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Talking Turkey: Sovereign meltdown on the Bosphorus?
By Matein Khalid
28 May 2006
Khaleej Times, United Arab Emirates -
LIFE imitates art all too often on the ancient shores of the
Bosphorus.
Orhan Pamuk, the Turkish novelist who was castigated by the Kemalist
establishment because he dared to question the historical whitewash of
theArmenian genocide, wrote a beautiful novel, Snow, about the
passions and ideological hatreds in a provincial Anatolian town. In
Snow, an Islamist assassinates the principal of a Turkish college
because he enforced the secular state's ban against girls wearing
headscarves. Istanbul lawyer Alparslan Arslan might well have read
Pamuk's Snow. Last week, Arslan walked into Turkey's highest courtroom
and shot five judges, declaring he was a "soldier of Allah" who sought
to punish the judges who ruled against a woman teacher who wore a
headscarf in violation of laws dating back to the establishment of the
secular Turkish Republic by Mustafa Kemal Pasha in 1924.
The killings in the Istanbul courtroom awakened the demons of the
post-Kemalist past, triggering demonstrations against the government
of Prime Minister Recep Erdogan and a public spat with General Hilmi,
the Army chief. The military's rebuke is ominous because the armed
forces are passionate guardians of the state's secular Kemalist
legacy. After all, a Turkish militarycourt sentenced Prime Minister
Adnan Menderes to death in 1957 (ignoring a plea for the doomed
leader's life from a young Pakistani diplomat named Z A Bhutto,
himself destined to face his own tryst with destiny and a Praetorian
dictator's vengeance twenty years later) and removed Islamist Prime
Minister Nuruddin Erbakan from office in the 1990's. A confrontation
between the Army and a non-secular civilian government in Turkey can
have only one endgame. A military coup d'etat.
Political risk is rising dangerously fast in Turkey. Three years ago,
Erdogan was hailed as a hero in the Middle East for his moderate
religiousagenda, for refusing to join Blair and Bush in the invasion
of Iraq, for accelerating the EU accession agenda, for epic banking
reforms, agreements with the IMF, for the plunge in inflation and
interest rates, the resurrection of the lira from the 2001 currency
meltdown, for defusing the geopolitical time bombs in Cyprus and
Kurdistan, for triggering a spectacular bull market on the Istanbul
Stock Exchange.
Yet Prime Minister Erdogan now faces a grim summer of
discontent. Despite his parliamentary majority, his Justice and
Development Party (AKP) is assailed by corruption scandals, the
outbreak of secessionist Kurdish violence in Anatolia and a global
emerging markets panic that eviscerated 25 per cent from the market
capitalisation of the ISE. Ankara's relationship with Washington never
really recovered from Erdogan's refusal to send Turkish troops into
Iraq and his policy to engage Syria and Iran was derailed by the
assassination of Rafik Hariri and the looming nuclear crisis with
Teheran.
Nato, the EU, IMF, the PKK, the Turkish general staff, London and
Washington are formidable adversaries for any Turkish Prime Minister
to have to confront. In fact, Erdogan's insistence on an executive
from a Sharia compliant finance house to succeed the incumbent
governor of the Central Bank outraged the offshore money managers who
own Turkish shares and Eurobonds, triggering a panic sell-off on the
ISE even worse than India's Sensex trauma. When the Turkish President,
a secular stalwart, vetoed Erdogan's central bank nominee, a
constitutional crisis ensued. Moreover, AKP mayors amplified the
crisis by enforcing alcohol free red zones even in the cosmopolitan,
tourist dependent Istanbul and the sun-drenched playgrounds of the
Aegean coast.
Erdogan is no Khoemini, even if his enemies portray him as a backward
foe of the Kemalist ethos. He is merely trying to mobilise his
constituency in rural Turkey to win the 2007 election in a landslide,
to succeed Ahmed Nezer as President and preempt a military coup
against an Islamist head of state. His effort to promote his Islamist
agenda backfired because it coincided with an embryonic political
economic and financial crisis in Turkey reminiscent ofthe Mexican
meltdown in 1994. Wall Street was horrified by the tequila crisis in
the Latin American financial markets twelve years ago. Is history
setting the stage for the next global emerging market blow up - the
baklava crisis on the Bosphorus?
It is such a pity that a moderate Islamist government in Turkey could
well fall victim to global financial hurricanes, a leveraged daisy
chain of hedge fund hot money that once crippled Southeast Asia in
1998. Erdogan's election ended a generation of unstable coalition
governments, a cold war with Greece over Cyprus, a secessionist war in
Eastern Anatolia waged by "mountain Turks" (Kemalist doublespeak for
Kurds), hyperinflation and capital markets chaos.
Yet with its current account deficit and colossal Eurobond borrowing
programme, Turkey is hostage to the ebb and flow of hot capital that
literally moves across the world's financial markets at the speed of
light.
Turkey offered the perfect synthesis between a moderate Islamist ethos
and the democratic ideal. It could so easily have morphed into a
Muslim version of Catholic Ireland or Chile, a parliamentary democracy
where religion and freedom could coexist. If Erdogan falls, it would
mean the loss of the West's natural strategic ally in the Islamic
world at a time when Iraq has degenerated into civil war and Tomahawk
cruise missiles and Stealth bombers could soon streak across the skies
of Iran. A world on the brink of Armageddon cannot afford yet another
sanguinary "clash of civilisations".
Matein Khalid is a Dubai-based investment banker
By Matein Khalid
28 May 2006
Khaleej Times, United Arab Emirates -
LIFE imitates art all too often on the ancient shores of the
Bosphorus.
Orhan Pamuk, the Turkish novelist who was castigated by the Kemalist
establishment because he dared to question the historical whitewash of
theArmenian genocide, wrote a beautiful novel, Snow, about the
passions and ideological hatreds in a provincial Anatolian town. In
Snow, an Islamist assassinates the principal of a Turkish college
because he enforced the secular state's ban against girls wearing
headscarves. Istanbul lawyer Alparslan Arslan might well have read
Pamuk's Snow. Last week, Arslan walked into Turkey's highest courtroom
and shot five judges, declaring he was a "soldier of Allah" who sought
to punish the judges who ruled against a woman teacher who wore a
headscarf in violation of laws dating back to the establishment of the
secular Turkish Republic by Mustafa Kemal Pasha in 1924.
The killings in the Istanbul courtroom awakened the demons of the
post-Kemalist past, triggering demonstrations against the government
of Prime Minister Recep Erdogan and a public spat with General Hilmi,
the Army chief. The military's rebuke is ominous because the armed
forces are passionate guardians of the state's secular Kemalist
legacy. After all, a Turkish militarycourt sentenced Prime Minister
Adnan Menderes to death in 1957 (ignoring a plea for the doomed
leader's life from a young Pakistani diplomat named Z A Bhutto,
himself destined to face his own tryst with destiny and a Praetorian
dictator's vengeance twenty years later) and removed Islamist Prime
Minister Nuruddin Erbakan from office in the 1990's. A confrontation
between the Army and a non-secular civilian government in Turkey can
have only one endgame. A military coup d'etat.
Political risk is rising dangerously fast in Turkey. Three years ago,
Erdogan was hailed as a hero in the Middle East for his moderate
religiousagenda, for refusing to join Blair and Bush in the invasion
of Iraq, for accelerating the EU accession agenda, for epic banking
reforms, agreements with the IMF, for the plunge in inflation and
interest rates, the resurrection of the lira from the 2001 currency
meltdown, for defusing the geopolitical time bombs in Cyprus and
Kurdistan, for triggering a spectacular bull market on the Istanbul
Stock Exchange.
Yet Prime Minister Erdogan now faces a grim summer of
discontent. Despite his parliamentary majority, his Justice and
Development Party (AKP) is assailed by corruption scandals, the
outbreak of secessionist Kurdish violence in Anatolia and a global
emerging markets panic that eviscerated 25 per cent from the market
capitalisation of the ISE. Ankara's relationship with Washington never
really recovered from Erdogan's refusal to send Turkish troops into
Iraq and his policy to engage Syria and Iran was derailed by the
assassination of Rafik Hariri and the looming nuclear crisis with
Teheran.
Nato, the EU, IMF, the PKK, the Turkish general staff, London and
Washington are formidable adversaries for any Turkish Prime Minister
to have to confront. In fact, Erdogan's insistence on an executive
from a Sharia compliant finance house to succeed the incumbent
governor of the Central Bank outraged the offshore money managers who
own Turkish shares and Eurobonds, triggering a panic sell-off on the
ISE even worse than India's Sensex trauma. When the Turkish President,
a secular stalwart, vetoed Erdogan's central bank nominee, a
constitutional crisis ensued. Moreover, AKP mayors amplified the
crisis by enforcing alcohol free red zones even in the cosmopolitan,
tourist dependent Istanbul and the sun-drenched playgrounds of the
Aegean coast.
Erdogan is no Khoemini, even if his enemies portray him as a backward
foe of the Kemalist ethos. He is merely trying to mobilise his
constituency in rural Turkey to win the 2007 election in a landslide,
to succeed Ahmed Nezer as President and preempt a military coup
against an Islamist head of state. His effort to promote his Islamist
agenda backfired because it coincided with an embryonic political
economic and financial crisis in Turkey reminiscent ofthe Mexican
meltdown in 1994. Wall Street was horrified by the tequila crisis in
the Latin American financial markets twelve years ago. Is history
setting the stage for the next global emerging market blow up - the
baklava crisis on the Bosphorus?
It is such a pity that a moderate Islamist government in Turkey could
well fall victim to global financial hurricanes, a leveraged daisy
chain of hedge fund hot money that once crippled Southeast Asia in
1998. Erdogan's election ended a generation of unstable coalition
governments, a cold war with Greece over Cyprus, a secessionist war in
Eastern Anatolia waged by "mountain Turks" (Kemalist doublespeak for
Kurds), hyperinflation and capital markets chaos.
Yet with its current account deficit and colossal Eurobond borrowing
programme, Turkey is hostage to the ebb and flow of hot capital that
literally moves across the world's financial markets at the speed of
light.
Turkey offered the perfect synthesis between a moderate Islamist ethos
and the democratic ideal. It could so easily have morphed into a
Muslim version of Catholic Ireland or Chile, a parliamentary democracy
where religion and freedom could coexist. If Erdogan falls, it would
mean the loss of the West's natural strategic ally in the Islamic
world at a time when Iraq has degenerated into civil war and Tomahawk
cruise missiles and Stealth bombers could soon streak across the skies
of Iran. A world on the brink of Armageddon cannot afford yet another
sanguinary "clash of civilisations".
Matein Khalid is a Dubai-based investment banker