Accessibility links

Breaking News

Turkey: Economic Strains May Buffet Caspian Region

Nations of the Caspian Sea region may face new problems as Turkey undergoes another series of economic strains. One way or another, all the Caspian countries depend on Turkey, raising the risks unless the crisis ends soon. Our correspondent Michael Lelyveld looks at the issues.

Boston, 22 February 2001 (RFE/RL) -- Turkey's latest political and economic crisis may spell new trouble for the Caspian region, which relies heavily on Ankara and its future development.

The conflict that erupted 19 February with a dispute between President Ahmet Necdet Sezer and Prime Minister Bulent Ecevit shook currency markets as far away as Brazil and led foreign investors to pull some $5 billion out of Turkish banks. Overnight lending rates soared to 760 percent, the "Turkish Daily News" reported.

The country had barely calmed down since the banking emergency last November that forced the International Monetary Fund to rush to the rescue with pledges of $7.5 billion in new loans.

Last month, IMF and Turkish officials hailed the economy's progress in recovering from the November turmoil. Carlo Cottarelli, IMF's team leader for Turkey, said just one month ago: "the economic situation has improved enormously and drastically." The country's central bank had recovered its lost reserves, while interest rates had dropped to manageable levels again.

But the 19 February sudden relapse has reopened the debate about how delicate Turkey's situation is. The stock market plunged nearly 15 percent on Monday after Prime Minister Ecevit walked out of a National Security Council meeting following heated words with President Sezer on the government's lagging efforts to fight corruption. The argument, in which Sezer reportedly threw a copy of Turkey's Constitution, was said to be unprecedented.

On the surface, there should be little cause to draw links between a political feud and the economic future. But corruption investigations have focused on banking and energy, two sectors that can make or break Turkey's economy. The country's recovery from the November crisis may also depend on political stability to implement reforms. Fears of a government collapse always prompt worries that the military may intervene.

Turkey now faces challenges on many fronts at once. In addition to the current political and economic fallout, it has agreed to embrace wide-ranging changes on the economy and human rights front to meet membership standards for the European Union. Old animosities with Armenia and tensions over Cyprus continue to roil Turkey's foreign affairs.

But the countries of the Caspian region could soon find that Turkey's problems are also their own.

The Turkic countries of the Caucasus and Central Asia have long felt the pull of linguistic and ethnic ties to Ankara. In one way or another, they have also pinned their hopes for energy exports on the Turkish market.

In the case of Azerbaijan, the government has pursued plans for the Baku-Ceyhan pipeline for the past six years, hoping that the oil link will join it to Turkey, and through it, to the West. Turkmenistan has sought the same outlet for its gas. Last week, the country announced that it is ready to start exporting electricity to Turkey through Iran.

Kazakhstan is likely to depend on greater oil exports through the Bosporus when a new pipeline from the Tengiz oil field to Russia's Black Sea port of Novorossiysk opens this year. Turkey's worries about the rising number of ship accidents in and near the straits may soon become Kazakhstan's concern.

The non-Turkic countries of the Caspian, Russia and Iran, also have reason to share in Turkey's economic troubles. Both Iran and Russia have relied on Turkey's forecasts that it will be the region's fastest-growing consumer of gas. Both countries have invested in pipelines to meet the projected demand.

But Turkey's consumption rates have already fallen behind forecasts, and independent analysts have been warning for years that the country's demand will be only about half of official projections in 2010. The current problems can only make matters worse. The result is that Caspian competitors for the Turkish market may become even more likely to lose.

Last month, in one of the gloomiest western assessments, Germany's Deutsche Bank cut its forecast for Turkey's economic growth this year from 4.5 percent to 1.5 percent because of the November crisis. This week's relapse seems certain to cloud the outlook further. Unless the problems are checked, they could affect financing and returns for any project that involves Turkey.

As the officials of the Caspian nations meet this week in Tehran to negotiate a legal division of resources, they may have to look anxiously toward their most important customer with concern that the market may not be all that they hoped it would be.