c h a p t e r 1 Political Outlook SWOT Analysis Strengths Government policy is underpinned by long-term EU accession goals suggesting medium-term policy-continuity oriented around political and economic liberalisation. Turkey has strong relations with the US, which has consistently supported it in multilateral institutions such as the IMF. In contrast to some other Muslim states, the strong traditions of secularism and the gradual entrenchment of parliamentary democracy limit the appeal of extremist groups. Weaknesses There has been no resolution to the decades-old partition of Cyprus. Kurdish desire for autonomy or separatism which could be encouraged by Kurdish groups push for autonomy in northern Iraq presents some threat to stability and political reform. Political divisions between moderate Islamists and secularists are a constant source of tension that have frequently delayed the policymaking process in the past. Opportunities Turkey has positioned itself as a moderate player in Middle Eastern affairs, acting as a mediator in conflicts and pushing for rapprochement in its long-strained links with Armenia. Threats Anti-Western groups, Kurdish separatists and al-qaeda sympathisers could commit further terrorist attacks. Divisions between the moderate Islamist government and secular institutions including the judiciary and military pose serious threats to the policy agenda. www.businessmonitor.com 9
XXXXXXXXXXX turkey Q3 2009 QX 2009 BMI Political Risk Ratings Despite benefiting from a pro-market reform, single party government with the only parliamentary majority in south-eastern Europe, political risks are expected to remain significant in Turkey through the long term. Social divisions between moderate Islamists in government and secularists in the opposition parties, military and judiciary are expected to continue posing challenges to the stability of the policy agenda. Moreover, long-standing ethnic divisions between the majority Turkish and minority Kurdish populations will remain a key variable raising security risks, especially in the south-eastern part of the country. Terrorist activity by the separatist Kurdish Worker s Party (PKK) may continue to pose a serious challenge to long-term political cohesion. S-T Political Rank Trend Turkmenistan 86.0 9 = Kazakhstan 81.9 15 = Slovakia 74.4 18 = Greece 74.2 19 = Slovenia 74.2 20 = Poland 73.8 21 = Cyprus 72.1 23 = Lithuania 71.7 24 = Croatia 70.6 25 = Azerbaijan 66.7 28 = Latvia 66.5 29 = Hungary 64.8 30 = Estonia 64.2 31 = Uzbekistan 62.9 32 = Belarus 62.5 33 = Czech Republic 61.9 34 = Tajikistan 61.7 35 = Macedonia 61.5 36 = Kyrgyzstan 61.5 37 = Albania 59.2 38 = Romania 58.3 39 = Bulgaria 57.7 40 = Armenia 56.7 41 = Montenegro 56.7 42 = Russia 56.7 43 = Turkey 51.0 45 - Serbia 44.6 46 = Georgia 43.5 47 = Moldova 42.5 48 = Bosnia-Herzegovina 39.2 49 = Ukraine 37.1 50 = Regional average 70.0 Global average 66.9 Emerging Markets average 64.1 L-T Political Rank Trend Slovenia 83.3 14 = Poland 82.4 16 = Greece 82.3 17 = Latvia 82.1 19 = Czech Republic 80.3 21 = Hungary 80.2 22 = Croatia 78.2 24 = Lithuania 77.3 25 = Cyprus 77.3 26 = Estonia 76.8 27 = Slovakia 74.2 29 = Romania 71.6 30 = Bulgaria 68.5 32 = Kazakhstan 65.6 33 = Albania 64.8 34 = Macedonia 61.9 35 = Uzbekistan 58.1 36 = Azerbaijan 55.9 37 = Armenia 53.6 38 = Turkey 52.9 39 = Montenegro 52.5 40 = Turkmenistan 51.6 41 = Georgia 50.0 42 = Russia 48.9 43 = Ukraine 48.5 44 = Bosnia-Herzegovina 48.2 45 = Serbia 47.5 46 = Kyrgyzstan 40.3 47 = Tajikistan 40.2 48 = Moldova 38.3 49 = Belarus 32.4 50 = Regional average 71.2 Global average 63.1 Emerging Markets average 59.4 10 www.businessmonitor.com
political outlook Domestic Politics Cabinet Shuffle Bodes Well For Market Reforms Our view that a cabinet shuffle in Turkey was likely after local elections on March 29 has played out (see our online service, March 30, Opposition Gains To Prompt Policy Re- Think ). In his largest cabinet shuffle since 2002, Prime Minister Tayyip Erdogan sacked eight ministers, promoted nine and moved a further seven to new portfolios on May 1. The most significant of the moves was the transfer of Ali Babacan from the Foreign Ministry to a new enlarged economy portfolio. Whereas responsibilities for the economy were previously held under three separate ministers, this will now be reduced to two, with the Economy Minister directly in charge of the banking sector and economic policy. Importantly, the selection of Babacan for the more powerful new economy post sends a strong signal of the general policy direction of the government amid the global recession. After the losses in local elections, we cautioned that there were elevated risks of a policy shift in the AKP, but it is now clear that Erdogan intends to maintain his government s core economic direction. Babacan was previously in charge of the economy ministry from 2002-2007 and was an integral figure in the reform programme which underpinned broad economic liberalisation, strong growth, disinflation and higher foreign investment through this period. By returning him to this portfolio, while simultaneously expanding its responsibilities, Erdogan has clearly shown his intention to continue long-term policy commitments to market reforms. Erdogan s shuffle of Mehmet Simsek, a known fiscal conservative, to the Finance portfolio, further reinforces this policy view. That said, we caution that this does not alter our view for a significant expansionary fiscal policy in 2009 and 2010. Indeed, we still maintain that there will be a substantial widening of the fiscal deficit this year. The economic contraction in Turkey is expected to reach 5.7% and as the government deals with falling revenues while also providing a fiscal stimulus, we forecast the general government budget deficit to come in at 6.3% of GDP. Foreign Policy Attention To Shift Under Davutoglu? To replace Babacan, Erdogan has appointed Ahmet Davutoglu, a foreign policy adviser, to the top position at foreign affairs. Breaking with convention, the new foreign minister will be the only cabinet member to not hold a seat in parliament. Davutoglu s policy focus in his previous post was to encourage an increasingly proactive Turkish role in the Middle East, which has led to speculation that he will de-emphasize the government s EU membership policy. While we stress that the country s EU reform agenda is expected to remain in play, we also maintain that Turkey s foreign policy objectives will increasingly include regions outside the EU. The appointment of Davutoglu is likely to reinforce the government s efforts for the country to play a greater regional role and broaden its foreign policy objectives in the Caucasus and Middle East. This has the potential in the long run to alter Turkey s strategic policy trajectory away from the EU. BMI View Turkish Prime Minister Tayyip Erdogan s May 1 cabinet shuffle is a strong indication of his government s commitment to market reforms. The elevation of Ali Babacan to an enlarged economy portfolio, in particular, signals a broad continuation of economic policies. While we still believe fiscal policy will be expansionary in 2009 and 2010, we hold that core policy foci, including economic liberalisation in the long term, remain on the cards. Ali Babacan Ahmet Davutoglu Mehmet Simsek Bulent Arinc Nihat Ergun Source: BMI Who s In... New Cabinet Members New Position Deputy PM, Min. of Economy Min. of Foreign Affairs Old Position Min. of Foreign Affairs Foreign Policy Advisor to PM Min. of Finance Min. of Economy Deputy Prime Minister Min. of Industry Sadullah Ergin Min. of Justice Omer Dincer Nimet Cubukcu Zafer Caglayan Min. of Labour and Social Sec. Min. of Education State Min. for Foreign Trade Selma Aliye Kavaf State Min. Taner Yildiz Min. of Energy and Natural Resources Min. for Women and Children Cevdet Yilmaz State Min. Mustafa Demir Min. of Public Works and Housing Hayati Yazici State Min. www.businessmonitor.com 11
XXXXXXXXXXX turkey Q3 2009 QX 2009 Domestic Politics II BMI View We believe that momentum is gaining toward some form of political settlement in Turkey s long-standing conflict with the terrorist Kurdistan Worker s Party (PKK). That said, we stress that a quick resolution is not part of our core scenario and highlight several key risks which suggest that recent moves toward conciliation remain tentative at best. No Quick End To PKK Conflict Efforts to end the long-standing conflict between the terrorist Kurdistan Worker s Party (PKK) and the Turkish government appear to be gaining tentative momentum. The first signal that government policy was aiming to shift the socio-political dynamic governing minority Kurdish rights occurred just after the election of Abdullah Gul to the presidency and May 2007 and the subsequent re-election of the Justice and Development Party (AKP) government. Since then, Ankara has liberalised the laws and regulations governing Kurdish language rights, which included financing the formation of a state-run Kurdish language television station and sponsoring the translation of the Qu ran into Kurdish. Troubled Region Turkey Map Several factors have underpinned the government s efforts to expand minority cultural rights. The restrictions placed on ethnic Kurdish language and culture have been a particular sticking point with the European Union during accession negotiations. The EU has long pushed for a liberalisation of minority rights in Turkey and specifically argued against the restrictions placed on ethnic Kurds. Domestically, the AKP has targeted the Kurdish minority as a group through which to expand its electoral base. Indeed, in both the 2007 parliamentary and 2009 local elections, the governing party focused on the south-eastern region predominated by Kurds for electoral expansion. By campaigning to eliminate some of the stiffest restrictions on language rights, the AKP was able to become the largest party in several south-eastern provinces. Source: BMI; Bolded area represents South-East Anatolia: provinces in the region include Adiyaman, Batman, Diyarbakir, Gaziantep, Kilis, Mardin, Sanliurfa, Siirt and Sirnak As the Turkish government moves to improve ethnic Kurdish rights, conciliatory signals have also been coming from the PKK leadership. The PKK declared a unilateral ceasefire in February, which they recently extended on June 1. PKK Leader Murat Karayilan has also publicly stated that he has dropped his party s demand for an independent Kurdish state while also seemingly renouncing the use of violence. To be sure, the PKK s declaration of a ceasefire is not a conclusive signal of a desire for reconciliation, especially when considering that the party has done so in the past only to resume terrorist activities. Moreover, following upon the Turkish army s raids on PKK bases in northern Iraq in 2008, it is likely that from a tactical basis, the PKK is ill positioned to launch large-scale Table: Turkey-PKK Conflict Timeline 1974 The Ankara Democratic Association of Higher Education (ADYOD) is founded. 1978 The ADYOD formally adopts the name Kurdistan Worker s Party (PKK) and begins an urban warfare campaign that lasts until 1980. 1984 PKK begins a sustained guerilla operation against government and civilian targets. 1989 PKK begins transnationalisation process, establishing bases outside Turkey and forging relations with foreign organisations and governments. 1995 Operation Steel : Turkish military forces invade northern Iraq to neutralise PKK militant bases. 1997 Operation Hammer and Operation Dawn : Turkish military forces invade northern Iraq again. 1998 Abdullah Ocalan, founder and leader of the PKK is arrested by Turkish intelligence forces in Kenya. 1999 PKK begins using suicide bombing as a terrorist tactic. 2004 European Council declares the PKK as an illegal terrorist organisation. Feb-08 More than 10,000 Turkish soldiers engage in a cross-border incursion into northern Iraq, targeting PKK bases. Aug-08 PKK claims responsibility for the bombing of the Baku-Tbilisi-Ceyhan Pipeline. Apr-09 PKK declares a unilateral ceasefire. May-09 PKK Leader Murat Karayilan states that he no longer advocates for an independent ethnic-kurdish state. Source: BMI 12 www.businessmonitor.com
political outlook guerrilla activities at present in any case. That said, we note that the renunciation of the demand for a sovereign homeland, if backed up over an extended period would mark a sea-change in PKK policy, potentially establishing the tentative basis for a peaceful resolution with the government. The separatist angle of the PKK and its use of violence are the two key sticking points preventing a government amnesty for the armed guerrilla group. As such, should the PKK stick to its message of non-violence while also backing this up by halting its armed campaign, then this would be a very positive signal for moves toward a permanent political resolution to the conflict. Big Risks Remain To be sure, the long running nature of the conflict and mutual suspicions preclude any chance for a quick peace process. It is important to stress that the renunciation of violence Table: Political Overview System of Government Head of State Head of Government Last Election Parliamentary July 22, 2007 Composition Of Current Government Key Figures Main Political Parties (number of seats in parliament) Extra-Parliamentary Opposition? Parliamentary democratic republic, universal suffrage: 550-Seat Grand National Assembly (four-year term). Executive power rests with PM. President (Abdullah Gul), one five-year term, may only be re-elected once Prime Minister Recep Tayyip Erdogan (Justice and Development Party) Presidential August 28 2007 Justice and Development Party (AKP) Next Election Parliamentary 2011 Ongoing Disputes Key Relations/ Treaties BMI Short-Term Political Risk Rating 51.0 BMI Structural Political Risk Rating 52.9 Source: BMI Economy Ali Babacan (AKP), Finance Mehmet Simsek (AKP), Foreign Affairs Ahmet Davutoglu (AKP), Governor of the Central Bank of the Republic of Turkey Durmus Yilmaz, Chief of the General Staff Ilker Basbug, President of the Constitutional Court Hasim Kilic Justice and Development (341 seats): Centrist, pro-market, moderate Islamist party akin to European Christian Democrats. Core policies include structural economic reforms with the ultimate goal of achieving membership in the European Union. Led by PM Tayyip Erdogan Republican People s Party (112): Centre-left, social-democratic secularist party with strong nationalist leanings. Euro-skeptic party that advocates institutional and economic reforms that would undermine the existing secularist constitution. Led by Deniz Baikal. Nationalist Movement Party (71): Ultra-nationalist, populist party. Advocates a unitary state and abandoning the EU-accession process. Led by Devlet Bahceli. Democratic Society Party (26): Ethnic Kurdish nationalist party. Main policy aim is to achieve autonomy for ethnic-kurdish regions. Alleged to have connections with outlawed militant Kurdish Worker s Party. Its parliamentary members are officially listed as independents. Led by Ahmet Turk. Kurdistan Worker s Party has conducted an armed campaign against the government since the 1970s. It employs terrorist tactics including bombing civilian locations in major cities. Presidential 2012 Kurdish Insurgents: The government has fought an insurgency led by the ethnic-kurdish separatist Kurdistan s Worker s Party (PKK), which operates from cross border bases in northern Iraq. Military operations in Iraq have escalated in 2007/2008. Armenia: Turkey does not maintain diplomatic relations with Armenia over persisting disagreements over the historical representation of the killing of ethnic Armenians during the Ottoman era. Cyprus: Turkey refuses to recognise the Nicosia-based ethnic-greek government on Cyprus and is the only state in the world to recognise the self-proclaimed Turkish Republic of Northern Cyprus. A member of NATO since 1952, associate member of the European Economic Community since 1965, EU candidate state since 1999. www.businessmonitor.com 13
XXXXXXXXXXX turkey Q3 2009 QX 2009 by the PKK will need to be backed up by action, but as yet, the unilateral ceasefire has not completely held in practice. Indeed, ethnic Kurdish rebels most recently killed six Turkish soldiers by using an improvised explosive device in May. Moreover, while the government has shown signs of improving ethnic Kurdish cultural rights, this does not necessarily signal a policy shift toward the PKK, which it still very much considers a terrorist organisation. Ankara has shown little inclination to match the PKK s offer of a ceasefire and has also arrested members of the ethnic Kurdish Democratic Society Party (DTP) on charges of spreading PKK propaganda. Powerful institutional actors in the Turkish political system beyond the government including the military and the two main opposition parties in parliament, the Republican People s Party (CHP) and Nationalist Movement Party (MHP), are also likely to continue supporting a hardline stance against the PKK. Thus, while we recognise the steps towards conciliation which suggest a better framework for a political resolution, we highlight that these as yet remain tentative. Until we see a more substantive renunciation of violence from the PKK, our core view will remain that the conflict and concurrent security risks will remain in play. 14 www.businessmonitor.com