Tag: economy

Could a Third Way save Afghanistan?

As Afghanistan marks its 101^st Anniversary as an independent state, both the international community and the Afghan people themselves are concerned about the country’s future pathway.

Since the fall of the monarchy the political system in Afghanistan has suffered a few major crises. The establishment of the Jihadi regimes and anti-patriotic coup along with global colonialism have resulted into the country’s destruction and led to the rise of Taliban. Moreover, President Ghani’s predecessor Hamid Karzai has led the country to a corrupt state unable to deal with the terrorist groups and Taliban.

Invaded by various foreign-backed powers and different political ideas (left and right) Afghanistan has lost its national identity and failed to build its own economic and political system. Torn with corruption, bloodshed and terrorism over the decades, the country today, as some analysts believe, could be saved by a Third Way. The Third Way is a philosophy used to describe the voice of masses, the silent majority of people all the world, including Afghanistan.

The Afghan society needs a reform. The Third Way and adoption of it by a society can lead Afghanistan to a modern state, different from which the country has experienced over the pat 40 years. The Third Way is based on the idea of establishing a secure and sustainable state where the rights of the citizens are respected regardless the influence of any political parties or social groups and ethnic, racial and religious beliefs. Ensuring security and social justice in Afghanistan can be reached through following the several principles.

A balance of Power. Afghanistan has enough of security and defense to maintain and consolidate the national power. Supported by a strong and professional political leadership with pro-national interests Afghanistan will be able to defend its sovereignty and territorial integrity.

A balance of domestic politics. The political and economic strategy of Afghanistan should be focused on creating sustainable living environment for its citizen and development of the economic and labor system that will allow Afghan citizens to use the country’s national resources and increase their living standards. In this scenario the Afghan people will stop looking for any possible ways to leave the country.

Balancing of economic growth and regional development will allow Afghan people to supply with jobs and comfortable life not only in major cities but also in the country’s provinces.

Finally, to achieve a Third Way the political system of the country should be based on national and democratic principles. The national principle means the country should use its own capacities and resources, while the democratic principle means that there is no other political regime acceptable in the country, but democracy.

By listening to the needs of the society and recovering its national values Afghanistan in the long-term perspective could become a safe and sovereign state with a sustainable economic growth.

August 22, 2020
Handling Turkey’s Fragile Economy AND The Syrian Cauldron
The Syrian Cauldron Could Spill Over

In the closing stages of the Syrian civil war, five key powers — Turkey, Russia, Iran, the United States and Israel — are competing for influence and control. Moscow and Tehran firmly back Syrian President Bashar al Assad but differ not only in the levels of support they provide but also in their overall objectives. Russia has used the Syrian conflict to expand its footprint in the Middle East and will be protective of its gains and materiel, though Moscow has little desire for open conflict with Turkey, the United States or Israel. Iran, on the other hand, will be more aggressive in its support for Damascus, especially in opposition to Ankara and Washington. Tehran will also continue to build up its forces inside Syria as a deterrent to Israel and as a means to supply Hezbollah, its powerful ally in nearby Lebanon. Israel will attempt to foil Iran’s plans but is intrinsically wary of sparking an unintended conflict with Russia.

Turkey and the United States remain opposed to Assad’s rule, but despite being NATO allies, they will pursue their own agendas in Syria. The United States is focused on eradicating remnants of the Islamic State in the country, though Washington more broadly seeks to remove Iranian influence from Syria as part of its anti-Iran strategy. Challenging Iran in Syria creates tension between the United States and Russia — Moscow cannot and will not force out Iran. Despite efforts to deconflict, the possibility of a military incident involving U.S. and Russian assets is not beyond the realm of possibility.
The possibility of a breakout conflict involving the major powers overseeing the Syrian conflict is conceivable in 2019.
Turkey, for its part, will maintain its focus on containing Kurdish forces in Syria. This is problematic for the United States, which uses the Kurdish People’s Protection Units (YPG), a group Ankara sees as a terrorist organization, as an ally against the Islamic State and as a proxy against Iran. In Syria’s northwest, Turkey’s pledge to protect Idlib province could stretch Ankara’s credibility as a local partner, especially given Damascus’ stated goal of total reconquest. Idlib could well become a flashpoint among Turkey, Iran, Syrian loyalist forces and, more remotely, Russia. Given the opposing interests in Syria, the potential for accidental escalation or even a state-to-state confrontation in 2019 is higher than ever, though every power will take steps to avoid this. Learn more about the possibilities for state-to-state confrontation and what 2019 will hold for the Syrian conflict.

Handling Turkey’s Fragile Economy

The biggest challenge facing Turkey in 2019 will be its distressed economy. As well as managing record inflation, President Recep Tayyip Erdogan will have to contend with a privately held corporate debt bill roughly equal to a quarter of the country’s gross domestic product — all while avoiding another lira crisis. Erdogan will be politically compelled to broaden his support base ahead of local elections in the spring, courting financially concerned Turks from across the electoral spectrum, some of whom have been turned off by the president’s nationalist policies. Turkey’s brittle economy also weakens Ankara’s position when it comes to dealing with key partners in the West. The U.S. relationship with Turkey is increasingly fractious thanks in part to Ankara’s growing ties with Russia and Washington’s support for the YPG in Syria.
President Recep Tayyip Erdogan will have his work cut out in 2019 to stabilize the Turkish economy.
Because of its vulnerability to U.S. economic pressure, Turkey will attempt to shore up foreign investment and maintain stable economic relations with Europe. However, Turkey’s historically complex relationship with the European Union will complicate that effort. Beyond stabilizing its economic situation, Ankara will continue to pursue other core imperatives in 2019, including the containment of autonomous Kurdish movements in Turkey’s former Ottoman domains. Ankara will exert whatever influence it can in northern Syria and continue military strikes against Kurdistan Workers’ Party positions in northern Iraq. Learn more about Turkey’s precarious economic position going into 2019.
December 6, 2018
Low-income Turks take early crisis blows

Turkey Pulse

Mustafa Sonmez September 17, 2018

Article Summary

Turkey’s economic turmoil is already bruising millions of minimum wage earners, who are grappling with a flurry of price hikes and the prospect of losing jobs.

REUTERS/Murad Sezer

People shop at the Spice Market, also known as the Egyptian Bazaar, in Istanbul, Turkey, Aug. 17, 2018.

Following six consecutive quarters of high growth rates, Turkey’s economy appears to be coursing toward stagnation and, ultimately, contraction, as all leading indicators have been pointing to a slowdown since July. For decades, Turkey has had one of the world’s most unfair income distributions. The working classes have taken the hardest blow during times of economic turmoil, responding by voting against the ruling party in the first elections.

Though Turks went to the polls as recently as June, economic grievances did not figure prominently in the votes of roughly half of the electorate, which backed President Recep Tayyip Erdogan and his Justice and Development Party (AKP). Yet, popular discontent has grown fast since then amid surging inflation, company bankruptcies, loan repayment woes and uncertainty over what the country’s economic future holds. Ankara’s extensive control of the media and judiciary — and the more oppressive nature of the presidential system that took effect in June — are discouraging street protests and other public expressions of discontent, but an undercurrent of resentment is clearly growing.

The muttering in low-income groups is rising primarily over the flurry of price hikes that Turks have come to encounter at the markets. Year-on-year consumer inflation hit nearly 18% in August, becoming increasingly ossified in a way that Turkey has not witnessed in many years.

Producer inflation is even higher, standing at 32%, which is an omen that consumer prices could rise even further in the coming months. Retailers say they have done their best to minimize the effect of producer hikes on consumer prices, but note they have reached the limit, reinforcing expectations that inflation would hit 20% by the year-end.

Among emerging economies, Turkey’s inflation is comparable only to that of Argentina, which is already under the watch of the International Monetary Fund. While prices soar, few Turks can hope for pay hikes matching the inflation rate. Out of the 19 million wage earners who make up 70% of the labor force, only about 3 million public employees enjoy some inflation-related pay adjustments, in addition to about 10 million pensioners. For the remaining 16 million wage earners in the private sector, such an adjustment facility does not exist. Moreover, only about 1 million of them are unionized, standing a chance of some organized effort to secure pay hikes. The overwhelming majority of 15 million wage earners are on their own.

Worse, more than 60% of wage earners work for the minimum wage of 1,600 Turkish liras or even less, according to the micro data of labor statistics by the Turkish Statistical Institute (TUIK). This is equivalent to $246, based on the dollar’s average price of 6.5 liras this month — a 42% decrease from the $426 that the minimum wage was worth at the beginning of the year.

According to the TUIK, the average home rent in Turkey is 1,000 liras, including related fees. Hence, a wage earner’s family needs the equivalent of at least two minimum wages to scratch along or second jobs for extra income or other forms of support. But even this is not enough to protect their purchasing power against 18% inflation, meaning that those families are growing relatively poorer.

The gloomy picture is now compounded by the risk of losing jobs. The growth rate is falling fast in sectors such as construction, agriculture, tourism and services, where minimum wage earners are heavily employed. Despite the 5.2% overall growth rate in the second quarter announced this week, the agricultural sector regressed by 1.5%, and the construction sector grew only 0.8%. The momentum loss in the manufacturing industry was also significant. Official figures for the third quarter are not yet available, but the pace of growth is known to be sharply falling.

Non-agricultural unemployment currently stands at more than 12.5%, and it will hardly be a surprise if the figure reaches 14-15% when the figures for August and September are released. The real fears, however, are about the fourth quarter, when a sharper contraction and layoffs are expected. For many families, losing jobs would mean an intolerable situation.

On top of all those risks, low-income groups are grappling with debt woes stemming from a loan bonanza that Turks had until several years ago as the banking sector was able to borrow for cheap from abroad. A significant increase in credit card use and consumer loans has saddled Turkish households with a hefty debt burden. According to figures by the Turkish Banks Association, the credit card and loan debt of households stands at some 567 billion Turkish liras ($92.5 billion). Setting aside the 244-billion-lira debt linked to car and home loans (which are presumed to belong to the more well-off), the debt in credit cards and personal finance loans — which is generally considered to belong to lower income groups — emerges as 323 billion liras ($52.7 billion).

Non-performing loans are already close to 6%, and litigations are on the rise. For both debtors and banks, the repayment problem raises the grave prospect of sequestration, which could lead many to lose homes, cars and even domestic appliances.

In sum, although the crisis has only reared its head, low-income groups are already under severe strain. It is important to note that those groups represent an important segment in the AKP electorate. How long their credit to the AKP will last or how much patience they will show is hard to predict. Yet, local elections are looming in March 2019. Will the voters punish the AKP at the ballot boxes? Could the government temper the crisis until March? These are a few of the questions that will hover in the coming months.

Found in: Turkish economy

Mustafa Sonmez is a Turkish economist and writer. He has worked as an economic commentator and editor for more than 30 years and authored some 30 books on the Turkish economy, media and the Kurdish question.

September 24, 2018
Making Sense of Turkey’s Economic Crisis
Aug 16, 2018 | 09:00 GMT

Rather than ridicule his every move, it would behoove observers of Turkey to understand the political drivers behind Erdogan’s eccentric economic philosophy.

Highlights

Even as Turkey’s economy bleeds capital in the midst of crisis, President Recep Tayyip Erdogan resists breaking from the outdated pro-growth economic model that built his political dynasty.

The president’s framing of the economic crisis as a foreign plot to weaken the state is proving effective in building nationalist fervor, giving him the option to move up municipal elections to November and hold off on economic tightening in the interim.

Geopolitical friction with the United States is bound to grow in the coming months, especially as Turkey comes under sharp scrutiny for violating Iran sanctions.

As Turkey balances among the great powers, Ankara will likely look for financial assistance from sources other than the International Monetary Fund, including China, Qatar and Kuwait.
Once again, economists and financial experts are pulling out their hair trying to understand the populist, authoritarian enigma that is Turkish President Recep Tayyip Erdogan. With the lira plunging to scary new depths, many will ask incredulously how the political steward of an $850 billion economy could be so reckless as to brand utterly rational investors as enemies of the state. Why, they ask, would the government accuse us of conspiring across global financial capitals to take Turkey down — when it’s precisely that kind of bombastic language that will send more capital fleeing? And why won’t Erdogan just strike a seemingly simple diplomatic bargain over an American pastor if that will surely bring down the lira’s fever? Welcome to Turkey, my friends. To understand Erdogan’s behavior today, we have to rewind 15 years.

The Big Picture

Stratfor’s Third-Quarter Forecast said that Turkey will face strong economic and political headwinds as President Recep Tayyip Erdogan strong-arms the central bank to defy market pressure and as frictions escalate with the United States. A financial storm is now battering Turkey and driving Ankara to look outside the West for help.

The Rise of a Pious Street Kid

At the time, Turkey was emerging from a heavy economic storm that had banks reeling and had sent the government into the arms of the International Monetary Fund (IMF) for billions of dollars in life support. Politically, the country had also reached a major turning point: a stunning 2002 election victory by the recently founded Justice and Development Party (AKP) gave the Islamist-oriented organization a resounding majority. The victory was largely attributed to the resounding charisma of a pugnacious and pious politician from the tough streets of Kasimpasa district in Istanbul. As mayor of Istanbul and upon becoming prime minister in 2003, a humble and impassioned Erdogan dazzled the disillusioned masses with his promises of economic reform, battles against corruption and the spread of religious tolerance as “democratic Muslims,” taking great care to distinguish himself from the more severe, anti-Western line of his mentor and the country’s first Islamist prime minister, Necmettin Erbakan.

Turks fed up with runaway inflation and the economic mismanagement of the old political establishment were eager for, or at least open to, a change. And change did come. Between 2002 and 2007, the gross domestic product grew at a galloping average of 7 percent ahead of the global financial crisis. GDP per capita nearly quadrupled in those years, giving rise to a new and optimistic middle class. The Western world, meanwhile, eyed this emerging market darling with great interest. Turkey was on a rapid economic rise and was poised to provide a strategic bridge to markets east and west. And after the 2001 banking crisis forced it to make some deep and painful repairs, Turkey appeared locked into a reform path, reinforced by Ankara’s political decision to formally begin negotiations for EU accession in 2005. The West was slow to recognize, however, that Turkey was also awakening from its post-Cold War slumber. The West was also slow to understand that, under an Islamist-oriented political model, Turkey would be naturally drawn to the chaos that was being created in its Middle Eastern backyard by the United States with the start of the Iraq war. The West’s nostalgic view of a secular and stable NATO ally in an otherwise volatile part of the world was already starting to crack.

Old Habits Die Hard

To make sense of Erdogan’s virulent resistance to tightening monetary and fiscal policy in the face of crisis, remember one simple fact: He built his political dynasty during an era of heady growth and will remain loath to break from an economic model that has brought him immense success. An economic environment characterized by low interest rates, booming consumption, heavy portfolio inflows and massive, government-backed construction projects gave him the ingredients he needed to build an extensive patronage network. Erdogan worked quickly and craftily to secure his political base, first by building up allegiances in the heartland and by replacing secular elites from key institutions with loyalists. Then, he aggressively neutralized the military’s political clout and eventually sacrificed his former Islamist allies in the Gulen movement.

The anti-corruption banner that he waved in coming to power gradually gave way to unapologetically blatant displays of nepotism. This was to underscore the perception that political challenges to Erdogan would invite only economic ruin while ardent support would bring riches. As the country’s EU accession bid plummeted in priority and as Erdogan cemented institutional dominance in the country, the Turkish leader was easily able to fend off a broader anti-corruption wave that was sweeping other emerging economies.

A strategy of fixating on a core base of support to consolidate power while staving off economic correction cycles has served Erdogan well, even against daunting odds. No matter how polarizing Erdogan has become to Turkey’s deeply divided electorate, he has maintained the steadfast support of roughly half of the electorate. The more his electoral margins get shaved down in each cycle, the more resourceful he has to be in maintaining his already strong grip on power. This explains the gamble he took on a 2017 constitutional referendum to empower and extend his tenure as president. It also explains why he is ideologically stuck to the outdated economic model that fueled his political ascent. It is little wonder then that Erdogan replaced market-friendly technocrats in his Cabinet with his inexperienced but ever loyal son-in-law to run the powerful Ministry of Treasury and Finance. For better or for worse, Erdogan is determined to stay on this economic course for as long as he can and does not care to have technocrats get in his way.

When Erdogan declares war against “evil” interest rates and likens dollars, euros and gold to “bullets, cannonballs and missiles” in a war that aims to take Turkey down, he is channeling a deep-seated paranoia rooted in the 1920 Treaty of Sevres, which dismembered the Ottoman Empire at the hands of Allied powers.

Fanning the Flames of Nationalism

When Erdogan declares war against “evil” interest rates and likens dollars, euros and gold to “bullets, cannonballs and missiles” in a war that aims to take Turkey down, he is not entertaining the Western financial community; he is channeling a deep-seated paranoia rooted in the 1920 Treaty of Sevres, which dismembered the Ottoman Empire at the hands of Allied powers. The so-called Sevres syndrome can be channeled in Turkish politics to this day to raise hysteria of outside powers conspiring to kick Turkey while its down in the dust. It can also be used to enforce politically motivated boycotts of foreign goods. Many educated Turks who despise Erdogan but are bombarded with propaganda of Turkey coming under economic attack are rationally trying to sell lira and secure more stable assets, but they are also seriously questioning whether their country is coming under siege by foreign powers. U.S. President Donald Trump’s attempt to fan Turkey’s economic flames through a tariff-loaded tweet last week only compounded those suspicions.

Trump is also unintentionally boosting Erdogan’s political credibility at home. Erdogan has already crossed the big referendum-and-election hurdle to secure the presidency for at least the next five years and potentially the next decade. In the short term, though, he has to worry about municipal elections next year. Pro-government pundits say they are getting signals that Erdogan may move up the local elections by six months, to Nov. 4 this year. The reasoning would be that stronger economic headwinds are coming anyway, and Erdogan may as well take advantage of the political solidarity he can reap from his nationalist battle cries against enemy speculators. This is a rumor that I would take seriously. It would also imply that any serious structural reform would only have a chance of coming after the election while Turkey tries to ride out the storm in the near term.

An Unforgiving Geopolitical Climate

The geopolitical frictions surrounding Turkey are bound to only exacerbate the country’s economic crisis in the coming months. The U.S.-Turkey diplomatic standoff, driven by Trump’s attempt to curry favor with American evangelicals by pushing for the release of pastor Andrew Brunson, is a piece of shrapnel in the minefield of U.S.-Turkey relations. After framing Brunson for colluding with the same Islamist movement led by Fethullah Gulen that tried and failed to overthrow Erdogan in a coup, Ankara will treat any diplomatic concession involving Brunson as a compromise of its national security and will exact a significant price for his release. This explains Erdogan’s arguably unrealistic attempt to equate Brunson with Gulen in a negotiated exchange and the current diplomatic logjam.

Beyond Brunson and Gulen, Turkey is biding its time for the United States to extricate itself from its Middle Eastern backyard. In Syria, Turkey has been adamantly opposed to U.S. support for Kurdish fighters in the Syrian Democratic Forces (SDF), but it can also see the endgame to the civil war approaching and will maintain a strong foothold in the country to ensure that Kurdish cantons in northern Syria remain divided and politically neutralized well beyond the United States’ stay in the region. In the meantime, U.S. support for the SDF and Turkey’s imperative to divide and weaken the Kurds in Syria will remain a significant friction point.

Turkey is also expected to be one of the biggest violators of Iran sanctions in the coming months as the United States prepares to snap back hard-hitting energy penalties in November. Turkey depends on foreign imports for nearly all its energy needs, and Iran is a significant supplier of its oil and natural gas. Even today, Ankara is trying to negotiate a lesser punishment for the state-run Halkbank, the main Turkish bank involved in violating Iran sanctions under the previous U.S. administration. Though it will take time for U.S. investigations and cases against Turkey to build in the current sanctions wave, the looming threat of secondary U.S. sanctions will add another external stressor on the country’s banking sector in trying economic times.

In Search of New Allies

Turkey’s search for economic assistance will be a fascinating prism into the balancing act of a strategic middle power caught in the throes of great power competition. The United States is facing rising competition from China and Russia, which are also seeking out like-minded partners to challenge the U.S.-led order. Turkey will maintain a foothold in the West and is not about to walk away from a critical strategic alliance such as NATO. But it is also trying to balance between these Eastern and Western poles, so it will be focusing on building up its strategic ties with China while carefully managing its relationship with old geopolitical foes such as Russia. In the case of the latter, this will involve Turkey maintaining heavy energy ties and building defense cooperation with Russia despite U.S. congressional attempts to coerce Turkey into cutting those ties.

In a time of financial need, economically embattled states under the siege of U.S. sanctions, such as Russia and Iran, are obviously not going to be Turkey’s safety net. And it will also be loath to return hat in hand to the IMF — something that a technocrat like Argentine President Mauricio Macri may be able to stomach at heavy political cost, but not an ultranationalist like Erdogan. China, however, has the financial capacity to extend sizable loans to countries that hold strategic value, as can be seen in Beijing’s extraordinary financial patience with Venezuela and the imminent likelihood of it — instead of the IMF — extending a $10 billion loan to Pakistan. Similarly, China may see a strategic interest in building ties to a state, such as Turkey, that has critical connections to the Belt and Road Initiative, that is pivotal to both United States and Russian foreign policy, and whose cooperation Beijing needs to limit state backing for Turkic militants operating in Syria and in China’s own Uighur borderland. Beyond China, Turkey may also look to the Gulf powers of Qatar and Kuwait for assistance.

Turkey’s political defiance in the face of textbook economic challenges will never cease to shock and awe financial investors expecting countries to pursue the maximum economic benefit. But Turkey’s economy cannot be understood in a vacuum. Erdogan is merely the contemporary lead in a centuries-old tale of geopolitical intrigue. Protecting a political dynasty in the throes of East-West competition requires a different playbook altogether.
August 17, 2018