David O'Byrne in Istanbul -
Despite dire warnings over the past 18 months that the floating interest rates and other "unconventional measures" employed by Turkey's central bank were about to unravel, they appear to have succeeded in bringing about the hoped-for "soft landing" of the Turkish economy.
"We have achieved soft landing but it came with a cost, and that's inflation. But core inflation is coming down, so inflation is on a downward trend," Turalay Kenc, deputy governor of the Central Bank of the Republic of Turkey, told an investor conference in Prague on November 28.
GDP growth for the year is expected to settle at 3.2% - low by Turkish standards but a creditable performance given that with Turkey's western neighbours in the Eurozone are slated to experience a -0.3% contraction. Now with an upgraded credit rating and the promise of a loosening of global liquidity, Turkey can reasonably expect an increase of capital inflows and accelerated growth.
Official projections indicate GDP growth rising to 4% in 2013 and 5% the following year, which again compares well with the Eurozone where the most optimistic projections foresee growth reaching only 1%. Projections for inflation are equally optimistic with official figures anticipating a fall from 7.4% this year to 5.3% in 2013 and 5% the following year.
The challenge for Ankara will be to manage that growth effectively without allowing the economy to overheat and spark a rise in inflation or cause any worsening of the current account deficit - which will continue to be an issue requiring careful attention.
With no major oil or gas reserves of its own, Turkey will continue to be a major importer of both, with the result that energy is set to remain the single largest contributor to the current account deficit for the foreseeable future.
Efforts to make use of domestic resources, such as reserves of lignite, as well as hydro, wind and solar power potential will continue to gather pace.
A long-awaited project to exploit Turkey's huge Afsin-Elbistan lignite field is expected to get the go ahead, which will eventually meet over 5% of Turkey's power needs. Construction of Turkey's first nuclear plant at Akkuyu in southern Turkey is expected to start by the end of 2013, with a long-anticipated deal for a second plant also expected to be concluded.
However, with both major lignite projects and nuclear plant taking some years to construct, Turkey will continue to rely heavily on imported gas for power. And with demand close approaching Turkey's current import portfolio limit of 51.8bn cubic metres a year (cm/y), efforts are underway to identify new sources.
State gas importer Botas is expected to be authorised to import up to 6bn cm/y of spot liquefied natural gas (LNG) and there is talk of new deals to bring gas from the Kurdistan region of Iraq. The region is expected to be producing between 15bn-20bn cm/y by 2017, of which much will be available for export. With no other regional markets, Turkey is expected to benefit both from cheap gas and from the opportunity to transit the gas further afield, and plans are also afoot to allow direct oil export from the region. Such moves will inevitably further worsen relations with Baghdad, but with the Kurdish Regional Government desperate to generate its own hydrocarbon revenues, it may produce an added bonus in helping end the 30-year insurrection inside Turkey by the Kurdistan Workers party (PKK).
Meanwhile, privatisation of Turkey's state power companies is expected to continue. The sale of the last five regional power distributors is slated to be completed by mid-2013. Tenders for the bulk of the state-owned power plants is expected next year too, although delays to concluding tenders for the sale of the first four suggests that many will be hard to sell.
And following the successful offering of 25% in state-owned Halk Bank in November, officials have already indicated that they have begun moves for a similar offering of shares in Ziraat bank - Turkey's biggest bank by assets. Separately, the banking regulator has signalled that it is open to issuing banking licenses to as many as 11 international institutions that want to start operations in Turkey, having already received applications from Italy's Intesa and Japan's Bank Mitsubishi, as well as expressions of interest from China, South Korea and the Netherlands.
Rocking the boat?
Ironically, just as the Turkish and global economies appear set to rebound, Turkey also appears set for a return of political uncertainty.
With the Justice and Development Party (AKP) now in its third term in power, the majority of senior ministers, Prime Minister Recep Tayyip Erdogan included, are obliged to abide by party rules limiting them to three terms in parliament. Welcomed a decade ago as the perfect antidote to Turkey's perennial problem of party leaders clinging to power way past their sell by date, the rule now appears to risk breaking up a winning team simply for the sake of it. More worryingly, at Erdogan's bidding, the AKP is working to change the constitution to give the president executive powers, when the seven-year term of the current president Abdullah Gul ends in 2014.
As the president is elected by parliament and not by popular vote, it is expected that this change will allow Erdogan to be elected president and remain in charge without breaching AKP rules, and without any of his current senior ministers and possible challengers in parliament.
Constitutional changes require a two-thirds vote in parliament, so even with Turkey's perennially weak opposition there is no certainty of the change being adopted, but it has already sparked rumours of a possible split in the AKP and over a possible return to active politics by President Gul when his term ends.
Most pointedly, critics have noted the irony of Turkey adopting a presidential system at the behest of a strong leader who has already enjoyed a decade in power, at the very time when Turkey's Muslim neighbours in the Arab world have been overthrowing their own atrophied presidential incumbents, and looking to Turkey as a model of an Islamic country with a functioning parliamentary democracy.
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