Crisis? What Crisis?

Reuters (via Today's Zaman) has just put out a good piece tracking some of the concerns economists have about the financial picture in Turkey. From the article:

Turkey's yawning balance of payments deficit and an exodus of foreign investors suggest its unorthodox monetary policy experiment may have gone too far, threatening to make Ankara a new flashpoint for risk in global emerging markets.

The country's monthly foreign funding shortfall is running at almost $10 billion, latest data shows -- a tough position to be in when confidence in developing markets is shaky and Western powers are preparing to wind down easy-money policies.

Financing such a deficit in recent years hasn't been difficult, with Turkey's stock and bond markets pumped up by huge foreign portfolio flows, its 2001 financial crash a distant memory.

But that picture could be changing.

A Bank of America/Merrill Lynch poll last week showed equity fund managers are underweight in Turkey for the first time in more than three years. A separate JPMorgan survey showed foreigners cut Turkish debt and currency exposure in May and went significantly underweight on its bonds.

Non-residents had also pulled $325 million out of Turkish stocks by mid-May this year, central bank data shows.

"There are very few countries in the world that run such a large current account deficit or are as vulnerable as Turkey to the withdrawal of capital from emerging markets," said Julian Thompson, head of emerging markets at Axa Investment Managers.

"It's sufficiently worrying to have next to no exposure there," added Thompson, who now has less than 1 percent of the money he manages in Turkish stocks, versus 5 percent last year.

The full article can be found here.

The article reflects the sentiments of several analysts in Turkey I have spoken with who are concerned that Turkey might again be heading towards the unpleasant part of a boom-bust cycle and that current economic policies are being used to boost the government's chances at reelection, rather than to put the brakes on what might be an "overheating" economy.

Meanwhile, on the same pages of the government-friendly Today's Zaman, columnist Ibrahim Ozturk offers a different picture. "Turkey's 'overheating' problem is being excessively abused in an irresponsible manner by some experts in the foreign as well as domestic media," he writes in today's paper. "This perspective has already been turned into a campaign against Turkey," he adds, saying that he believes additional measures will introduced "after the election" to get the economic picture back in order. (Full column here.)

For those interested in drilling down into the data on this a bit more, an analysis piece issued last month by Roubini Global Economics has lots of figures and charts that look at the role external funding is playing in driving the Turkish economy. The piece (found here) concludes with this:

In RGE’s view, the financing of Turkey’s large and growing CAD with short-term and historically more volatile capital inflows is a major risk factor attached to Turkey’s impressive economic recovery.

Whether the recent surge in capital inflows reverses and proves destabilizing is an open question. Turkey’s rapid recovery from the 2008-09 slump has proved the economy is more resilient than in the past, and capital inflows may enhance its long-term growth prospects. On the other hand, Turkey’s own history, and that of other EMs, shows that capital flows can rapidly reverse, and suggests the need for caution.

[UPDATE - A short report by Christian Keller, a very good Turkey analyst at Barclays, arrived in my mailbox soon after I posted this. Looking at recent activities and statements by the Central Bank of Turkey (CBT), Keller says, ".....we fail to follow the CBT’s surprisingly benign and, in our view, somewhat selective interpretation of recent data." His report (quite technical, be warned) can be found here.]

[UPDATE II - A bit more on this story from the Financial Times' "Beyond BRICS" blog, here.]

"Caspian Intelligence"

That's the name of a new blog by Alex Jackson, a smart independent analyst of Caspian and Eurasian affairs. Based on his previous work, I'm sure his blog will become an essential read for anyone interested in the Caspian and nearby regions. Alex's blog can be found here.

Sex, Votes and Videotape

Turkey's upcoming parliamentary elections continue to take a turn towards the tawdry and downright bizarre, with the escalation of an ongoing scandal that's engulfing the right-wing, ultranationalist Nationalist Movement Party (MHP).

The party, the third largest in the parliament, has been hit with the release online of footage showing a number of its senior members in compromising situations with young women. Four MHP members have already resigned, but the mysterious website where the footage has been posted (www.farkliulkuculer.com) has issued a statement saying it will release footage implicating six more party members unless the MHP's embattled leader, Develt Bahceli resigns today.

Bahceli and the MHP, in response, have accused the ruling Justice and Development Party (AKP) of orchestrating the campaign and even say they have proof that a member of the governing party is financing farkliulkuculer.com. More details here (Hurriyet Daily News) and here (Today's Zaman).

As I wrote in a recent post on Eurasianet's Turko-file blog, sex scandals and hidden-camera footage are turning out to have quite an impact on the course of Turkish politics these days. The fact that the main opposition Republican Peoples' Party (CHP) is at all competitive in these upcoming elections has everything to do with the fact that the party was able to dump it's ineffective long-time leader, Deniz Baykal, after he himself was implicated last year in a secret-camera sex scandal.

In the case of the MHP, the sex tapes and how they may impact the party's fortunes are also very significant, since polls show the party is fighting to get enough votes to make it above Turkey's 10 percent threshold for getting into parliament. The MHP failing to pass the threshold could be very significant, as Henri Barkey explained in a recent analysis:

Should MHP fail to pass the barrier, the AKP—given Turkey’s electoral rules—would almost certainly receive a disproportionate share of seats that otherwise would have gone to MHP. This outcome is what Erdogan would love to see and has strived to ensure. After all, every seat his party wins brings him closer to the 367 seats needed to alter the constitution with relative ease.

As I mentioned in my Eurasianet post, the MHP affair again brings up serious questions about the pervasive use of illegally obtained material (phone taps, video, etc.) in Turkish politics and the lack of decent legal mechanisms for stopping it. For more on that, take a look at this story I filed last year from Istanbul's phone tappers' bazaar.

(photo: MHP leader Devlet Bahceli)

Archival Bloggage

This blog is honored to be included on Foreign Policy magazine's list of "must read" Middle East blogs. For those readers new to the blog, be sure to dig through the archive: its provides a helpful narrative arc for the last few years of the Turkey story.

Who's Muzzling the Turkish Press?

Journalist Andrew Finkel, who was fired a few weeks ago by Today's Zaman because of a critical column he wrote, has a powerful opinion piece in today's International Herald Tribune about some of the recent troubling trends in the Turkish press. From his column:

Sadly, the most effective censor in Turkey today is the press itself. To adopt a stance critical of current policies is to position oneself in opposition to the government — and editors only do so as a calculated risk. Columns exposing corruption or criticizing the government’s sprawl-inducing environmental policies are simply spiked.

When Turkish newspapers try to speak their mind, they often discover their advertisers dropping out, explaining apologetically that they have “come under pressure.”

The full piece can be found here. A previous post about Finkel's firing and it's implications is here.

[UPDATE -- CNN's Ivan Watson has a new piece out about press issues in Turkey, which can be viewed here.]