Category: News

Conspiracy and cronyism: Turkey’s economic spiral

Aykan Erdemir

John Lechner

14 September 2018

Hours before the Thursday’s decision by the Central Bank of Turkey to raise its benchmark rate 625 basis points to 24%, President Recep Tayyip Erdogan launched into one of what is now a trademark tirade against higher rates. He denounced interest rates as “a tool of exploitation” analogous to the “heroin trade” – and the Turkish lira tumbled in value in response, just as it did when the Turkish strongman decried interest rates as “the mother and father of all evil” back in May.

Turkey’s economy has been in free-fall in recent months, the currency losing 40% of its value against the US dollar this year.

This time, however, the lira made back its lost ground once the central bank bowed to conventional economic wisdom, in contrast to when it held rates steady in July. Nonetheless, global markets continue to watch Erdogan’s economic mismanagement with great concern, not least because European lenders are exposed to Turkey with over $160 billion worth of loans.

Turkey’s economy has been in free-fall in recent months, the currency losing 40% of its value against the US dollar this year. Investors struggle to understand whether Erdogan actually believes his own bizarre assertion that higher interest rates lead to higher inflation. Yet Erdogan is serious, as it becomes clear by closer examination of the two orthodoxies that appear to influence the Turkish president’s thinking.

First of all, Erdogan’s Islamist worldview goes beyond the traditional Muslim belief that riba (interest or usury) is haram (forbidden). Erdogan has often referred to an “interest rate lobby” in speeches when pushing for lower interest rates from the central bank, and he is loath to hike interest rates or agree to a bailout from the IMF. Many interpret the phrase as simple short-hand for financiers and bankers.

However, the reference to a mysterious lobby appears to take on a different complexion when considering the view of Erdogan’s political and ideological mentor, Necmettin Erbakan, himself a former prime minister.

Erbakan saw interest rates, or the “interest rate lobby”, as part of a deeply anti-Semitic and conspiratorial thesis to control the world. In Erbakan’s view, Zionists control all governments through a mix of institutions, including the United Nations, Bilderberg Group, and Council on Foreign Relations. Erbakan asserted that Jews control the economy by “driving countries into economic crises and then lending their governments money at exorbitant interest rates”.

In this light, Erdogan’s blame of the 2013 protests in Gezi Park on the “interest rate lobby” appeared to carry a much darker and more sinister message.

The second orthodoxy to which Erdogan adheres has less to do with the transcendental and more to do with everyday politics. Since his ascent to power in 2002, Erdogan has reached out beyond his narrow Islamist base to build a substantial support and patronage network for his surprisingly well-choreographed crony-capitalist regime. Low interest rates helped to inflate and sustain the real estate bubble at the core of Erdogan’s complex system for funding his political enterprise and distributing the spoils.

The allocation of lucrative construction and infrastructure contracts to loyalists has become a key political tool for the government, allowing Erdogan’s cronies to grow rich, forming a new elite, while the general population benefited from a housing boom. Yet nearly 90% of the credit for these projects came from loans in foreign currencies.

Now, with the lira’s massive devaluation in 2018, servicing that debt has become incredibly difficult, if not impossible, for Turkish companies. To protect the new elite that he created with the aid of foreign currency loans, Erdogan likely had to sign off on the central bank’s decision to hike the benchmark rate, even as he ranted against it.

What we are seeing is the strange interplay between Erdogan’s two orthodoxies. He appears to feel backed into a corner. Erdogan did his best to keep interests low, which in turn helped construction bosses to keep mortgage payments low, and residential and commercial units affordable. But low rates also had the effect of devaluing the Turkish currency, making foreign currency debt servicing impossible, bringing construction magnates to the verge of bankruptcy. Thus, one of Erdogan’s two orthodoxies had to give way.

Erdogan’s dual orthodoxies are resonant at times, and dissonant at others. But what matters most is that both are dragging the Turkish economy to ruin. Unless the Turkish government returns to conventional economic wisdom, the country will continue to be plagued by Erdogan’s personal demons, pitting the requirements of proper economic management against obsessions ranging from the conspiratorial to the corrupt.

Luckily, Turkey still has a pool of talented but sidelined economists, with a proven track record in earlier crises, who can pull the country out of this quagmire. Yet, given Erdogan’s dual orthodoxies, the relatively simply decision to put them back in charge may be beyond him.

September 16, 2018
Turkey: An Interest Rate Hike Stops the Bleeding — For Now

The Big Picture

2018 has been a dark year for the Turkish economy, as the country’s currency has plummeted in international trading — in part because Turkey’s economic miracle is coming to a close and because of President Recep Tayyip Erdogan’s intense dislike of interest rates. The country’s central bank has now taken the step of raising interest rates despite Erdogan’s comments on the matter, but the president’s overbearing influence on the economy is likely to continue scaring the markets.

What Happened

Turkey’s central bank has hiked its benchmark interest rate from 17.75 percent to 24 percent, bringing a measure of relief to markets after the country’s currency crashed over the summer. President Recep Tayyip Erdogan had preceded the lender’s announcement with a speech that slammed interest rates — a frequent bugbear of his — briefly spurring speculation that the bank would not move to arrest the slide of the currency and prevent the potential spread of Turkey’s currency woes to other emerging economies.

Erdogan also issued a decree in the country’s Official Gazette stipulating that transactions for property sale, rental, business and service contracts must be conducted in Turkish lira, rather than in foreign currencies. The decree also forbade signatories from indexing their transactions to foreign currencies, while ordering existing contracts in other currencies to be switched to the lira by Oct. 12.

Both actions came after Erdogan named himself the head of the country’s nascent sovereign wealth fund on Sept. 11, giving himself even more control over the country’s slowing economy.

Why It Matters

The decision to raise interest rates appears to underline the bank’s independence, but Erdogan’s preceding speech denouncing interest will loom over the markets, sowing worry that he will soon exert his already outsized influence on the country’s economy once more. Inflation ran at 17.9 percent in August, but the latest rate hike — while substantial for Turkey, especially under Erdogan — is too limited to counter such a figure. To rein in inflation, the central bank would need to raise the interest rate level to 23-28 percent, but that might be a level too far for the central bank under the current administration.

As part of Turkey’s medium-term economic program, which Finance Minister (and Erdogan son-in-law) Berat Albayrak is scheduled to release this month, officials are expected to give a clearer indication as to how the country intends to escape from its plight of high private debt, slipping currency, high inflation and large current account deficit. The current rate hikes are largely palliative, and markets are watching intently to see if Erdogan and his finance minister will take more comprehensive steps to right the ship.

Background

Erdogan faces a number of challenges going ahead. Turkey’s economy is projected to slow even further as the year ends. It is largely public spending and government-backed construction that accounts for much of the country’s current economic activity. Erdogan’s struggle to stabilize the Turkish economy and preserve his political legitimacy — all while holding steadfast to his firmly held beliefs on issues such as the evils of interest rates — is far from over.

Beyond Turkey’s borders, Erdogan is facing military and diplomatic challenges in Syria, where his army is attempting to hold back a potential assault by Syria’s government on Idlib province, which abuts Turkey’s border. A sustained assault would put Turkish troops in harm’s way and could drive up to 3.5 million refugees into Turkey, straining the country’s economy even further. In the face of such a challenge, Erdogan needs as much political legitimacy at home as possible.

And then there’s the squabble with the United States, where interest groups within the Republican Party continue to lobby President Donald Trump to force Ankara to release pastor Andrew Brunson, who is under arrest on terrorism charges. Trump’s sanctions on Turkey, as well as on its justice and interior ministers, may have been symbolic in dollar amounts, but they have raised more doubts that Turkey can extract itself from its deep economic hole. Against such a backdrop, the central bank’s latest interest rate hikes have stanched the bleeding, but they’re not enough to heal the patient.

September 16, 2018
Russia’s Ekaterinburg joins the final race to host EXPO 2025

In less than 50 days the EXPO-2025 Committee will name the Planet’s Exhibition host city. Among the final candidates are Russia’s Ekaterinburg, Azerbaijan’s Baku and Japan’s Osaka. While demonstration concepts of Baku and Osaka are designed to present the city innovations, the exposition of Ekaterinburg will show the best solutions and technologies of Russia as a whole.

Why does Russia need EXPO?

The choice of Russia’s candidate city Ekaterinburg is truly deliberate. Located on the crossroads of Europe and Asia, Ekaterinburg is seen as a geographical center of Russia. As Russia’s political and economic compass is set to the East, hosting the planet’s exhibition in Ekaterinburg will help Moscow strengthen its economic and trade ties with China, Japan and other global economies in the East. Moreover, Russia’s officials say they are going to keep the exposition after the Expo is over and turn Ekaterinburg into a global museum that will attract thousands of tourists. Some experts believe that Ekaterinburg has higher chances to win the Planet’s Expo as it recently showed its capacity and excellent organization to host global events during the World Cup. Due to the city’s compact and convenient infrastructure, Ekaterinburg was able to receive up to 40K tourists a day during the FIFA WC-2018.

City 4.0

The EXPO venue will host the Ural Engineering School, e.g. the innovations booths for scientific research and investigation in math, physics, biology and other sciences. “The concept of such booths is attractive both for experienced scientists and small children who are in search of their vocation”, said Ivan Burtnik, the head of the project office of the EXPO-2025 Committee. “There are 17 million people in the world today who live in contaminated areas, 2.4 million do not have access to drinking water, 800 million live in poverty and another 360 million are children who will never have chance to go to school. We must think of it and focus on decreasing these terrific numbers. Today’s global challenge is to keep pace with the industrial development and creating a new formation urban infrastructure, the cities where everyone is healthy and happy. And Ekaterinburg is going to be such model city that will continue its development and growth the World Exhibition”, he added.

September 2, 2018
It’s Time to Hold Myanmar Accountable

A year after the ethnic cleansing of the Rohingya began, the United States is still dragging its feet.

By Michael H. Fuchs

| August 31, 2018, 12:36 PM

A man stands under an umbrella as monsoon rains arrive in Balukhali refugee camp in Cox’s Bazar, Bangladesh, on Aug. 28. More than 700,000 Rohingya refugees have fled to Bangladesh. (Paula Bronstein/Getty Images)

The Holocaust. Rwanda. Bosnia. Darfur.

And now Myanmar, according to a new United Nations report, which accuses the country of carrying out a genocide. It is time for the United States and the world to act.

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In 2017, Myanmar’s military began a ruthless campaign against Rohingya Muslims, killing thousands and displacing more than 700,000 to Bangladesh. Last week, a year after the massacres, the U.N. fact-finding mission on Myanmar found that the “crimes in Rakhine State [in Myanmar’s west], and the manner in which they were perpetrated, are similar in nature, gravity and scope to those that have allowed genocidal intent to be established in other contexts.”

Min Aung Hlaing, the commander in chief of Myanmar’s military, made the army’s intentions clear: “The Bengali problem was a long-standing one which has become an unfinished job despite the efforts of the previous governments to solve it. The government in office is taking great care in solving the problem,” he said in a Facebook post during the crackdown. (In Myanmar, Rohingya are commonly referred to as Bengali, although they have lived in Myanmar for generations.) The newly released report recommends the “investigation and prosecution” of senior members of the Myanmar military to “determine their liability for genocide.”

This genocide took place against the backdrop of Myanmar’s recent steps toward democratic transformation. After decades of repressive military rule, the armed forces began freeing political prisoners, including opposition icon Aung San Suu Kyi, and allowing economic and political reforms—and in 2015, the country held real elections. Aung San Suu Kyi’s political party, the National League for Democracy, won control of the civilian government. Life in Myanmar seemed to be improving. But the democratization process did not reach everyone. The military retained extraordinary powers. And the Rohingya—long persecuted by the majority Buddhist population—remained outsiders, vulnerable to the cruelty of the government.

The United States supported the democratization process as the best way to promote broad-based progress in Myanmar. After decades of sanctions and isolation, the Obama administration decided to meet action with action, dropping sanctions and providing support for reform each time Myanmar took another positive step, with the intent of supporting the country as long as it remained on that path.

Today, it is clear that Myanmar is no longer on that path. Whatever good may be accruing for some there through the political reform process must not be bought with the price of genocide. The world must respond.

There is no guarantee that concerted international action can change Myanmar’s policies—but we must try. The crisis is ongoing, with hundreds of thousands living in refugee camps and thousands more in danger in Myanmar. And after standing by in the face of the crisis a year ago, the world is now also faced with establishing justice and showing Myanmar—and other countries—that genocide will be punished unequivocally, and that the country must change.

First, the United States must go to the U.N. Security Council to seek a global arms embargo on Myanmar, sanction top military officials, and demand equal legal protections for the Rohingya, the safe return of Rohingya refugees to Myanmar, and access to Rakhine by international nongovernmental organizations and the U.N.

Second, the United States should immediately make clear that the civilian government of Myanmar, including Aung San Suu Kyi, will be held to account if it does not take these steps to improve the situation for the Rohingya soon. While the military is the prime mover of these atrocities, as the U.N. report put it, “Through their acts and omissions, the civilian authorities have contributed to the commission of atrocity crimes.”

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Third, Myanmar should be at the top of the agenda when the United States meets with the Association of Southeast Asian Nations at their semi-annual summit meetings in November. As the State Department official charged with steering the U.S.-ASEAN relationship on a daily basis for three years, I recognize this is a difficult task—ASEAN members will want to protect Myanmar from what they perceive as outside criticism, just as I watched the nations rally around Thailand after the 2014 coup. But these atrocities cannot be swept under the rug, and Muslim-majority ASEAN countries may be inclined to apply more pressure—Indonesia has already raised the issue, and Malaysia has now taken in more than 100,000 Rohingya refugees.

Fourth, the United States must fundamentally rethink its relationship with Myanmar. In May, Mark Green, the administrator of the U.S. Agency for International Development, said of the Rohingya crisis, “This is a country that I think has tremendous potential. There’s an impediment to that work—and that is the crisis that we’re talking about—but we believe that in the long-term future we can address this impediment.” While a return to the international isolation of previous decades is unlikely to achieve results and should not be on the table, the United States can no longer act as though the Rohingya are but one of many issues Myanmar is struggling with as part of its reform process.

The international community should shun Myanmar’s military brass and work to ensure the benefits of economic assistance and trade do not go to the military’s coffers, and the United States should make clear that this will continue until persecution of the Rohingya ends.

The Trump administration has been behind the curve for a year and is likely to keep dragging its feet. Support for more pressure is growing in Congress, but many still fear weakening Aung San Suu Kyi and her party. Furthermore, many senior Trump administration officials view everything in Asia through a lens of competition with China, and the argument that the United States cannot lose influence in Myanmar is likely to hold sway. If the Trump administration does not move quickly, Congress may need to force the administration to act by moving legislation on its own, as it did when it passed sanctions on Russia over Trump’s objections in 2017.

Looking back, I believe that the United States was right to embrace Myanmar’s political transformation as a genuine opportunity that held promise to improve the lives of millions. The United States consistently pressed Myanmar to improve its treatment of the Rohingya in meetings and in public, but it is clear that it should have done more in the years prior to 2017. The United States failed miserably in responding to the horrors as they unfolded over the course of August and September 2017, when the latest crackdown began. It is difficult to know if a different U.S. policy at any point would have helped prevent the atrocities. But what matters today is that the United States must change course.

In my time working in the East Asia bureau at the U.S. State Department, I traveled many times to Myanmar and worked closely with colleagues in the civilian government as the country undertook its process of democratization. Citizens and officials I met wanted more reform, more openness, and more opportunities to engage with the United States. I wanted the country to succeed. I still want it to succeed.

But the Myanmar government has failed not only its Rohingya people—it has failed its entire population. For Myanmar to have a chance to succeed in the future, leaders must be held responsible, and policies must fundamentally change. The United States and the world should not rest until justice is done.

Michael H. Fuchs is a senior fellow at the Center for American Progress. From 2013 to 2016, he was a deputy assistant secretary of state for East Asian and Pacific affairs.

September 1, 2018
Planning for the Post-Trump Wreckage
When the president eventually exits the White House, the rest of us will quickly have to make sense of the world he’s left behind.

By Stephen M. Walt

| August 30, 2018, 1:23 PM

Donald Trump speaks during an event to announces a grant for drug-free communities support program, in the Roosevelt Room of the White House in Washington, DC, on August 29, 2018. (MANDEL NGAN/AFP/Getty Images)

One of the many unfortunate consequences of U.S. President Donald Trump’s cavalier, corrupt, and capricious handling of foreign policy is that it discourages farsighted thinking about the global agenda. Even worse, it is gradually undermining the institutional capacity the United States will need to deal with that agenda. To a first approximation, the people who are most alarmed by his actions (and I include myself among them) are spending a lot of their time circling the wagons and trying to minimize the damage that he and his minions do while in office. They are like parents trying frantically to corral a rambunctious toddler (hat tip to Dan Drezner) who is running amok through a china shop: All the attention is on saving as much of the crockery as possible, and nobody has any time to think about what they’ll do once the kid has finished smashing things.

It’s understandable that people are trapped in a reactive mode, because Trump’s genius is his ability to make nearly everything all about him and to focus attention on whatever his latest outrageous antic is. What other president could or would make himself the center of attention when a prominent senator died or express his disagreement with an important allied leader by tossing candy at her? Trump may be terrible at running the government, but his ability to command attention through outrageous behavior makes Madonna look like an amateur.

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Yet we should resist the urge to remain in a defensive crouch. Yes, there’s a lot of damage being done these days, and resisting Trump’s worst impulses is important. But there are plenty of problems out there that will require attention in the not-too-distant future, and where the appropriate solutions aren’t immediately obvious. Careful and creative thought will be needed to figure out an appropriate destination and then to chart a course to get there. It is not too soon, therefore, for foreign-policy mavens to start thinking about the post-Trump world, not simply to restore the pre-Trump status quo but in order to figure out arrangements that acknowledge new realities and are appropriate for the conditions we will face in the future.

No doubt each of you has your own list of priorities, but for what it’s worth, here are a few of mine.

#1: The Architecture of Great Power Politics

About the Author

Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University. @stephenwalt

When he ran for president back in 1992, Bill Clinton once declared that “the cynical calculus of pure power politics simply does not compute. It is ill-suited to a new era.” He was expressing the widespread belief (pious hope?) that humanity had turned a corner at the end of the Cold War, and that the old logic of great power rivalry was now behind us. He was dead wrong, alas, and great power politics are now back with a vengeance.

But the form and intensity of that rivalry remains open, and the nature of relations among today’s great powers needs to be shaped through farsighted diplomatic action. Will the United States disengage and let Europe and Asia (mostly) go their own way? Will the United States, its NATO allies, and Japan link up with others to contain Russia, China, and their various regional partners? Should the United States make a concerted effort to drive a wedge between Moscow and Beijing, perhaps by trying to work out an agreement on Ukraine and promoting a security architecture for Europe and Russia that reduces each side’s fears? Where will countries like India fit into the constellation of great powers, and where should the United States want it to be?

It is all well and good to obsess about “saving NATO” or “preserving a liberal order,” but those short-term, reactive goals do not eliminate the need to think hard about what sort of great power relations are realistic and desirable in the decades ahead. At key moments in world history—such as 1815, 1870, 1919, 1945, and 1993—the leaders of the great powers had to imagine and then try to implement visions of great power politics designed to preserve key interests, ideally without (much) resort to force. They were sometimes successful; at other key moments, they failed miserably. The problem cannot be avoided, but we are more likely to end up with arrangements we like if we start thinking through the possibilities now.

#2: The Brave New World of Cyber:

I’m the first to admit that I didn’t foresee all of the ways that digitalization, social media, and other aspects of the cyber-world would shape both international and domestic politics. Sure, there’s been a lot of hype and threat inflation about cybersecurity, cyberwar, and cyber-everything else, but in 2018 it’s impossible to deny that these issues are affecting us all in pretty far-reaching ways. Indeed, even the suspicion that bad guys are using the internet to manipulate politics can have effects all on its own.

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Instead of moving energetically to address these issues, however, Trump fired the White House cybersecurity coordinator and eliminated the position, repeatedly denied that anybody interfered in the 2018 election, and now is tweeting out accusations that Google is biased against him. Instead of developing a coherent U.S. policy and trying to negotiate an international code of conduct that might mitigate these problems, he’s kicking the can down the road.

But does anyone believe these issues will simply disappear on their own? Surely not. Which means more farsighted people will have to start developing policies that can preserve the benefits of the digital revolution while protecting us from its dark downside.

#3: New Institutions for the World Economy

It is now obvious that contemporary globalization did not deliver as promised for millions of people—though it did have significant benefits for the Asian middle class and the global 1 percent—and that the main institutions set up to manage global trade and investment need serious rethinking. This is partly because some countries (e.g., China) have complied poorly with some of the rules, though no country’s track record is perfect, and because unfettered globalization did not allow individual countries to tailor arrangements in order to support key cultural or national priorities.

This is not my area of expertise, and I’m not going to offer any detailed advice on what should be done. For what it’s worth, I find my colleague Dani Rodrik’s arguments on allowing nations greater autonomy within the global trading and investment order, so that their participation does not produce wrenching social dislocations at home, convincing. Less globalization might be more, therefore, but less globalization does not mean zero.

As near as I can tell, the Trump administration’s approach to these issues has been to use U.S. economic leverage to bully other countries into making minor economic concessions, which Trump can then hail as the “beautiful” new trade deals that he promised back in 2016. That’s what happened with South Korea and what appears to be happening with NAFTA. But what’s missing, at least so far, is any attempt to develop a larger set of institutions or arrangements that would safeguard the wealth-enhancing elements of (mostly) open trade and avoid both the obvious costs of a trade war and the social turmoil of hyper-globalization. Again, it’s not my field, but I sure hope Dani isn’t the only person thinking about what a new global economic order should look like.

#4: Whither the Middle East?

If the architecture of great power politics is now uncertain and will require creative diplomacy to adapt to and shape, that goes double in the troubled Middle East. Thus far, the Trump administration has mostly doubled down on supporting America’s longtime Middle East partners: giving a free hand to Israeli expansionism, backing Abdel Fattah al-Sisi’s military dictatorship in Egypt, and encouraging Saudi Crown Prince Mohammed bin Salman’s ambitious domestic reforms and his increasingly reckless regional behavior (most notably and tragically in Yemen), as well as ramping up pressure on America’s perennial bête noire, Iran. Trump has also stumbled into a pissing contest with President Recep Tayyip Erdogan in Turkey, but Erdogan is at least as prickly and desperate for scapegoats as Trump himself, and a cynic might argue that the two leaders deserve each other.

Although it’s possible that National Security Advisor John Bolton will still get the war with Iran that he has long favored, the bigger questions are what the U.S. role in the region will be over the longer term and how it will deal with problems that are going to come home to roost eventually. Former Presidents Clinton, George W. Bush, and Barack Obama all openly backed a two-state solution between Israel and the Palestinians, for example, and each tried to bring it about in their own not-very-effective fashion. The two-state solution is now on life support if not completely dead, however, which raises the obvious question: If “two states for two peoples” is impossible, then what is does the United States support? Does it believe Israel should become a one-state democracy, with full political rights for all inhabitants, including the Palestinians who are now under strict Israeli control and denied political rights? Do Americans think those Palestinians should be kept in a state of permanent subjugation (aka apartheid)? Is the United States in favor of Israel expelling them to some other country? Nobody really wants to think about awkward questions such as these, let alone answer them, but Trump’s successors are going to get asked. Might be a good idea to start formulating a response.

And that’s just one issue. The United States will also need to figure out if it wants to continue its (mostly futile) efforts to mold local politics all over the region or revert back to the strategy of “offshore balancing” that it employed there from 1945 to roughly 1991. Should it strive for a modus vivendi with Iran—in the service of maximizing U.S. leverage and maintaining a regional balance of power—or continue to flirt with regime change? And it is worth asking if the Middle East is even as vital a region as it once was, given the shale gas revolution back in the United States, the imperative to reduce fossil fuel consumption, and the rising strategic importance of Asia?

#5: Rebuilding Foreign Policy Capacity and Expertise

Unfortunately, the United States will be grappling with all of these problems with a severely depleted foreign-policy capacity. The travails of the State Department are well known, but there has also been exceptionally high turnover among key Trump aides and a general erosion of nonpartisan experience and expertise throughout the government. Trump’s repeated attacks on the intelligence agencies and his efforts to politicize the civil service aren’t helping either. Lord knows I’m critical of the “Blob” and its tendency not to hold itself accountable and to stick with strategies that aren’t working, but the answer is a better foreign-policy establishment, not amateur hour.

Accordingly, planning for a post-Trump world will also require a sustained effort to rebuild the institutional and administrative capacity for an effective foreign policy. Having an effective and professional civil and foreign service is critical in a system such as America’s, because so many top jobs get replaced whenever the White House changes hands, and many senior officials take months if not years to be nominated and confirmed. Moreover, a lot of them stay in their posts for only a year or two, creating further disarray and churn within the government. Add to that America’s odd practice of letting big campaign donors serve in important diplomatic posts or management positions, and you have a recipe for trouble.

This problem wouldn’t be a big issue if the United States had modest foreign-policy goals, but that is hardly the case. Instead, it is trying to run the world with perhaps the most disorganized and dysfunctional system imaginable. Accordingly, farsighted patriots need to start planning how to restore expertise, analytic capacity, and accountability now, so that this process can begin swiftly once Trump is gone.

The list presented here is far from complete, and it’s easy to think of other issues (e.g., climate change, proliferation, migration, etc.) where imaginative thinking is going to be needed. But my central point remains: Preserving the status quo against Trump’s wrecking operation is not enough. Instead of just playing defense, his critics need to start thinking about the positive goals they intend to pursue once he’s left the political stage. And there’s an added benefit in this course of action: The most obvious way to convince Americans that Trump’s policies are mistaken is to show them a better alternative.

Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University. @stephenwalt

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August 31, 2018
Turkey Looks for Ways Around the U.S. Sanctions on Iran
Aug 29, 2018 | 09:00 GMT

(ADEM ALTAN/AFP/Getty Images)

Highlights
- As it reinstates sanctions on Iran, the United States will try to close loopholes in the measures that Tehran has previously exploited to make it more difficult for other countries such as Turkey to continue trading with the Islamic republic.
- The currency and debt crises facing the Turkish economy will make banks and companies reluctant to risk defying the measures and incurring the associated costs.
- The Turkish administration’s desire to challenge the United States on sanctions and tariffs won’t outweigh these concerns for most firms and financial institutions.
Editor’s Note: This assessment is part of a series of analyses supporting Stratfor’s upcoming 2018 Fourth-Quarter Forecast. These assessments are designed to provide more context and in-depth analysis on key developments to watch in the coming quarter.

The U.S. government is rolling out its toughest sanctions yet on Iran to try to pressure Tehran to change its behavior. In the process, it’s forcing the countries that do business with the Islamic republic to make a tough choice: Fall in line with the United States or continue trading with Iran. The dilemma is especially difficult for Turkey, which, despite centurieslong rivalry with Iran, depends on the country for much of its oil and natural gas needs. Ankara recently announced that it would try to increase its trade with Iran from $10 billion per year in 2017 to $30 billion per year, notwithstanding the wave of new sanctions on Tehran set to take effect in November. Turkey’s financial problems, however, will limit the extent to which its government can push back against Washington.

The Big Picture

A new round of U.S. secondary sanctions will take effect on Iran in November, restricting financial transactions, trade and investment with the country. A few months out, some of Iran’s biggest trading partners are already slowing down their activities with the Islamic republic to avoid the expense of breaking the measures. The Turkish government will try to resist the new sanctions in its effort to undermine the U.S. strategy in the region. But the country’s economic problems will compel Turkish companies and banks to fall in line with the measures.

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Closing the Loopholes

Turkey is no stranger to navigating sanctions against Iran. In 2012, facing a U.N.-backed multilateral sanctions regime, it curtailed its trade with the Islamic republic, which fell from a high of $22 billion that year to $14 billion in 2014. (The collapse of global oil prices contributed to the sharp decline.) The move hampered investments between the two countries, though Turkey found ways to continue trading for Iranian goods, such as bartering or paying in local currencies. It also could keep importing natural gas from Iran, since those purchases were not subject to sanctions, an arrangement that gave the Islamic republic much-needed access to foreign currency. Ankara routed payments for natural gas through Halkbank, a major Turkish bank. Iran used the money to buy Turkish gold, which it then exchanged for currency through another institution in what became known as the “gas for gold scheme.”

This time around, the United States is taking steps to close some of the loopholes that enabled Turkey to maintain its trade ties with Iran. Washington, for example, is clamping down on gold transactions and keeping a closer eye on the re-export terminals that Iran has used to exchange goods with countries such as Turkey, Oman and the United Arab Emirates. Unlike in 2012, moreover, the U.S. government today looks unlikely to issue waivers for the sanctions on Iranian oil exports. Turkey’s oil refiner, Tupras, already has begun decreasing its crude oil purchases from Iran in anticipation of the measures’ November effective date. (The sanctions on natural gas exports are gentler by comparison, in part because Iranian natural gas is important for Europe.) And for its role in flouting the earlier sanctions, Halkbank is now tied up in a legal battle with the state of New York. The Turkish government, however, has not quite yielded to the U.S. sanctions pressure. Economy Minister Nihat Zeybekci promised that Ankara would defy the restrictions and “continue to trade with Iran as much as possible.”

A Risky Scheme

But opposing Washington is a risky strategy for Ankara. For one thing, relations between the two have been steadily deteriorating under the strain of issues such as the Trump administration’s steel and aluminum tariffs, Turkey’s ties with Russia and the Turkish government’s arbitrary arrests of U.S. citizens. The United States, in fact, has taken the unprecedented step of sanctioning Turkish officials for the continued detainment of an American pastor, Andrew Brunson. For another, Turkey’s economy is in disarray. The return of secondary sanctions on Iranian energy exports could add to its troubles by driving up the price of oil and, in turn, driving up domestic inflation while depressing the lira’s value. Facing a currency and debt crisis, the country’s banks and companies cannot afford to pay the price of disregarding U.S. sanctions. Ankara will try to offset the potential damage by extending loan maturities, for example, or making it easier to repackage debt, but its efforts won’t be enough to reassure most Turkish banks, since about half of their deposits are in U.S. dollars.

Nevertheless, trade will continue between Turkey and Iran. Turkey’s Ziraat Bank has arranged for a currency swap with Iranian Bank Melli that will enable $1.4 billion worth of trade between the two countries — the most advanced exchange Tehran has arranged so far with any trade partners. Some smaller Turkish companies will also try to cash in on the lucrative opportunity that circumventing the measures presents, though most will probably decide against it. Even if they don’t stop trade between Iran and Turkey, after all, the tougher U.S. sanctions will at least make it harder.

Connected Content
- Turkey: Cracking Down on Sanctions Violations, Washington Wounds Ankara Jan 04, 2018 | 21:01 GMT
- Iran’s Strategy for Surviving U.S. Sanctions May 30, 2018 | 20:05 GMT
- Turkey: Kurds, Iran and Prodding the United States Mar 08, 2017 | 08:03 GMT
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August 30, 2018