30 September 2014 News Round-up

Photo credit: AFP

Intensifying religious education at schools, especially the freedom for girls to wear headscarves in middle school have been discussed extensively in Turkey’s media over the last week. Foreign relations agenda was largely dominated with Turkey’s new position in the Western led coalition against Islamic State (ISIS). On the economic front, the TRY has been weakening against the dollar ensuring the new data to be released this week regarding US and European economies even more important.

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World Economic Forum

The World Economic Forum held a two day special meeting in Istanbul starting on the 29th of September. Amongst many others, Georgian President Giorgi Margvelashvili, EU Commission President Jose Manuel Barroso, and former U.K. Prime Minister and WEF Global Strategic Infrastructure Initiative chair Gordon Brown attended the conference, discussing regional and international initiatives on issues ranging from energy conservation to economic development. This was an important event ahead of Turkey’s presidency in the G-20 that will begin in December this year.

The Presence of Religion in Education

An Alevi union has protested against obligatory religion classes in schools. They underlined that religion classes usually had a sectarian focus, and that those not belonging to Sunni sect shall not have the obligation to attend.

The government has announced that girls in middle and high schools can now wear headscarves to school. The ban on wearing headscarves at schools have been lifted except for primary school students. The move is a first in the history of the Republic of Turkey and until now, only female students of Imam-Hatip Schools (schools proving intensive religious education) were allowed to wear headscarves during classes.

Violations of Rights and Freedoms

Two lawyers have filed a suit at the Constitutional Court, challenging the powers given to Turkey’s Telecommunications Directorate. The lawyers, who had also filed a case regarding the previous ban on Twitter, are claiming that the new bill is violating the privacy of private life and the constitution. For more information on the bill detailed by CEFTUS Insights, please click here.

Human Rights Watch has published a report asking the government to remove the bills on restrictions to internet usage and communication. The report claimed that the ruling government attempted to control the internet and media overall and silence dissenting voices in the country. The report advised the following to Turkey.

  1. Re-orienting the talks with the PKK to strengthen the focus on human rights
  2. Reforming the country’s criminal law
  3. Holding the perpetrators of human rights violations and violations of women’s rights accountable, even if they are civil servants
  4. Ending the restrictions on freedom of expressing, media, internet as well as freedom of assembly and organisation

To access the report itself, please click here.

‘Parallel State’

An operation has been made in Antalya, where 14 policemen have been arrested. The arrests have been made as part of the intensive operation against the ‘parallel structure of allegedly Gulenists’ within the state since December 2013 corruption probes.

The Supreme Board of Judges and Prosecutors (HSYK) elections are another round of government’s struggle against what it calls the parallel state, as well as part of its overall attempts to increase influence over the judiciary. The first round of HSYK elections occurred on September 23rd. The second round was completed on September 29th in the Council of State. However, the country is waiting for the upcoming elections in October 12th where the 10 core members will be elected. Already, the political tensions amongst institutions are intensifying in Turkey.

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After the return of 49 Turkish citizens held hostages by Islamic State (ISIS), Turkey’s position in the international effort against ISIS is becoming clearer. The draft bills which will be debated in parliament in the coming week will outline Turkey’s level of involvement in the crisis.

Coalition against ISIS

President Erdogan has stated that the Turkish government will be taking a strong stance against ISIS. He called ISIS a terrorist organisation, criticised their understanding of Islam and claimed that there were drug users and those with a tendency for violence amongst the ISIS members. He announced that Turkey will provide humanitarian and logistical help to the coalition fighting against ISIS.

Two new bills will be proposed to parliament on October 2nd, regarding the creation of buffer zones in Iraq and Syria. The parliament will debate two bills. According to PM Davutoglu, the situation and risks are different in the two countries and that is why the operation plans for both countries will be handled separately.

The Republican People’s Party (CHP) opposes a ground operation in the fight against ISIS in neighbouring countries of Syria and Iraq. Leader of the CHP, Kilicdaroglu, warned that Turkey is suffering enough from domestic issues and that Turkey has lost its dignity in the region due to mistaken policies on the Syrian war.

Bashar al-Assad speaking on TV interview stated that Syrian regime is not against Turkey’s involvement in the coalition to fight ISIS as, he added, countries like Saudi Arabia, Turkey, Qatar and Jordan are the reason for why ISIS was formed.

Syrian Kurdish Refugees and Turkey’s Resolution Process

Meanwhile, the Work and Social Security Minister Faruk Celik has stated that the belongings and animals of the refugees coming into Turkey from Syria and Iraq will also be allowed into Turkey. Previously, the refugees were having to leave their cattle, animals and certain goods behind.  Celik added that the government will build more and extensive camps for refugees who fled Syria.

Also, around 200 intellectuals have urged Turkey and the UN to take tangible action against the human rights violations being committed in Kobane in Syria.

Kurdish groups including the People’s Democratic Party (HDP) have been critical of the government’s actions regarding the ISIS attacks on the Kurdish regions of Syria and Iraq and the proposal of a buffer zone in Syria and warned the government that this would damage the Kurdish Resolution Process. Kurdish groups of the region stated that establishing a buffer zone in Syria would result in blocking Kurds and further deaths of civilians. 36 Women’s Associations also joined in the protests against the government’s plans in Syria.

Although Turkey has opened its borders for Syrian Kurds to cross, it is said that seven of nine crossing points remain closed. Authorities used tear gas several times to disperse crowds and control crossings of Turkish and Syrian Kurds to fight ISIS.

Deputy PM Yalcin Akdogan claimed that the Resolution Process aims at the Kurds of Turkey and that the case in Iraq and Syria is a different matter and needs to be assessed separately.

In the meantime, a group of students of Istanbul University protested against ISIS and called for stopping humanity crisis in Syria. Another group of students of allegedly ISIS supporters intervened and the two groups clashed with stones and plastic bottles.

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When will the Federal Reserve of the USA (FED) start increasing interest rates? This is the ultimate question that financial markets and especially Turkey are awaiting in order to find a way out of this limbo of investment between Emerging Markets and G-7. Not surprisingly, speeches by the members of the FED and data releases in the USA were on the top of agenda last week. The controversy on when to increase interest rates is still not solved within the FED and yet positive data from the US economy seems pulling the rate decision to a date earlier than expected. GDP growth for second quarter in the US is revised up to 4.6% from 4.2% due to increase in exports and investments. Accordingly USD has strengthened against all currencies including TRY. USDTRY closed the week at 2.2616. The FED’s interest rate decision will have an impact on Turkey’s economy in terms of its ability to attract foreign inflows and keep its exchange rate stable and relatively strong.

The steep upward movement in USDTRY caused the Central Bank of the Republic of Turkey (CBRT) to increase its sale of foreign currencies up to USD 40 million from USD 10 million. This was done in order to increase the supply of dollar in the market and help support the TRY against the dollar. Meanwhile, CBRT announced its rate decision on Thursday. The CBRT did not amend any interest rates. In the press release, it was announced that the positive effects of macroeconomic precautions taken in the beginning of the year on core inflation are manifesting in a decline, however increasing food prices are postponing a sustainable improvement on inflation.

On the other hand, new data released by the Turkish Statistical Institute pointed that capacity utilisation in Turkey has decreased 1% and reached 74.4% annually.

What is ahead of us then? There are three important events this week to be watched: First, employment data will be announced in the USA. Why is this important for Turkey? Improving economic data in the USA shifted global investors’ attention away from Emerging Markets (including Turkey) back to the USA. Capital outflow from Turkey will risk current account deficit financing, will put upward pressure on foreign currency rates and therefore interest rates and inflation.

Second, we will have many indicators being released such as inflation, growth and unemployment from Europe, and a speech by the governor (Draghi) of the European Central Bank (ECB) this week. Draghi is expected to give a clearer picture of what the ECB intends to do, including quantitative easing, against the deteriorating economic conditions in the EU. It is expected that a monetary expansion by the ECB would balance out monetary tightening of the FED. The new figures will be very important for Turkey, as higher consumer demand from a stronger European economy provides opportunities for Turkey’s exports and growth, while a stagnant Eurozone exacerbates the decline in demand for Turkey’s exports to its neighbours.

Third, the credit rating agency, Fitch Ratings, will release its Turkey report along with its sovereign rate decision. Credit rating agencies guide international markets and global investors on the level of risks for relevant countries and companies. In this sense, they are important for both reflecting risks and manipulating investors. The rumour is that Fitch will downgrade the outlook for Turkey from ‘stable’ to ‘negative’ but will keep the sovereign rate unchanged. This would signal the markets for an outflow of capital from Turkey.