Turkey’s Refugee Deal Diatribe
Turkish bonds and stocks continued positive despite a suicide bombing on Istanbul’s main tourist thoroughfare as the EU offered EUR 6 billion in aid for refugee return from Greece, camp support for the 3 million already in-country, and resettlement to Western and Northern Europe after Syrian asylum claim processing up to an initial 75,000 ceiling. Brussels also agreed to accelerate visa-free travel for Turks in the Eurozone over Cyprus’ objections as negotiations persist over north-south reunification before May parliamentary elections. President Erdogan, after raiding a newspaper closely associated with the Gulen movement in exile, reiterated that the accord, opposed by humanitarian agencies as a violation of 1950 treaty protections, would not sidetrack the simultaneous border fight against Kurdish rebels which has spurred its own exodus. He will also expand presidential powers under planned constitutional revisions after the AK party regained its majority by a sizable margin in last year’s repeated elections. The terror attack in a busy shopping district came as tourism is down 40 percent during the current low season, but financing for the 4 percent of GDP current account deficit has endured on bank asset repatriation and $10 billion in underground transfers through the balance of payments “error” column last year. Economic growth should be 3 percent in 2016, with inflation struggling to stay in single digits but aided by the steadier currency. A new central bank governor will take over in April on persistent rumors the multiple-rate monetary policy regime will be simplified to respond to foreign investor confusion. Deputy Prime Minister Simsek has underscored a structural reform agenda to this audience, including private pension and stock exchange overhaul. High-frequency trading is already accommodated and more sophisticated technology will soon be introduced, and cross-border listings through the Eurasian Federation grouping and Islamic instrument expansion are near-term priorities. The EBRD has a stake and the exchange plans its own IPO in the coming months, while sharia-compliant bank launches may resume after a hiatus and supervisory assurance that consumer lending woes do not threaten the sector.
Cooperation has intensified with the Tehran stock market as auto and steel makers hope to rebuild the previous $20 billion in bilateral commerce now that international sanctions are lifted. Economy Minister Elitas pointed to Turkey’s comparative advantage in FDI as a “democratic” destination while acknowledging Iran’s low cost energy endowment versus total import reliance next door. A preferential trade agreement has been in effect for six months and two Iranian banks have applied for local licenses. Global relationships in contrast continue to be stymied by residual US restrictions even though Tehran lenders have been reconnected to the SWIFT network. The large expatriate community in Dubai has been unable to access basic letters of credit as the central bank blames Washington for the financial “Iranphobia.” At a London conference in March senior officials promised to press ahead with bad loan cleanup and inaugural Eurobond issuance after regaining a sovereign rating. Anti-money laundering provisions may also be adopted as the country works with FATF’s regional unit, but Supreme Leader Khamenei vowed to uphold the “resistance economy” with growth less than 1 percent this fiscal year as scant refuge.
