The Turkish government has adopted a two-pronged strategy to deal with the longstanding Kurdish problem: on the field, it is battering the PKK guerillas, and tightening the screw on the pro-Kurdish HDP party; while at the same it is trying to win the hearts and minds of the Kurds by promising more jobs and better living conditions. 

This month it announced an ambitious TRY140bn (€42.5bn) investment package to make the country’s war-torn and largely Kurdish southeastern provinces look more attractive to investors, and to end the decades-long violence by improving the lives of millions living there.

But it’s the old chicken-egg question: Will companies invest there when violence stops or will violence stop when investors start to come?

The government unveiled the scheme at a time when the Kurdistan Workers’ Party (PKK) is ramping up its attacks on security forces and the Turkish military is carrying out an operation in northern Syria, fighting against both Islamic State and the Kurdish YPG fighters there.

The government has also vowed to punish mayors from the HDP suspected of providing financial assistance to terrorists. A recent decree published in the official gazette gives the government the authority to replace mayors, deputy mayors and councillors, who are charged with terror-related crimes. Selahattin Demirtas, co-chair of the HDP, called on his supporters to resist any move by the government to replace elected mayors, adding more fuel to the already explosive situation in the southeast.

Turkey’s Kurdish conflict is at an impasse: Previous governments had failed to end the violence there by military means, while the PKK knows well that it cannot beat the Turkish army, Nato’s second largest.

The outlawed organisation is now trying to force the current government to return to the negotiating table by escalating violence. Last week, nearly 20 soldiers lost their lives in just 48 hours in clashes and the military said it killed more than 100 PKK militants in a single day.

The PKK started a war against the Turkish state in 1984 that has since claimed the lives of more than 30,000 people. Previous governments had tried everything possible – including military incursions into northern Iraq, the PKK’s stronghold – to stop the insurgency, only to see that military means were ineffective as the PKK kept recruiting new people to its ranks from the poor southeastern provinces. Even the capture of Abdullah Ocalan, the leader of the PKK, in 1998 in Kenya couldn’t stop the violence.

It later emerged that the AKP government was holding secret meetings with Ocalan in the Imrali Island, where he is kept in isolation, and with other senior PKK officials in Europe. These talks were part of the government’s peace initiative, aimed at finding a non-military solution to the conflict. During this period, violence fell.

The government did not officially admit holding secret talks but instead said it was pursuing a strategy that would give more rights to the Kurds. The public was supportive of the government initiative.

But after the June 2014 elections when the AKP lost its majority in parliament the situation changed: a two-year ceasefire collapsed and violence worsened. The government declared around-the-clock curfews in a number of cities where security forces clashed with PKK militants, marking a shift in the nature of the conflict. In the previous years, clashes had mainly taken place in rural areas of the country’s southeast, but now security forces were countering militants in the cities. Clashes in urban areas were directly affecting the millions of locals. People left towns and cities, fleeing violence.

Fuelling tensions

The government now rejects any negotiations or deal with the PKK, saying it will fight until the last militant is eliminated. Ankara is at the same time putting pressure on the HDP, which the government says is the political arm of the PKK. This week, a court in Diyarbakir – the largest city in the Kurdish southeast –  ruled that eight lawmakers from the HDP must be brought to testify by force at hearings in an ongoing terror case, a move likely to fuel tensions.

With the investment package announced last week, the government hopes that people in the southeast will finally distance themselves from the PKK and support the government and come to believe that the root cause of their problems is the armed insurgency led by the PKK. Pro-government media have boosted the investment scheme with headlines saying “The southeast will raise from its ashes”, and “Investments will boom in the region”.

Turkey’s southeast is very poor by any measure, providing a fertile ground for the PKK to flourish. Average per capita income in Turkey is around $10,000 but in the southeastern provinces it is between $3,900 and $4,900. According to the statistics of the government agencies, almost all southeastern provinces rank at the bottom of indices for housing, income, education, safety, access to infrastructure services, and life satisfaction.

When it was founded in the late 1970s as a Marxist-Leninist group, the PKK was able to exploit the region’s backwardness and its isolation from the rest of the country to wage a bloody insurgency.

The economic and social conditions throughout the region have improved little over the past decades as evidenced by the PKK’s ability to keep recruiting new militants.

Over the past three decades, the PKK has reduced its demands from an independent state to vaguely defined “cultural autonomy”, “more powers to local government” and “the recognition of the Kurdish identity” but the bloodshed has continued.

The question is whether economic measures will save the poverty-ridden southeast and end violence this time?

Post-coup troubles

The situation in the southeast and the wider region has become even more complicated with the launch of Turkey’s military operation in northern Syria. The military, with the help of the Free Syrian Army (FSA), is pushing Islamic State militants away from the Turkish-Syrian border. The other objective of the operation is to stop the advance of the Kurdish YPG militia.

The military operation – codenamed Euphrates Shield – was launched shortly after July’s failed coup attempt. This had strained US-Turkish relations because of the US’ failure to extradite Fethullah Gulen, who the government says was the mastermind of the botched putsch. Some senior Turkish politicians and pro-government media had even accused the US of complicity in the coup. But, this is changing.

“Our official position is clear. We don’t see any evidence that US officials supported the coup d’état,” Deputy PM Numan Kurtulmus told the New York Times on September 6.

And relations between Turkey and the US started to show signs of improvement following President Recep Tayyip Erdogan’s meeting with Barack Obama on the sidelines of the G-20 summit in China.

Obama said nothing about the government’s sweeping post-coup purges in which thousands of military personnel, policemen, judges, prosecutors and public servants have been suspended from duty or sacked.

“Obama particularly wants to do something together [with us] about Raqqa. We have told him that this is not a problem for us,” Erdogan told reporters on his way back from China, suggesting the countries may be ready to rebuild bridges. Raqqa is the stronghold of Islamic State in Syria and the fall of the city would be a huge blow to the jihadist group.

One of the most contentious issues between Ankara and Washington is how to deal with the YPG, the US’ most reliable ally on the ground in the fight against Islamic State in Syria. Turkey does not want to see a Kurdish entity of any sort along its border. That’s is why it is trying to push the YPG beyond east of the Euphrates River to prevent the Kurdish group from linking the areas it controls on the east and west banks of the river.

Investors to the rescue

The government hopes that once it gets rid of the threats the YPG poses, it will be able to spend more energy on solving the Kurdish conflict at home through economic measures.

Some TRY140bn will be invested by the state and the private sector over the next four years in factories, roads, houses, stadiums, hospitals and other infrastructure projects, creating 200,000 new jobs each year, Prime Minister Binali Yildirim said on September 4 when he unveiled a package to support the economy in the 23 cities in the impoverished eastern and southeastern provinces.

The state will provide free land for greenfield investments, the public will build turn-key factories, investors will be offered interest-free loans to purchase machinery and equipment, and the state will offer purchase guarantees for the products manufactured at these factories.

This is a very ambitious and expensive plan that the government wants to implement at a time when Turkey’s $720bn economy is probably heading for a slowdown. Slower growth means less money in government coffers to fund such a large programme. In fact, the prime minister did not specify where the funds would come from, but Finance Minister Naci Agbal has assured investors that the investment scheme would not disrupt fiscal discipline.

In the first seven months of this year, fiscal discipline has been maintained, with the central government budget posting a cumulative surplus of TRY1.28bn (€436mn), while the primary surplus was up 6% y/y to TRY32bn. The government targets a budget deficit of TRY29.7bn, or 1.3% of GDP, for 2016.

“The funds? Our resource is this country’s people. As long as you have this people, you have such a dynamic and productive society, so do not hesitate. This people defeated the coup attempt. We don’t have any problems finding resources,” Yildirim said, playing down the concerns over the funding of the investment scheme.

“Our duty is to prove security and incentives, your duty is to trust the government and to make investments in these regions,” the prime minister told investors.

It remains a question whether the government will be able to mobilise investors in an environment of slower growth and heightened insecurity.

Growth in the second quarter moderated compared with the first quarter, Agbal said earlier this week, adding that Turkey’s economic growth this year might come in weaker than the government's target of 4.5%.

Economists agree. The market is looking for a second-quarter growth of 3.4%, a recent Reuters poll showed. Full-year growth is projected to ease to 3.5% from 4% last year. Statistics office TUIK will release GDP data for Q2 on September 9.

Turkey’s economic growth has relied on domestic consumption but it needs more exports and investments to put the economy on a more sustainable path.

Even though it edged down in August, inflation hovers above 8%, but politicians are still pressuring the central bank to cut rates to reduce the cost of borrowing, hoping that more easing will boost investments and demand. The bank is supporting the government’s efforts by cutting its overnight rates and injecting more liquidity into the financial system.  

Nobody knows what will happen in Syria, or what challenges the world economy  – particularly emerging markets – will face when/if the US’ Fed raises its interest rates by the end of the year. More political turmoil in the region and more volatility in the international markets will make it much more difficult for the government to implement its ambitious investment programme.

A total of 18 similar economic-social programmes had been designed by previous governments in the past to address the region’s problems, and the AKP governments have announced another six, but all failed to end violence and pull the region out of poverty. Nevertheless the government hopes that this time things will be different.