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and grandeur when he vowed to go ahead with the $16bn and 45-km-long Canal Istanbul project connecting the Black Sea to the Sea of Marmara. His declaration came despite earlier pledges that amid the country’s new economic realities the government would rein in state infrastructure investments for the sake of austerity and fiscal prudence. Many experts say the canal, which will turn the western side of Istanbul into
an island, will not even have much value to shipping, but the cancellation of the long-hailed investment would be difficult to swallow for the president.
No V-shaped recovery?
Turkey’s problems, however, are very real and investors will want to see no let-up in ministers grappling with them in earnest. The fear is that despite
the country’s dynamic legions of SME business people, blessed with a market buoyed by a relatively young popula- tion, there will be no V-shaped recovery this time around, with something like an L-shape looking all too possible and unemployment going through the roof.
The extent of the economic woe was underlined in late November when it was reported that over a six-month period Turkey had plunged to the bot- tom of a Bloomberg list of attractive emerging markets. The scorecard took on a range of metrics, including predic- tions for gross domestic product and the current account, sovereign ratings and stock and bond valuations. “In a similar scorecard done almost six months ago,
Turkey's Annual CPI vs. PPI Inflation
Turkey was ranked No. 5,” the rank- ing compiler noted. “The economy is expected to grow 0.8 percent in 2019, down from an estimated 3.5 percent this year, according to [our] survey of economists. Inflation reached 25.2 per- cent in October, the highest level since 2003, hurting valuations of real yield.”
Geopolitical guessing game
On the geopolitical front, Erdogan continues to keep everyone guessing, one moment talking up the prospects of a Moscow-Ankara axis holding sway on crux issues, the next moment implying that as various rows with the US have been resolved – for instance, US pastor Andrew Brunson’s fate was resolved when a Turkish court allowed him to fly home in October, and the US alliance with Kurdish forces deemed enemies by the Turks appears to be dissolving given Donald Trump’s late December decision to withdraw the American military from Syria – Turkey might be set to work more closely with the Trump administration.
But who knows what U-turn Trump will announce next and there are still some knotty disagreements that could yet cause more ructions between Turkey and the US. These include Turkey’s refusal
so far to back Trump’s sanctions-led economic war against Iran; the stance
of Turkey, a Nato member, that despite the US okaying a potential purchase
by Ankara of American Patriot missile systems, it will still go ahead and buy Russia’s S-400 missile system, which Nato members see as a security threat to hard-
ware it could be tested against (though the Kremlin might pull the deal if major anxieties emerge that the testing could be conducted the other way around, thus potentially exposing performance data of the S-400 to Washington); the prospect of the US blocking the delivery of any F-35 stealth fighter jets to Turkey if it does
not scrap the S-400 purchase (interest- ingly, in early December a US air force official remarked that cutting Turkey from the F-35 programme may have minimal impact on the industrial base formed for the development and making of the plane), and Erdogan’s closeness to the Maduro regime in Venezuela.
Another unknown is whether Erdogan might still place obstacles in the way of Trump preserving his backing of Saudi Arabia’s de facto ruler Moham- med bin Salman, whom the American president continues to support despite key Republican senators, briefed by the CIA, stating that they believed
the crown prince gave the order for the October murder of self-exiled Saudi journalist Jamal Khashoggi inside Riyadh’s consulate in Istanbul.
Potential flash point: Cyprus gas Meanwhile, gas reserves off the divided island of Cyprus remain another possible flash point. In mid-December, a senior US state official warned off Ankara from obstructing drilling in Cyprus’s exclusive economic zone. The previous month, Erdogan cautioned foreign oil companies against energy exploration near Cyprus, describing those defying Ankara as “ban- dits of the sea” who would face a similar response as Turkey’s foes in Syria.
Soon after Erdogan spoke out on the matter, a Turkish opposition leader, Meral Aksener, a former interior minis- ter known as the “she wolf” who heads the Iyi (Good) party, caused jitters by calling for consideration of a possible repeat invasion of Cyprus, amid rising tensions over who has the rights to tap potential oil and gas reserves in the eastern Mediterranean. Aksener voiced the code phrase Turkey’s army used to launch an assault on the island in 1974.
The European Union, of course, is also watching over the interests of
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