Home Research Briefings 16 September 2014 News Round-up
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16 September 2014 News Round-up

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While attention has been focused on Turkey’s position within the international coalition against Islamic State (IS) in Iraq, numerous new and controversial laws have been passed by parliament. On the economic front, low growth rate for the second quarter, the renewed focus on combating inflation and the ever increasing worries over US Fed’s interest rate hike have been the dominating the headlines.

[tabby title=”Domestic Politics”]

Turkish Parliament approved omnibus bills

Some 2,994 items of law in separate omnibus bills have been approved in speedy legislative sessions in parliament last week. The bills cover employment law especially with regards to manual work and mining industry, regulations of privatisation, education and internet.

  • Miners and employees in tunnel and drain construction sites are protected with further regulations on their insurance and pension.
  • Court decisions on re-appointments of civil servants can be delayed by the government or the authority in question by two years. This item will particularly affect the police officers and high-state officials who have been reshuffled or removed from their posts since December 2013 corruption probes.
  • Further powers to Turkey’s Telecommunications Directorate (TIB) to monitor users and block websites without court order have been granted by the Turkish parliament. TIB will be allowed to shut down a website four hours after the content in question had been published. The TIB will then have 24 hours to apply to obtain a court order. The court will have 48 hours to grant a verdict. Also, internet traffic can be collected and stored without a court decision by TIB and directly without correspondence with private service providers. It is claimed, with this direct access to internet data by TIB, that the authorities can act immediately in cases of terrorism threats. It is however problematic since no restrictions or public law will apply as to how the data will be stored and shared. While the Human rights Watch have criticized the move for increasing government oversight of online activity, the main opposition party has appealed to the Constitutional Court to rescind this law.
Mayor of Diyarbakir called for financial authority

Mayor of Diyarbakir, Gulten Kisanak who is the former deputy of the Peace and Democracy Party (BDP), asserted that local authorities, referring particularly to Turkey’s south-east, must have not only political but also financial authority. Speaking at the ‘Economic Policies and Structuring of Local Administrations’ workshop, Kisanak was critical of centralisation of power in Turkey and stated that Turkey’s reservations regarding articles in the Council of Europe’s European Charter of Local Self-Government result in blocking financial resources to local authorities.

Kurdish language teaching

The Education Ministry has announced that Kurdish language teachers will be appointed to public schools. The appointments came as part of the Resolutionn Process. However, only 18 teachers have been assigned despite the size of Kurdish population of Turkey.

A school teaching in Kurdish has been shut down by the government. Since the law only provides for Kurdish to be taught as an optional course in schools, the closing down of the school which taught entirely in Kurdish was legally justified by the authorities. Meanwhile, the People’s Democracy Party (HDP) has held demonstrations in Istanbul highlighting their demands for the right to be educated in one’s mother tongue.

[tabby title=”Foreign Relations”]

Relations with the EU will be re-vitalised

Deputy Prime Minister Bulent Arinc has announced that Turkey will re-vitalise its relations with the European Union (EU). After a 7  hour long cabinet meeting held under the new Prime Minister Ahmet Davutoglu, Deputy PM Arinc stated that the government is preparing a road map for accelerating the country’s accession into the EU. The first stage of the road map will detail the action plan for the remainder of 2014, the second road map will focus on policies until parliamentary elections in June 2015 and the last stage will focus on the years until 2019.

Alongside this new focus on the EU, Turkey’s Arab neighbours have posed a more pressing concern for Turkey’s foreign policy makers. Although President Erdogan and PM Davutoglu have been trying to improve relations with their new Iraqi counterparts President Fuad Masum and PM Haidar al-Abadi, their efforts have not gone beyond congratulatory phone calls.

Turkey refrains from US-led coalition to combat IS

The Turkish government has not signed the memorandum for cooperation against Islamic State (IS) at the end of the international meeting held in Saudi Arabia last week, which was signed by Egypt, Iraq, Jordan, Lebanon, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE in the Middle East. Turkey has actually decided to refrain from actively helping the Iraqi government and the Western coalition to combat ISIS. Last week, the Turkish government has refused to allow the US-led coalition to use its airbases to combat IS in northern Iraq. Turkey has also refused to be involved in any combat mission within Iraq.

However, as the insecurity at its borders continue, the Turkish government has decided to improve the quality of its military at ‘sensitive spots’ at its borders. New tenders have been offered to companies to upgrade the security provision at the borders.

In the meantime, President Erdogan has visited Qatar. The meeting has mainly focused on economic relations between the two countries. On his way back from the visit, the President’s statements touched upon certain issues of foreign policy. According to Erdogan;

  • The strategic partnership between Turkey and the US is continuing.
  • Turkey is ready to participate in humanitarian operations in Iraq.
  • The Turkish armed forces are working on a plan to form a buffer zone in Iraq and Syria.
  • If there are no legal obstacles, leaders of the Egyptian Muslim Brotherhood who have been exiled to Qatar will be welcomed in Turkey.

[tabby title=”Economy”]

Speculations on the FED’s fund rates and the data explosion in Turkey dominated the markets last week.

A research paper published by the San Francisco Reserve has led to turmoil in the global markets and heated up the currency in Turkey. The paper claims that “markets became too complacent about the US interest rates staying too low, which has been a key driver behind the strength of the dollar” and raised concerns over an early rate hike. Speculations on FED rate depreciated TRY the second most among 24 emerging currencies. As we are writing this note, TRY is floating around 2.21. These hawkish statements were furthered by the governor of Bank of England, Mark Carney. He said that the bank may increase the interest rates next spring if labour markets continue to improve. Interest rates in other countries are very important for Turkey since they affect the flow of funds toward emerging markets and Turkey needs such foreign funds to finance a huge current account deficit.

Balance of payments data was released that shows the deficit Turkey needs to finance.  The current account deficit was announced as USD 2.6 billion in July amounting to cumulative USD 48.5 billion annually.

  • A closer look at the financing of this deficit, portfolio investments contributed USD 3.7 billion and foreign direct investments contributed USD 1 billion in July.
  • Compared to the first six months of last year, both accounts shrank considerably whilst a remarkable increase of USD 8.2 billion in net omissions account.

Another important data was on GDP. Turkish economy grew less than expectation at 2.1 % annually.

  • The composition of the growth reveals that the greatest contribution comes from net exports in contrast to continuing deceleration in domestic consumption.
  • What is striking here is the dramatic decrease in investment spending.
  • With the latest data and revision on the growth of first quarter to 4.7%, Turkish economy grew 3.3% in the first half of this year.

Economic managers of Turkey have responded to the worse than expected growth rate in the second quarter of 2014.

  • The minister of finance, Mehmet Simsek, noted that the economy lost acceleration and this may pushed down the target of 4% growth in the medium term. Simsek emphasised that the most important problem to be solved for Turkish economy is inflation and the independence and credibility of the Central Bank of the Republic of Turkey is vital in the war on inflation.
  • The governor of the CBRT confirmed that the bank will continue its tight monetary stance until there is visible improvement in inflation.  He warned that a sharp cut in the interest rates would increase demand on foreign exchange and trigger inflation risks.
  • The minister of economy, Zeybekci, in contrast to Simsek and Basci, complained about the slow growth in domestic consumption and its limitations on the economic growth. However, industrial production in July increased 3.6% annually in July and raised hopes for growth in the third quarter.
Irregularities in Turkish economy have already been brought to the attention by Fitch Ratings

Fitch Ratings specifically emphasised the possible difficulties during the rebalancing period. For example, Fitch Ratings revised its expectations on the ratio of the current account deficit to GDP to 6.2% and 5.7% for 2014 and 2015 respectively and warned against the negative effects of slowing down of external financing on current account deficit. Fitch also drew attention to increasing political pressure on the CBRT for an urgent rate cut due to slower than expected growth.

Meanwhile, this week will be very important both for global and domestic markets. On Wednesday, minutes of meeting of Bank of England, Eurozone inflation, US inflation, interest rate decision of FED and its monetary policy will be announced. On Thursday, there is a referendum in UK for Scottish independence. It seems that this week will be a nail biter.

[tabby title=”On a different note”]

  • According to news portal Bianet reports, 22 women were killed by men in August 2014.
  • Turkey’s Ambassodor to the United Kingdom, Abdurrahman Bilgic, expressed that Turkey is keen to improve relations with Scotland and will support the country irrespective of the outcome of the independence referandum on 18 September 2014. Turkey has a Consulate in Edinburgh and around 2,500 Turkish citizens live in Scotland.
  • Despite the right to protest and assembly, a number of charges filed against the Gezi Park protesters since the 1 month long protests took place in Istanbul and several other cities of Turkey in June 2013. One of the charges is filed for a football fan club ‘Carsi’ in Besiktas Istanbul for involvement in the protests. They are charged with ‘coup attempt’ against the government.
  • The 6th Hrant Dink award has been granted to Sebnem Korur Financi and Angie Zelter. Financi is the head of the Human Rights Fondation in Turkey. She is most renowned for her work on identifying and rehabilitating torture victims. Zelter has been a peace activist, known for her peaceful activism against militarism and nuclear proliferation.
  • The Foreign Economic Relations Board (DEİK) will now function under the Ministry of Economy, according to a new law. DEIK was established as a private body to ensure free foreign trade in 1986. It is claimed that the move will boost Turkey’s foreign trade although some critics suspect that direct control over DEIK is contrary to liberal economic policies.

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