Stocks ride out Erdogan offensive
By Robert M Cutler
MONTREAL - Turkish Prime Minister Recep Tayyip Erdogan's recent moves to weaken
institutionally the two principal centers of resistance to the
conservative-populist rule of his Justice and Development Party (AKP) have met
with little resistance from the country's stock markets, buoyed by positive
trade figures and upgrades in Turkey's sovereign debt ratings.
Erdogan's continuing assaults on high-ranking present and retired military
figures, through omnibus criminal cases of which the "Ergenekon" plot,
involving a group of ultra-nationalists, is the anchor and best known, are
presented as necessary reforms, having European Union membership in view.
However, his most recent political offensive seeks to alter the manner in which
judges of the Constitutional Court are selected, perhaps the
number of judges itself, and to restrict the competence of the court.
Justice Minister Sadullah Ergin has suggested that adding more government
appointees to the court could be one of over a dozen proposed constitutional
amendments, Bloomberg News reported on March 13. The result would be to stack
the court as a preparatory move for still more radical changes, not excluding
some in the realm of social policy.
The AKP majority of 337 out of 550 seats in the Turkish National Assembly is
short of the supermajority needed to approve constitutional amendments
outright, but it is enough to force a popular referendum on them, and to
determine the manner in which they are framed and voted on.
The country's equity markets have hardly reacted to any of these developments.
They did fall last month following an Istanbul court's questioning of senior
military officers as the AKP's political offensive against the military
continues, but they have since recovered.
Overall, after an excellent performance in the second half of last year, the
benchmark Istanbul Stock Exchange Nation 100 (ISE 100) index has stagnated
since the beginning of January.
At its current level, the ISE 100 has recovered over 156% from its 20 November
2008 low to 54,304 as of Wednesday's close. The present level is nearly equal
to its short-term high six weeks ago above 55,000 and not far from its all-time
high just over 58,000 marked in mid-October 2007. It has outperformed its
sister index ISE 30 (used for derivatives trading) but underperformed the DJ
Turkey Titans 20 (which focuses on the most widely traded and most liquid
issues).
However, the ISE 100 has been in a trading range between the low 48,700s and
the low 55,500s for the past four-and-a-half months. From another perspective,
that trading range is merely a plateau within a longer-term up-channel that
began nine months ago. Yet in another interpretation, the average five weeks
ago had already broken below a different trendline that now represents a
resistance to further upward movement.
Pertinent to this lack of movement, the International Monetary Fund (IMF) this
month said negotiations for a loan to Turkey had ended and that the
organization will instead be undertaking other consultations with the country.
In the past, the IMF program in Turkey has been considered a useful "anchor"
for necessary reform. (See
Turkey, IMF talks go to the wire, Asia Times Online, February 6, 2009.)
That development came after Moody's, Fitch, and Standard and Poor's all
upgraded Turkey's sovereign rating over the past several months, following
clear evidence of the economy's resilience in conditions of global financial
crisis. Fitch, for example, noted that the country suffered neither an exchange
rate crisis nor an interest rate spike while implementing counter-cyclical
fiscal and monetary policies.
The country's trade balance in January stood at US$367 million, compared with
$167 million a year earlier, while industrial production that month was up
12.1% from 12 months earlier. On the downside, inflation continues to be high,
with the annualized rate in February rising to 10.1% from 8.2% in January and
6.5% for all of 2009.
According to Deputy Prime Minister Ali Babacan, the country does not need IMF
funding because it has set out a credible economic plan on its own. Still,
while it is true that the country's current economic health is strong at
present, it is less certain that future negotiations for a standby loan, if
ever needed again, will go so easily, simply because of the loss of momentum
and the fact that Turkey is now accustomed to protest against blanket
acceptance of the IMF's conditionality clauses, which tend to be rather
inflexible.
Rather than turn to the IMF to cover the budget deficit, the country tested the
waters a week ago by selling US$1 billion of 11-year dollar bonds at a 2.03%
yield above US Treasuries. Then earlier this week, its February budget deficit
narrowed 69% from February 2009 due to the combination of an unexpected
increase in tax revenue and a decline in interest payments.
Nevertheless, any quick advances in the Turkish stock market may encounter
problems. The market is showing indications of exhaustion. Volume has declined
over the past six weeks. Despite some short-term favorable technical
indicators, other indicators suggest that it is overbought. On the chart of the
ISE 100 itself, there are several lines of resistance from short-term,
medium-long and long-term formations in the chart terraced from 55,500 up to
58,200.
Various recent remarks by Erdogan, widely reported in the international press,
concerning Armenians in Turkey on the one hand and, on the other hand, the
situation in Cyprus, continue to display an impulsive personal profile. Even if
they are consciously calculated for their effect upon the Turkish public, they
do not display an awareness, or at least any attention to or care for, their
international echo.
Given the recent closer understandings reached between Russia and Turkey across
a series of diplomatic issue areas not limited to energy cooperation, and the
manifestation of this entente at the highest political levels, it cannot be
excluded that Erdogan's personal predispositions have led him consciously or
unconsciously to emulate the well-known provocative style of Russian Prime
Minister Vladimir Putin.
The purpose there would be to shock, in order to rule certain spheres of
dialogue out of order and render them impossible, if necessary through an
abrupt end to the conversation. Although efficacious as a short-run tactic,
this may prove not to be a constructive long-term strategy.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of Technology and The University of
Michigan, has researched and taught at universities in the United States,
Canada, France, Switzerland, and Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian Studies, Carleton University,
Canada, he also consults privately in a variety of fields.
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