Agostina da Cunha in Istanbul -

Turkey might seem an unlikely spot to seek shelter from the global financial storm, but, curiously, this historically crisis-prone country does seem to offer some protection.

Military coups, earthquakes and crises, both economical and political, have plagued Turkey since the inception of the republic - the country is consistently erratic. Turks manage their lives in a state of virtual permanent crisis, whether caused by force majeur, or, as is more often the case, self inflicted. How then, in a time of unprecedented economic turmoil, can the Turks remain so sanguine?

Whilst most Turks are sceptical when their prime minister, Recep Tayyip Erdogan, insists the country won't be affected to any great extent by the credit crisis, they nevertheless delight in the fact that this crisis at least is not of their own making and that their banking sector stands solid while the giants of global finance crumble.

This stability is owed in part to the devastation caused by the previous financial crisis to hit Turkey in 2001, which blew away half of Turkey's banks and sent the government pleading for funds from the International Monetary Fund. The subsequent adjustment plan, backed by a rare period of political stability, imposed a reform of the banking sector, put an end to rampant inflation and brought interest rates down to more sustainable levels. Six zeros were knocked off the Turkish lira and, for the past five years, the country has enjoyed a period of unprecedented economic growth.

"In 2001, Turkey took the antidote and was immunised from further financial crisis," argues Dr. Gurman Tevfik, CEO of Is Asset management, who might be considered a guru since publishing an article in October 2007 prophesising a global crisis comparable to that of 1929, claiming that: "Hedge funds will bring the world to the brink of disaster."

Tevfik considers that there are two fundamental anchors on which this stability depends. One is the aforementioned IMF, with whom Turkey is on the cusp of signing a new adjustment loan; the other is Turkey's EU accession, whose meandering path provides just enough hope for investors to believe that one day Turkey will at last become a full member of the bloc. The first is the stick that guarantees financial and fiscal discipline; the second is the carrot. Combine this with Turkey's very promising demographics, and the long term actually looks quite promising.

Most of the factors that originally triggered the crisis in 2001 are absent from today's Turkey. Mortgages have only very recently been introduced and their levels are minimal, Turkey has no hedge funds and its investment banks are relatively small, the consumer debt/GDP ratio is only 12.5% (as opposed to just over 100% in the US), and most of the private sector foreign-currency loans (accounting for around $140bn) were invested in production rather than used as financial leverage. "Turkish banks do not have worrying long- or short-term FX positions and hold few toxic assets. This is ensured by our regulations," insists Tevfik.

Practice makes perfect

As far as Turkey's banks are concerned, his theory seems to be holding up. The real economy, though, is certainly feeling the pinch. According to the Turkish Board of Statistics, consumer confidence fell by 8% in October, whilst unemployment crept up in August to 9.8% from 9.2% a year ago. Exports are expected to suffer as Turkey's main trading partners slip into recession, but a drop in fuel prices will offer some help in reducing the current account deficit.

The ever-volatile Istanbul Stock Exchange (ISE) has plummeted as foreign investors repatriated funds to cover losses elsewhere, but in their haste they may have left some bargains behind them. For now at least, foreign investment looks set to slow, thus the necessity of remaining firmly attached to the anchor that's the IMF's adjustment plan in order to ensure finance for the public sector debt, particularly at a time when local elections tempt those in power to indulge in popular largesse. But with bargains to be had on the ISE, very attractive interest rates for the Turkish lira and promising privatisations on the horizon, foreign capital might yet be tempted back into the country. "Today is nothing compared with 2001!" declares Mustafa Alper, secretary-general of Turkey's International Investors Association. "It's a good time now for investors, a good time to start."

If experience leads to expertise and if practice makes perfect, then years of experience in crisis management and dealing with disaster might just allow Turkey to weather the storm better than most.

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