September 2003
Turkey at the Crossroads
On September 3, 2003, a group of experts gathered at AEI to discuss the strained post-September 11 relationship between Washington and Ankara, as well as Turkey's future in a post-Saddam Middle East. Despite its failure to support the war against Saddam Hussein, Turkey hopes to play a political, economic, and military role in Iraq and in the Middle East.
Panel 1: Economic issues: The Turkish role in rebuilding Iraqi economy, free trade agreements, and the Turkish economy
Desmond Lachman
AEI
Turkey has maintained good economic relations with both international organizations and individual states. Multinational organizations have aided Turkey by rescheduling debt payments, and the United States is considering a loan guarantee that would help Turkey manage its public debt. Turkey's public debt ratio is 70 percent, and although a recent International Monetary Fund (IMF) report states that countries with a 60-70 percent public debt ratio have frequently run into crisis situations, 70 percent represents considerable progress for Turkey. Interest rates in Europe and in the United States have fallen to their lowest levels since the 1950s, and as a result, there has been a huge influx of money into emerging markets. Turkey has been one of the greatest beneficiaries of this. Much discussion still needs to occur on Turkish finances in relation to its debt, as well as its social security situation.
Reza Moghadam
International Monetary Fund
If Turkey wants to play a larger role not only in Iraq but also regionally and globally, the Turkish economy must be strengthened. Inflation and growth are the two most important variables. Turkey's high inflation rate is indicative of problems with the conduct of monetary and fiscal policy as well as institutional flaws. The weak business environment has also caused a lack of foreign direct investment. At times, there have been growth rates as high as 6 or 7 percent. This indicates that economic potential is likely inhibited by policy inefficiencies. There are, however, reasons to be optimistic: the Turkish manufacturing sector is very vibrant and liberalized, and Turkey has free trade agreements with the European Union and the European Free Trade Area.
The IMF has confronted Turkey's most prevalent problem-debt. The IMF has dealt with this by controlling fiscal policy and enabling the Turkish central bank to implement a reasonable monetary policy and control inflation. The IMF has focused on institutional reform, especially the central bank, and legislative reforms. Progress has been made, but the overall situation is still fragile, and gains could easily be reversed by developments in Iraq or domestic policy changes.
Deniz Gokce
Bogazici University
The IMF has been tremendously influential in stabilizing the Turkish economy, particularly in regard to rescheduling the loan repayment schedule, but the final outcome is still unclear. However, the mood in Turkey is very optimistic. The current government is the most pro-business that ever came to Turkey; there is a civilian Islamic-oriented movement in Turkey pushing toward democratic consolidation and integration with the rest of the world. Consumer confidence, retail sales, individual consumption, and consumption trends indexes are all positive, despite the fact that the domestic demand is weak. One of the major problems with the Turkish economy is the dual government and private banking sectors. The government banks offer higher interest rates than the private banks, so the private banks are forced to take more risks. The net result has been that real credit is down and domestic demand is not growing at a desirable rate.
Turkey would like a much bigger regional role in economics, trade, and business opportunities in Iraq. The Turkish government, however, needs a clear picture of where the United States is headed with reconstruction in Iraq.
Guven Sak
Ankara University & Union of Chambers and Commodity Exchanges of Turkey
Turkey has been in transition for the past two decades. The crises in 2000 and 2001 were a necessary wake-up call, and a new economic program is redefining of the role of government in economic sectors. In order to occupy a more prominent role in the Middle East, Turkey must first complete this transformation process.
Instability in Iraq has a negative impact on both the Turkish economy and national security. Turkey cannot standby and wait for the United States to fail in Iraq; instability in Iraq could easily spread to Turkey. The first step towards Iraqi reconstruction must be the restoration of law and security. The establishment of law and order in Iraq is not solely a military affair; the living conditions of the Iraqis must be improved. Iraqi oil production must be increased. Both the private sector and basic institutional structures need to be reformed. Turkey can help bring Iraqi oil to the market and provide consumer goods. Turkey can also provide electricity for Iraq.
Charles Johnston
Baker Donelson BDBC
Turkey has occupied an important strategic role during the last forty years, but its economic role was comparatively minimal. At the end of the Cold War, however, it became clear that a reformed Turkey could be an economic and political role model for the region and other Islamic countries. Political instability and redundant bureaucratic structures have taken their toll on economic growth in Turkey, and western businesses have little faith in the judiciary process. Turkey's reputation for corruption must be reversed. To date, all of Turkey's privatization programs have been driven by external forces, including the IMF and the EU accession process. The lack of internal drive has had major consequences for Turkey's economic transformation.
Keynote Address
Richard Perle
AEI
In the twenty-first century, security threats are often ephemerally defined. No U.S. administration can afford to ignore the magnitude of the threat that we face. Some of our allies are having trouble accepting that in the new security climate, the United States now feels it is sometimes necessary to act independently, but then many countries do not feel the same sense of danger that the United States does. Likewise, it is unreasonable to expect anyone else to be as concerned as Americans must be. This is why we must sometimes act alone.
The war on terror was long overdue. Prior to September 11, terrorist acts were met with a tepid response. In some cases we regarded acts of terror as violations of the law rather than acts of war. But there is no mistaking the fact that terrorists are bent on the destruction of the United States and what we stand for. The war in Iraq was a vital component of the war on terror.
Turkey missed an important opportunity to be a partner with the United States in the liberation of Iraq. The current Turkish government was suffering from a lack of experience with decision-making in crisis situations, and they also misunderstood the motivation for war. But, unlike relations with our European allies, U.S.-Turkish relations could rebound quickly.
The United States is still facing significant challenges in the reconstruction of Iraq, but the situation in Iraq is much better than public awareness dictates. To be sure, not everything has been executed smoothly, and the United States has been much too slow to empower Iraqis, but schools are open, city councils have been established, and electrical power has been restored to pre-war levels. The Middle East has a much brighter future without Saddam Hussein. Trade and economic development will thrive, especially with Turkey and Iraq working closely together.
Panel 2: Turkish foreign policy and Turkey's role in the New World Order: U.S.-Turkish strategic cooperation and Turkey's relations with Europe, NATO, Israel, and the United States
Ilan Berman
American Foreign Policy Council
The Turkish-Israeli relationship has had implications for Turkey's strategic relationships and for its role in U.S. foreign policy. The relationship between Turkey and Israel has been defined by extensive military coordination, major defense industrial contracts, and large-scale intelligence sharing. Turkey and Israel also have a common interest in the development of Central Asia, where joint Turkish-Israeli influence could have a notable regional impact.
The relationship between Turkey and Israel is still positive but changing due to the current Turkish political climate and the internationalist focus of the Justice and Development Party (AKP). Additionally, renewed military relations between Syria and Turkey and the growing relationship between Turkey and Iran are not favorable to the Israelis. Cooperation on terrorism and nonproliferation will increasingly be the focal point of the Israeli-Turkish relationship.
General (ret.) James Jamerson
Lockheed-Martin and Turkish Aircraft Industries
Turkish policy toward the United States has remained consistent since the first Gulf War. Turkey has been a reluctant partner of the United States, but many differences have been resolved through years of positive relations. Turkey has been leery of too much regional involvement; also, Turkey is still preoccupied with concerns over Kurdish terrorism and national security. Increased contacts with neighboring regimes will hopefully be a force for regional change.
Ilhan Kesici
Member of Parliament and former secretary of the State Planning Organization
As a Muslim democratic state, Turkey is an important partner for the United States and should play a key role in regional democratization and in the reconstruction of Iraq. The United States had high hopes that Turkey would play a pivotal role in the post-Saddam Middle East, but Ankara failed to support the Bush administration in the war. This has been a very costly mistake. World order and peace can only be sustained by the interaction of democratic regimes. The partnership between the United States and Turkey is based on mutual principles, including a commitment to democracy, capitalism, freedom, and human rights. Turkey is still reforming its own democracy and adding additional religious and ethnic freedoms.
A Turkish-Israeli partnership is also an important strategic alliance and will hopefully be beneficial in efforts to democratize the region. Turkey places a lot of value in its relationship to the EU, but the EU is not giving Turkey equal respect.
Seyfullah Nejat Tashan
Turkish foreign policy is geo-strategically aligned. Turkey is bordered by much of the "axis of evil" and has to be very cautious with its neighbors. Turkish relations with Iran and Syria may be questionable, but a dialogue with them must be maintained. Turkey would also greatly benefit from increased harmony between the United States and Europe.
AEI intern Craig Guiliano prepared this summary with AEI Foreign and Defense Studies research coordinator Molly McKew.
