Muslim Land Joins Ranks of Tigers

ANTALYA, Turkey — When an Islamist-leaning political party took charge of Turkey six years ago, this vibrant Mediterranean resort town feared a bumpy ride for a local economy driven in part by booze and bikinis.

Today, says Ahmet Barut, a hotel magnate here, the only real question is whether the town can sustain an unprecedented economic boom. He’s not keen on the teetotaling habits of the governing party’s leaders, nor the headscarves worn by their wives, but he applauds a key part of their record: “They are good at economics.”

From tourism and tomato growing to car making, Turkey has prospered far more under an Islam-tinged government than it did under some previous, ardently secular administrations more in tune with the often decidedly un-Islamic ways of many Turkish businesspeople.

By nearly every measure, Turkey’s economy is now much stronger than it was when the Justice and Development Party, or AK Party, won elections in 2002. Annual growth since then has averaged around 6.5%, up from an annual average of roughly 2.5% over the previous six-year period.

Turkey still faces various headwinds. Economic momentum has been slowed by the global credit crunch, and the country is running a sizable current-account deficit. A spasm of political uncertainty this year over headscarves didn’t help matters. The AK Party set off the turbulence with an effort to let female college students wear headscarves on campus — a potent symbol of conservative Islam, and a touchstone issue in Turkey, which is constitutionally secular. Opponents used the headscarf flap to try (unsuccessfully) to outlaw the AK Party, saying it harbors a hidden agenda to turn Turkey into an Islamic state resembling Iran.

Despite hiccups like these, the economy shows scant sign of slipping back into its earlier doldrums. “Numbers don’t lie,” says Antalya’s mayor, Menderes Turel, an AK Party member. He boasts of new investment, new sewage pipes and a new airport terminal, but also hails a phenomenon not generally esteemed in Muslim lands: Alcohol sales — turbocharged by tourists, restaurants and a raucous club scene — are up.

Nearly all Turks are Muslim. But Islam and its symbols have been banished from spheres of state here since 1923, when Mustafa Kemal Ataturk founded the modern Turkish republic on the ruins of the Ottoman Empire. Ataturk regarded religion as an obstacle to his vision for Turkey as a modern, Western power.

The AK Party’s economic record highlights an intriguing evolution in relations between political Islam and capitalism. Islamists in the Arab world tend to look askance at the secular ways of their Turkish brethren, but Turkey’s experiment with modern-minded Islam is closely watched in big parts of the Muslim world.

Islam itself has nothing against business. The Islamic prophet Muhammad started out as a merchant, and his first wife was a successful businesswoman. Asked to fix prices in the bazaar by followers who wanted to buy goods more cheaply, Muhammad is said to have refused: “Only Allah governs the market.”

Over the past century, however, Islam has often served as a vehicle for anticapitalist revolt. Egypt’s Sayyid Qutb, an influential Islamist thinker, crystallized this trend with a 1951 book, “The Battle Between Islam and Capitalism.” Across much of the Muslim world, Islamists denounced the market, not out of deeply held economic convictions, but mostly in response to corrupt crony capitalism in countries such as Egypt, Algeria and Indonesia before the fall of Suharto in 1998.

Turkey’s AK Party, however, has gone in the opposite direction. It insists it has no desire to challenge Turkey’s secular order. Instead, it sees the solution to many of Turkey’s ills in the free-market — both to open up and vivify an economy long dominated by a state-coddled elite and also to modernize a political system forged in the 1930s and still tinged with authoritarianism.

“We favor more competition, productivity and innovation,” says Mehmet Simsek, Turkey’s minister of state for economic affairs. “Those with 1930s mind-sets — statist and inward-looking — cannot understand this.”

An observant Muslim married to an American from Wisconsin, Mr. Simsek embodies the AK Party’s efforts to bridge different but, it believes, compatible worlds. Mr. Simsek used to work as an economist for Merrill Lynch in London and before that at the U.S. Embassy in Ankara. Faith, says the minister, is a personal affair, not a matter of state.

The success of the AK Party’s economic policy, he says, is easily measured: “People are making money.” Private-car sales, he notes, have jumped during his party’s tenure from 90,000 a year to around 400,000. Per-capita gross domestic product has soared from $3,300 in 2002 to more than $10,000.

Turkey’s rebound from financial disaster in 2001 — when the currency went into free fall and the economy contracted by 6% — “has surpassed expectations,” the International Monetary Fund said in its most recent detailed review of Turkey’s economy, prepared last year before the headscarf ruckus. It credited “sound macroeconomic policies, a conducive global environment and political stability.”

Since the AK Party took over at the end of 2002, exports have more than tripled, foreign investment has jumped from under $1 billion a year to more than $20 billion, and the number of tourists has more than doubled. Inflation, out of control for three decades, remains a problem but has fallen sharply to around 10%. Growth in GDP this year is expected to be around 4.5%, way down from over 9% in 2004, but still robust.

Guided by the IMF, the AK Party has imposed fiscal discipline that eluded its predecessors, accelerated privatization and trimmed bureaucracy. Recently abolished, for example, was a requirement that any company with 50 or more employees must hire an ex-convict and a terrorism victim, among various others.

The AK Party has also reactivated a long-stalled drive to join the European Union, pushing through regulatory and other changes designed to bring Turkey more into line with European norms.

Unconventional Alignments

The AK Party’s mix of free-market zeal and emphasis on conservative, faith-rooted personal values has scrambled conventional alignments. In many countries, politicians who back free-market economics are supported most enthusiastically by the wealthy. Poorer folk tend to be more skeptical.

In Turkey, it has been the other way round. The AK Party’s biggest traditional base of support is among poorer and generally more devout citizens. Many wealthy businesspeople, on the other hand, started out viewing the party with deep suspicion — and still do on issues such as headscarves.

Foreign investors were also dubious. The AK Party’s Islamic background raised some eyebrows, but one key worry was that the victors might turn their back on an agreement with the IMF negotiated by the previous government. Backtracking would likely stoke inflation and derail economic recovery.

Instead of rejecting the IMF package, the new government embraced it and carried out a long list of IMF-endorsed reforms. “In the market, there was a lot of skepticism,” Mr. Simsek said recently in his office in Ankara, the capital. Over his desk hangs a portrait of Ataturk, the father of modern Turkey.

When the IMF program reached its scheduled end earlier this summer, Lorenzo Giorgianni, the IMF’s Turkey mission chief, said it had contributed to “the most rapid period of economic growth in the recent history of the Republic.”

Meantime, an influential organization of Turkish industrialists, known as TUSIAD, has also shed much of its early skepticism, at least about Turkey’s economic direction. Haluk Tukel, its current secretary general, hails AK Party economic policy over the past six years as “perfect.” But, he adds, many TUSIAD members still worry that the AK Party has a hidden Islamic agenda.

Such worries grew sharply this year when the government moved to lift a ban on pious female students covering their hair in class. AK Party has also talked about making adultery a criminal offense.

The opposition, flummoxed by AK Party’s economic and electoral successes, has seized on issues like these to try to win back support. Onur Oymen, vice president of the staunchly secular CHP party, dismisses Mr. Simsek and other Westernized officials as window dressing. AK Party’s ultimate goal, he believes, is an Islamic theocracy.

“You cannot have a short version of the Quran,” he says. “They present themselves as representing modern life. It is just the opposite.”

Nonsense, says Cemil Ipekci, an openly gay Turkish fashion designer who wears gold earrings and assortments of flamboyant necklaces and bracelets. “They are not radical Islamists. They are conservative, yes, but not fanatics. Look at me, they socialize with me.” He says he and his boyfriend attend state dinners and parties organized by AK Party ministers. The government-owned airline, Turkish Airlines, hired him to re-design its décor.

Levent Kizil, a more mainstream business leader, is also a fan. “They turned our economy round,” says the Istanbul-based owner of a big soft-drinks company. He doesn’t want Islam interfering with his lifestyle but sees scant sign yet of this happening. “I enjoy my secular lifestyle. I like to drink alcohol and gamble and none of the women in my family wear headscarves,” he says, chomping on a Cuban cigar at an Italian seafood restaurant.

When AK Party took office, Mr. Kizil’s company exported just $3 million of soft drinks. The figure is now $12 million. Confident that his domestic and foreign markets will keep growing, Mr. Kizil has invested €25 million, or about $40 million, to renovate two plants.

Big Problems

Turkey’s economy still has big problems. One of the biggest is mushrooming current-account deficit, which stood at around $43 billion for the 12 months leading to May. The current account is the broadest measure of a nation’s trade balance — and deficits raise worrisome questions about how the country will finance the gap.

Mr. Simsek blames the deficit largely on energy costs. Others point to Turkey’s imports of machinery and other items needed to modernize the economy, and point out that Turkey’s current account has been positive only in times of economic malaise.

Nevertheless, the deficit has spooked the market. There are concerns that a global credit squeeze could hurt Turkey’s ability to borrow the funds it needs. Standard & Poor’s Corp., the credit-rating agency, in April revised its outlook for Turkey from “stable” to “negative.” It last week changed this back to “stable” after Turkey’s highest court struck down a request from the chief prosecutor that the ruling AK Party be disbanded for “antisecular” activities related largely to the headscarf spat.

Abrupt Swings

Turkey has a long history of abrupt swings in economic fortune. An earlier attempt to open up to the world economy — and mimic the success of Asia’s so-called “tiger economies” — got off to a promising start in the 1980s. But that export-driven effort petered out and was followed by an era of chronic inflation and budgetary indiscipline. A big constraint on economic performance has been political instability, caused in part by a Kurdish minority seeking greater autonomy, as well as the continuing debate over the very nature of the Turkish state.

Many investors are now waiting to see whether Turkey can reach a new agreement with the IMF. It doesn’t need money from the fund, says Mr. Simsek, and has paid back more than half of the $23.5 billion it owed in 2002. But a new accord would help calm market jitters. Mr. Simsek, who is handling negotiations, said technical discussions would be completed in a “month or so.”

On the Mediterranean coast, meanwhile, Antalya is in the middle of its busiest tourist season ever. It expects over nine million visitors this year, up from 7.3 million last year and roughly half that in 2002. It’s biggest worry is not Islam, but forest fires that raged this week through coastal regions.

Mr. Barut, the hotelier, says Turkey might get more conservative but sees no risk of it turning into anything like Iran. That, he says, would kill the tourism industry.

Agriculture, another local mainstay, is also growing. Antalya now exports around 350,000 tons of tomatoes a year, nearly double the amount in 2002. Exports of flowers to Europe and Russia have soared, too.

A beneficiary of this is Ali Riza Akinci, who sells seeds for tomatoes, flowers and hotel lawns. He gets some of these from Israel, a supplier that is shunned in the rest of the Muslim world — but not here. Business, says Mr. Akinci, should trump politics.

Not everyone is upbeat. The head of the Antalya’s chamber of commerce, Kemal Ozgen, thinks the state is now too hands-off. He wants it to do more to protect small shop owners, who are losing business to newly opened shopping malls. Antalya, he says, had just one mall when the AK Party took power. It now has 28. Foreign retailers have fueled much of this expansion. Too much competition, says Mr. Ozgen, is unhealthy.

All the same, Mr. Ozgen is happy with the benefits that have accrued to his own business, a window-making factory. Thanks to a building blitz, he’s more than tripled output since the AK Party came to power.

Antalya’s growing integration in the world economy makes it highly vulnerable to any serious downturn on a global level. For example, a recession in Germany, now Antalya’s biggest tourist source, would hit local businesses hard.

Antalya’s AK Party mayor, Mr. Turel, can’t do much about that. But he does try to nip less serious problems in the bud — such as reports in the Russian media of a crackdown on booze. Mr. Turel swiftly set the record straight: Alcohol, he announced at a tourism conference, would never be restricted in Antalya on his watch. More than two million Russians are expected to visit the resort this year.

Pragmatism, says the mayor, is the AK Party’s guiding creed. “We allow praying, we allow bikinis, we allow discos,” the mayor says. “We allow everything.”

Write to Andrew Higgins at andrew.higgins@wsj.com and Farnaz Fassihi at farnaz.fassihi@wsj.com

Source: The Wall Street Journal, August 6, 2008