge Capital and co-founder of the Mena Private Equity Association recently told Reuters. "Turkey offers two things: stability and well-diversified deal flows from agriculture to financial services, education and healthcare."

Though S&P has made clear it is not going to give Turkey investment grade status in the next 12 months and Turkey will in all likelihood experience slower growth in 2012, this is unlikely to dissuade investors, argue many. An incentive package, budget initiatives, a raft of privatisations and a restructuring of the energy sector are all in the works.

No Amnesty

The 2012 Amnesty International report on Turkey is a more serious business. "Promised constitutional and other legal reforms did not occur," Amnesty writes. "Instead, the right to freedom of expression was threatened and protesters faced increased police violence. Thousands of prosecutions brought under flawed anti-terrorism laws routinely failed fair trial standards. Bomb attacks claimed the lives of civilians. No progress was made in recognizing the right to conscientious objection or in protecting the rights of children in the judicial system.

The past months have certainly been bad for human rights and freedom of expression in Turkey. More comparisons are being made to the repressive 1990s than at any time since the current period of relative tranquility and openness began. The continued arrests of journalists and opposition members, on often-scant evidence, mar Turkey's international prestige. Yet Turkey knows that its main western ally, the Obama administration, will not make an issue of these violations. Turkey is the most important US ally in the region and paints its 30-year fight against Kurdish militants as state vs. terrorism, a claim few Western powers dispute.

The US Congress, however, remains sceptical of Turkey, questioning the administration's close links and remaining hesitant to sell military drones to Turkey to fight Kurdish militants. The December 2011 bombing of 38 Kurdish civilians who were mistakenly identified as militants crossing the border from northern Iraq raises significant questions about Turkey's commitment to human rights and military decision-making. "I wish we could have made better progress in the field of human rights and I wish these kinds of objective reports were taken more seriously by the authorities in Turkey," Today's Zaman columnist Orhan Kemal Cengiz writes.

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