Analysis: Turkey's losing aid streak

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, March 27 (UPI) -- In emphasizing its "special relationship" with Turkey, the United States conveniently overlooked the fact -- confirmed yet again by a recent Pew Global Attitudes Project survey -- that 84 percent of Turks view America "unfavorably."

According to the Anadolu news agency, the Chairman of the Union of Chambers and Commodity Exchanges in Turkey, Rifat Hisarciklioglu, cajoled his countrymen on Monday to rid themselves of their dependence on "foreign" assistance -- a common euphemism for handouts from America and, as the Turks


firmly believe, its long arm, the International Monetary Fund.

A country's foreign policy stature, he averred, is conferred by its domestic product. Somewhat implausibly, he pegged Turkey's war-related damages this year at $16.2 billion and between $70 billion and $150 billion in the next decade. It will have to resort to more expensive alternative sources of oil. Tourism, its second largest foreign exchange earner, will wither.


If true, Turkey's refusal to be used by U.S. troops as a launch pad for a second front in northern Iraq was nothing short of suicidal.

Turkey could have ended up with $30 billion in sorely needed aid and loan guarantees -- now reduced, perhaps, to a mere $8.5 billion in commercial debt in return for overflight rights. Moreover, future IMF aid and even disbursements from an existing standby agreement are in jeopardy.

Last year, at the behest of the United States, Turkey received another dollop of $17 billion in multilateral funds to shore up its ailing economy. According to the Washington Post, it already owes the fund five times the ordinary borrowing limit under the lending agency's rules.

The country's finances are in dire straits. Its foreign debt has catapulted from $50 billion after the first Gulf war to more than $130 billion in the run-up to the second. The government's economic policies are still based on the obsolete assumption that U.S. aid will be forthcoming despite Turkey's denial of service.

Inflation, at more than 25 percent, is rising as are real interest rates -- at 30 percent above inflation -- and an already unsustainable $95 billion in domestic public debt, a sizable chunk of it extremely short term.


Financial markets and the currency are plummeting. Yields on Turkish bonds are a stratospheric 70 percent to 80 percent. An incredible three quarters of the budget is earmarked for debt repayments.

The country should service $80 billion in obligations in the remainder of this year. Not surprisingly, Standard and Poor's is contemplating a lowering of Turkey's country rating, currently below investment grade at B1. Fitch reduced Turkey's rank to B minus with a negative outlook to boot -- akin to destitute and near-default Moldova.

According to Stratfor, the strategic forecasting consultancy, risk premiums on Turkish treasuries leaped 90-122 basis points on March 17 alone -- to 9.5 percent above comparable U.S. bonds. This spread narrowed by 95 bps the following day when Turkey came up with the offer to allow U.S. planes to use of its airspace.

Closer integration with the European Union, warned EU enlargement commissioner, Günter Verheugen, will be adversely affected by any unilateral Turkish move in northern Iraq. The acrimonious breakdown of reunification talks between the Greek- and Turkish-sponsored parties in Cyprus didn't help, either.

Turkey has been allocated $1.1 billion by the EU as pre-accession aid. Unruly behavior on its part might endanger this carrot as well. To complicate matters further, America might drop its political and pecuniary support for the Baku-Ceyhan Main Export oil Pipeline.


Nor is the domestic situation less ominous.

The new, hitherto popular, prime minister, Recep Tayyip Erdogan, vowed on Sunday "carefully and diligently" to implement the IMF's agonizing austerity program which calls for spending cuts of $2 billion by the end of the month, privatization of the tobacco and alcohol monopolies and tax reform. The 2003 budget envisages a primary surplus of 6.5 percent of gross national product. It also aims to raise revenues by $5 billion and cut expenditure by $3 billion.

Such prescriptions ill-fit with promises to help the poor and boost growth through fiscal measures. But a mid-April IMF loan tranche of $1.6 billion -- of the $3.5 billion remaining to be disbursed -- depends on strict adherence. Nor is a new agreement with the IMF in the offing without considerable U.S. pressure or its implicit guarantee, both now unlikely.

The threat of dispatching troops to northern Iraq is Turkey's last, desperate card in a depleted deck. To avoid this cataclysmic scenario, the United States may yet, teeth gnashing, revive the moribund economic aid package it seethingly withdrew.

The alternative is an Argentina-style default with a shock wave cruising through a volatile and ignitable Middle East -- or a military dictatorship in Ankara.


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