“We [Russia] expect active support in the transition to the use of national currencies in our trade relations with [a number of countries] and Indonesia, too,” Manturov said on Thursday during the 10th session of the Russian-Indonesian Intergovernmental Commission on Trade, Economic, and Technical cooperation.

Russia has already discussed the initiative with India, China, Vietnam, and Thailand, Manturov said.

He added that this would strengthen both countries’ local currencies and give an opportunity to work without dollars and euro.

The latest proposal comes amid a growing effort amongst emerging market nations to further de-dollarization.

“The dependence on the dollar is our common headache,” said Sofyan Djalil, the Indonesian Coordinating Minister, adding that Indonesia is ready to consider mutual trade in national currencies.

Although at first there could be challenges implementing this idea, they could be resolved at this stage while trade is not very big, he added.

Trade between Russia and Indonesia is estimated at $2.5 billion in 2014 and the two nations plan to double this figure to $5 billion in 2016.

Russia’s proposal will be discussed at a meeting of working groups of the Bank of Russia and the Central Bank of Indonesia. “I am sure we will be able to implement the project with a serious integrated approach,” Djalil concluded.

On Tuesday, Russian Prime Minister Dmitry Medvedev proposed to his Vietnamese counterpart that both countries start using their national currencies in bilateral trade more actively, saying it would help boosting economic relations.

In March, Turkey’s Ministry of Economy said it was considering a move to settle payments with Russia by using local currencies for major investment deals.

Turkish President Recep Tayyip Erdoğan recently proposed switching to national currencies in bilateral trade with his Iranian counterpart Hassan Rouhani.

In January, Russia and Thailand held discussions on switching to national currencies in bilateral trade.

India and Russia have also been rumored to be on the verge of similar currency agreement, alongside a growing number of emerging and frontier economies that are ramping up de-dollarization efforts.

Iran’s president, Hassan Rouhani, right, meets his Turkish counterpart, Recep Tayyip Erdoğan, at the Saadabad palace in Tehran.  Photo courtesy of the Presidency of the Republic of Turkey.

Turkey is pushing for Iran to switch to use local currencies in bilateral trade and ditch the euro and the U.S. dollar in the latest effort amongst emerging market nations to further de-dollarization.

According to Bloomberg, Turkish President Recep Tayyip Erdoğan used a meeting with his Iranian counterpart Hassan Rouhani in Tehran to lobby for dropping euros and dollars in favor of bilateral trade in local currencies.

Trade between the two nations has “lost momentum” in recent years due to sanctions imposed against the Islamic Republic, Erdoğan said during a joint press conference with Rouhani on Tuesday.

Total trade volume was $14 billion last year versus the targeted level of $30 billion, Erdoğan said.

“We shouldn’t remain under the pressure of the euro or dollars,” Erdoğan said. Although central banks from the two countries have been working on the use of local currencies to facilitate trade, those negotiations haven’t yet yielded an agreement, he said.

Erdoğan’s visit to Tehran was the first by a Turkish president since 2011 and comes as the two neighbors are on opposite sides of regional conflicts. The crisis in Yemen has pitted them against each other, with Turkey saying it supports Saudi Arabia-led operations against Yemen’s Houthi rebels, who have ties to Shiite-majority Iran.

While Turkey – with its ceaselessly falling currency – is struggling with the same global forces as other emerging markets, an internal struggle between President Erdoğan, Central Bank Govenor Erdem  and deputy PM for the economy Ali Babacan is undermining Turkish economic vitality. Interest and currency rates have become subject to inter-departmental feuding generating significant financial uncertainty.

Over the past few years, the Turkish Lira – like many other emerging market currencies – has been facing global headwinds stemming from the U.S Federal Reserve tapering its quantitative easing program.

The Lira has fallen once again to record lows, now traded at around 2.6 against the greenback at the end of March (see chart below). All emerging countries (more or less) face the same dilemma: raise rates to stabilize their falling currency and their debt or ease rates to boost their growth rates.

Adopting this global perspective can be misleading, however, if it overlooks nation-level specifics. For instance, China has a unique set of conflicting economic goals that require ever more careful moves.

In Turkey, internal political disputes rather than economic choices determine the outcomes for interest, currency, and growth rates. In particular, investors need to consider the longstanding and evolving fight between President Erdoğan and Central Bank governor Erdam Basci.

Hold on Tight Technocrats

The dilemma highlighted above is due – on the one hand –  to technocrats willing to adopt tighter monetary policies to stabilize the falling lira, smooth credit growth, and soften the current account deficit; and on the other hand, the President who wants to push Turkey’s economy to a target growth rate of 5%.

This battle of wills has led to mounting financial uncertainty in Turkey.

President Erdoğan is trying to strengthen his new presidential powers (which he received in mid-2014), simultaneously seeking to turn the country into a presidential system and to boost economic growth ahead of general elections in June.

In doing so, he has repeatedly lambasted the central bank’s independence, relying on his traditional anti-western/anti-Gülen/conspiracy theory rhetoric: Mr.Basci is accused of being a “traitor”, part of the “interest rate lobby” and controlled by “foreign interests.”

Moreover, high interest rates are said to increase inflation – in a complete denial of economic theory –, to make the country “impossible to invest [in]”, and are equated to “selling out the homeland.”

Each successive speech by the President espousing such views has been met with an instant weakening of the Lira. In the words of economist Dani Rodrik – “as [Erdoğan’s] power has increased so has his hubris and there are now very few people around him who dare to speak the truth about what is happening in the economy and to argue that his economic theory is nonsense.”

Opposing Erdoğan is Central Bank governor Erdem Basci, as well as deputy prime minister for the economy Ali Babacan. Tellingly, both men claim to “have the ear of Prime Minister Davutoglu”, and both admit to viewing their jobs as “damage control.”

How Does This Fight Over Monetary Policy Affect the Economy?

A simple chart can show the striking effect of the changes in monetary policy on the exchange rate:

The benchmark rate – in Turkey the one week repo rate – has already been decreased three times between 2012 and 2013, leading to massive capital outflows and the fall of the Lira (Period 1).

Govenor Basci had at that time responded aggressively by raising the rate from 4,5 to 10%, allowing the currency to strengthen for a while against the dollar (Period 2). From mid-2014, the constant pressures from Erdoğan to decrease the interest rates led (without apparent economic justification) to a series of five cuts (Period 3).

These moves occurred, despite inflation being well above set targets, (see chart below) and a high current account deficit – even though as a big energy importer, the falling oil prices should have improved both indicators. The consequences, however, have been clear, with the Lira sliding to record lows and investors fleeing: highly detrimental for an economy largely dependent on capital inflows.

Financial Uncertainty Continues in Turkey

Going forward, geopolitical tensions will push the Lira further down, as was the case in late March following the Saudi-led intervention in Yemen. Additionally, U.S. interest rates are expected to rise by mid year. Still, the U.S. rate rise having likely already been priced in the exchange rate market, and geopolitical risk has a comparatively small effect on the Lira.

External factors aside, the outcome will depend on Turkey’s internal political dynamic.

Recent events point to a lull in tensions between Mr. Basci and Erdoğan. They held a conciliatory meeting on 12 March.

Whether because or in spite of said meeting, the fact remains that the Central Bank has been able to resist further easing. Furthermore, the Central Bank has been able to maintain the same interest rates in the face of “uncertainty in global markets and elevated food prices.” The potential respite – if any – should not last long.

In June, Turkey will hold general elections, increasing uncertainty during both the pre- and post-election periods. Prior to the election, easing pressure on the central bank will give a temporary boost to the economy. After the election, newspapers will likely already be talking about the possible resignation of Mr Babacan or Basci.

The replacement of the current economic team with one that is more pro-growth – and less concerned about price and financial stability – would be a worrying perspective indeed.

In general there has, for a number of years, been a shift underway in Turkey towards a more presidential system. Such a system portends greater pressure on the rule of law as well as more disdain for cautious economic policy, thus leading to more political risk and less credible policies. And that is why technocrats should hold on tight.

Courtesy of Global Risk Insights, © 2015 Global Risk Insights

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Global Risk Insights (GRI) provides expert analysis on political events impacting business, investment, and economic climates worldwide.

By Andrew Korybko, Sputnik News

Photo courtesy of RIA Novosti / Ramil Sitdikov.

While many in the Balkans were lamenting the cancellation of the South Stream project last December, Russia was hard at work laying the foundation for its replacement, hereafter referred to as ‘Balkan Stream’. The concept is to connect ‘Turkish Stream’, the Russian pipeline to Turkey’s Eastern Thrace region, to South Stream’s previously intended Serbian, Hungarian, and Austrian partners, but detouring through Greece and Macedonia to compensate for the exclusion of Bulgaria. While such a strategy was previously only talk, concrete action was taken this week to transform it into a reality, which wouldn’t have been possible had Macedonia not beaten back the Color Revolution attempt that aimed to sabotage the entire thing.

Step By Step

The whole reason that Balkan Stream was conceived in the first place was because its predecessor, South Stream, was cancelled last December. Russia took this decision after Bulgaria (influenced by the EU acting on behalf of the US) made it impossible to construct the pipeline through its territory due to a slew of political and legal games that it was playing. At the time, the author was the first person to write that a replacement route could realistically go through Greece and Macedonia, thereby resurrecting the project and fulfilling the pressing energy demands in Europe that necessitated its creation in the first place. Russia was quick to move, and in the same breath that it cancelled South Stream, it announced ‘Turkish Stream’ to partially replace it. This pipeline will travel under the Black Sea just as South Stream was intended to, but would instead reach land at Turkey, not Bulgaria. From there, the Russian government said, European nations could buy gas from a terminal at the Greco-Turkish border, in what was interpreted as a vague hint that such purchases could either be LNG or possibly even the start of a brand new pipeline.

Midway through December, Putin officially suggested during his annual news conference that the Greek-Macedonian ‘detour’ could represent a solution to South Stream’s cancellation, provided that there was interest in his proposal. This was echoed by the Hungarian Foreign Minister in mid-January, when he said that his country would support the project. Interpreting this as a greenlight to move forward, Putin discussed the topic with Viktor Orban during the former’s visit to Budapest last month. This week was the most monumental in terms of actually making progress on the project because Stroitransgaz, one of the companies involved in the original South Stream, announced on Thursday that it would be building a gas pipeline through Macedonia, which is set to begin construction this weekend and be completed by next summer.  That same day, the Hungarian President, while on a four-day visit to Turkey, spoke with Erdogan about a financing plan for the project, and a day afterwards, the Macedonian Foreign Minister paid an official visit to Turkey as well, where it is expected that he’ll discuss the topic, too. Through these series of diplomatic steps, Balkan Stream made the jump from paper to practice.

The Failed Color Revolution

This wasn’t supposed to happen, at least not if the US had gotten its way in Macedonia last month. Understanding that it’s the crucial bottleneck through which Balkan Stream must run, Washington wanted to stage a coup in the country in order to install a new leader that would reject the project and put an end to the region’s plans for reliable energy transit. Nikola Gruevski, the Prime Minister of Macedonia, had earlier broke ranks with his EU partners by refusing to sanction Russia, in a show of rebellion that the US felt it had to absolutely put down. For the few past couple of years, it had contracted the services of former intelligence chief Zoran Verushevsky in order to illegally wiretap over 20,000 people in the tiny country of 2 million, including politicians, journalists, and regular citizens. When it became clear at the end of last summer that South Stream was being stonewalled by Bulgaria and a new route would likely have to be streamlined (which geography dictates would obviously have to go through Macedonia), it activated its intelligence cell in order to preempt these plans, just in case they would go forward sometime in the future.

Zoran Zaev, the leader of the opposition, was given copies of these illegal tapes in order to blackmail the government, which he attempted to do from September to November. When Gruevski refused to give in to the blackmail, Zaev threatened to go public with the wiretaps and accuse the government of carrying them out, alleging that they also contained embarrassing political information and insinuating that this would lead to a Color Revolution. At the end of January, the Macedonian security services finally arrested Verushevky and a few other conspirators for plotting a coup, and Zaev had his passport taken to prevent him from fleeing while the investigation was ongoing. Verushevsky’s son even attempted to destroy his father’s computer before police stopped him, yet authorities were able to access the salvaged hard drive and recover Skype conversations where Verushevky and another plotter even spoke of starting a civil war in the country as a result of the blackmail ‘revelations’.

While Zaev attempted to create an actual Color Revolution last month by encouraging people to amass in the streets and protest the government, he failed to garner a consistent and sizeable following, showing that most Macedonians saw through the gimmick for what it was — a Ukrainian-styled soft coup attempt. Taking matters further, both Albanian parties in the country (whose affiliates are estimated to possibly constitute a quarter of the population) loudly distanced themselves from Zaev, thereby diminishing the prospects of a return to the 2001 interethnic violence that rocked the country and could have set the stage for the civil war that the conspirators previously discussed.  Russia evidently feels that the combination of government action, Albanian loyalty, and popular support has finally stabilized the situation, since it would not have gone forward with the pipeline’s construction through Macedonia had it thought that it could be endangered by the Color Revolution attempt. Accordingly, one can interpret this as Moscow’s recognition that Washington’s plot ultimately failed.

The Battles Ahead

Despite the obvious failure of Zaev’s destabilization, serious threats still remain that could endanger the viability of Balkan Stream. These mostly have to deal with the susceptibility of Hungary and Serbia to similar Color Revolution attempts (or a reoccurrence of instability in Macedonia), as well as the fragility of the Greek government. Also, a plan needs to be devised as to how the pipeline will comply with the EU’s Third Energy Package (which mandates the separation of energy suppliers and distributors), as the failure to have done so was the ‘official ‘reason that South Stream was stonewalled last year. If these difficulties can be surmounted, which is entirely feasible, then Balkan Stream has the potential to enrich the region and ensure Europe’s stable energy transit for decades to come.

Andrew Korybko is a political analyst, journalist and a regular contributor to several online journals. He specializes in Russian affairs and geopolitics, specifically the U.S. strategy in Eurasia.

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

Courtesy of Sputnik News, © 2015 Sputnik

iShares MSCI Turkey ETF (TUR) – the sole ETF focusing on Turkey – saw a terrible start to the year and is in fact the worst performing ETF in the emerging equities space this year. TUR has plunged roughly 17% this year as against flat returns by the broad emerging market funds like Vanguard FTSE Emerging Markets ETF (VWO) (read: 4 Buy Ranked Emerging Markets ETFs in Focus).

Moreover, the Turkish lira has been one of the weakest performing emerging market currencies this year – having plunged roughly 10% against the dollar. Despite the weakening lira, Turkey’s central bank chief, Erdem Basci, is facing escalating pressure from the country’s government to aggressively lower interest rates to promote economic growth ahead of the June parliamentary elections.

The political pressure has been so intense that President Recep Tayyip Erdogan has said that it would be treason if the central bank chief fails to lower the high interest rates. Turkey’s central bank has already made two larger-than-expected rate cuts in the benchmark one-week repo rate since December to 7.5% from 8.25% (read: Global Policy Easing Puts These ETFs in Focus).

The lack of credibility of the Turkish central bank to act independently seems to be one of the primary factors behind foreign money leaving Turkey, pushing the lira to fresh lows. Fears are widespread among investors that the central bank might give in to governmental pressures at a time when inflation remains above the official target. Moreover, expectations that the U.S. Federal Reserve may soon raise interest rates is also playing foul, leading to capital outflow from the developing markets.

Consumer prices rose 7.55% from 7.24% on an annual basis in January, with annual core inflation witnessing a declining trend, having fallen to 7.73% from 8.63% a month earlier. Nonetheless, economists believe that the central bank is unlikely to make deep interest rate cuts, as demanded by the President, as inflation is still significantly above the central bank’s 5% target.

The Erdogan versus Basci standoff has raised market speculations that the central bank chief might resign soon. If that be so, we might see more pressure on the lira which might intensify the risk of an external shock on Turkey’s economy. This is especially true as the country’s economy is heavily dependent on short-term hot-money inflows to fund its trade imbalances. Also, the continuous slide in the lira will make it more difficult for banks and companies to repay their foreign-exchange debt — half of which is due within a year.

ETF Impact

Thus given that the increasing political pressure is denting the credibility of Turkey’s central bank, darkening the outlook of its economy and making investors increasingly nervous, TUR is likely to face pressure in the days ahead.

As such, investors should cautiously trade the product, which is expected to see volatile trading in the coming weeks.

TUR in Focus

TUR tracks the MSCI Turkey Investable Market Index to provide exposure to Turkish equities having an asset base of $495.9 million. The fund trades in good volumes of 420,000 shares a day, while charging 62 basis points as fees (see all European Equity ETFs here).

The fund provides a concentrated exposure to a basket of 88 stocks. TUR is heavily concentrated in its top holdings, with the top three firms together occupying roughly one-fourth of total fund assets. Sector-wise, Financials dominates the product having a little less than half of the total fund exposure. Apart from this, Consumer Staples and Industrials are the two other sectors with double-digit exposure.

The fund has plunged 13.5% in the past two weeks. We have a Zacks ETF Rank #3 or Hold rating on TUR.

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By Dorian Jones

Putin and Erdogan in 2005 at the opening of the Blue Stream pipeline. Blue Stream currently has a capacity of 16 bcm per year, and on Monday, the two countries agreed to increase it to 19 bcm. (RIA Novosti/Sergey Zhukov)

The deepening crisis in Ukraine could open the door to Turkey’s decade long dream to become a regional energy hub. Political consultant Atilla Yesilada of Global Source partners said Moscow’s decision to use Turkey instead of Ukraine as a transit country to supply European markets is major opportunity for Ankara.

He said Turkey “will be replacing the supply that currently is being pumped through Ukraine.”

“Now obviously ethically there are major questions here and diplomatically there will be big tensions,” he added. “But economically speaking, the plan is feasible. Turkey simply becomes the next Ukraine and Turkey could become a major energy hub … supplying Europe.”

Moscow’s decision to circumvent Ukraine in shipping gas to European markets follows years of arguments and tensions with Kyiv, resulting in disruption of gas supplies to Europe.

But Sinan Ulgen, a visiting scholar at the Carnegie Institute in Brussels, said the prospect of Turkey becoming the new Ukraine is not being greeted with enthusiasm in Brussels.

He pointed out that the EU energy commissioner has indicated there are a number of legal obstacles.

“Namely,” he added, “Russia needs to amend the terms of supply to its large European customers. Because as things stand, these terms have stipulated that the gas will be supplied through Ukraine. And these are long term contracts, so it’s an open question whether the terms can be negotiated.”

But Gazprom head Alexei Miller dismissed such concerns in January, warning Brussels’ technical facilities have to be in place in two years to serve the new Turkish stream pipeline that will link up to Greece. Last month, Miller and Turkish Energy Minister Taner Yildiz took a four-hour helicopter tour to survey possible routes for the Turkish stream pipeline.

Moscow’s urgency appears to put Ankara in a strong position. Gazprom has twice reduced the price of gas it is selling to Turkey.

But Volkan Ozdemir, an analyst with the Ankara-based Institute for Energy Markets and Policies, said Turkey should press to turn itself from a mere transit country to energy hub.

“Turkey has the upper hand with Russia,” he said. “Because Russia, with these sanctions and economic turmoil, … Turkey is the only option. So, [Turkey] should in that sense persuade [its] Russian counterpart in order to become [a] partner of this natural gas hub.”

Ankara only receives transit fees for energy piped across its territory and has no right to resell any of that energy to third parties. But obstacles to Ankara’s  energy hub dream are not only diplomatic, warned Yesilada.

“It is risky because it takes a certain skill in terms [of] understanding [the] gas market, knowing the buyers, being able to forecast prices, having storage facilities, all these skills we currently do not have and need to develop,” he explained. “But it is also potentially very lucrative. So it’s a high stakes gamble.”

With another major pipeline to be built from Azerbaijan to European markets across Turkey and the Turkish stream pipeline, Turkey will be a major energy supplier to Europe. Yesilada said that will potentially give Ankara new leverage on Brussels.

Observers say Turkey has been battling skepticism over its energy hub dreams, but the Ukraine crisis could be the opportunity to give it the vital negotiating edge it needs to achieve that ambition.

Courtesy of VOA News

Russian President Vladimir Putin (left) and Turkish President Recep Tayyip Erdoğan (right) in Ankara, Turkey, Monday, Dec. 1, 2014. Photo courtesy of Turkish Presidential Press Service.

Turkey’s flirtation with purchasing non-NATO-compatible Chinese missiles to complement its planned air defense system indicates that Ankara may be preparing for a grander non-Western policy pivot in the future.

As it stands, Turkey is officially deliberating between purchasing Chinese, American, or French missiles for its air defense system, but the fact that military products from Beijing are being seriously contemplated by the NATO-member state shows that its leadership is not as firmly embedded in the ‘Atlantic Alliance’ as previously thought. Even if this is just a negotiating gimmick to squeeze greater concessions out of its American and French partners, it still speaks volumes about Ankara’s shaky relationship with the West by showing that Turkey feels it could use the threat of a believable Eurasian pivot as ‘blackmail’ to its advantage.

Washington’s Failed Kurdish Gambit

The single largest event that made observers begin questioning whether Turkey was contemplating a pivot to Eurasia was the US’ failed attempt at using Kurdish nationalism to pressure Ankara into invading Syria. Truth be told, this is exactly what Turkey itself had spoken of doing in the past, but under its own conditions and with unquestionable guarantees from NATO and the GCC that they would support it in this endeavor. Washington, however, had other plans, and fanned the flames of Kurdish nationalism with the intent that this would scare Turkey enough into commencing a ‘humanitarian intervention’  in Syria’s Ayn al-Arab (Kobani in Kurdish), which would open the way for a more formal invasion of the country than had been stealthily proceeding for the past four years.

But, Turkey didn’t bite the bait for two reasons:

* It wanted concrete guarantees that NATO and the GCC would follow up with any military support that Turkey requested (which it never received from either);

and most importantly,

* It felt that the US’ bilateral engagement with ‘Kurdistan’ constituted an existential threat to the Turkish state.

Due to these two primary factors, Turkey began to take steps in doing what it had thought of for quite some time already, and that’s diversifying its foreign partnerships by more robustly reaching out to the non-Western world.

The Eurasian Persuasion

Thus far, this has meant closer cooperation with Russia (the feared ‘enemy’ of NATO, according to most Western pundits) through the so-called ‘Turk Stream’ pipeline, which is the replacement for the cancelled South Stream project. However, it isn’t just energy that attracts Turkey to Russia, since relations with Moscow offer more comprehensive benefits for Ankara if it decides to move towards a full strategic partnership. Here’s a glimpse of some fields where Turkey can profit:

Economics:

The Eurasian Union could provide a suitable enough replacement to Turkey’s stalled 30-year-long journey in joining the EU.

Politics:

Russia values sovereignty as a key pillar in international affairs, and thus won’t interfere with Turkey’s domestic politics.

Security:

While the US was double-dealing against Turkey by working with the Kurds and, as some in the country believe, supporting the Gezi Park protests (which could be structurally seen as a Color Revolution warm-up, no matter how popular and seemingly genuine they were), Turkey faces no such security risks from Russia.

Due to these reasons and more, Turkey’s leadership could be seriously persuaded to pivot towards Eurasia and away from the West.

On The Fence (As Planned?)

The current arrangement, however, sees Turkey sitting on the fence between both sides, which in some ways is a manifestation of multipolarity.

What is understood by this is that the country is playing all sides to its advantage, seeking to capitalize off of the competition for its allegiance and holding back from overly committing to one side or another.

It’s unknown how long Turkey can manage in this delicate balancing act before it’s compelled to more firmly take sides, but it’s worthy to discuss which of its interactions complicate deeper partnership with each of them in order to get a better picture of where it might be leaning:

Challenges With the West:

* Eurasian Union Talk:

The West is put off by the fact that Turkey has been talking with Russia about closer cooperation with the Eurasian Union, since if the two are successfully integrated, it would end Brussels’ ability to use the carrot of future EU membership as enticement in getting Ankara to do its bidding.

* ‘Turkish Stream’:

This strategic partnership completely destroyed the EU’s negotiating leverage in using South Stream as a weapon against Russia, and the West is extremely perturbed by Turkey assisting Russia in finding an alternative route for its energy exports.

* SCO Dialogue Partner:

The formal delineation of Turkey’s relationship with the non-Western institutional behemoth opens the way for closer ties to develop between Ankara and its new partners, which could pull the country even further away from its traditional allies with time.

Challenges With Eurasia (Russia):

* The War on Syria:

No matter how close Turkey moves towards Russia and the non-West, it still continues to be the prime external destabilizer in Syria through its role as a terrorist, weapons, and financial conduit supporting illegal regime change against the popular and democratically elected government there.

* NATO Infrastructure:

Even if Turkey decided to do away with the West and abandon NATO (either de-facto or de-jure), it would still have to contend with such obstacles as the US Air Force base in Incirlik (which some reports cite as secretly hosting nuclear weapons), making it unlikely that the US would peacefully abandon its positions without first resorting to some type of political subterfuge (i.e. Color Revolution) to reverse the decision.

* Neo-Ottomanism:

This ideological strain present in the minds of Turkey’s ruling elite (current Prime Minister Ahmet Davutoglu essentially invented it) means that the country will likely continue to behave in an aggressive manner towards its former sphere of influence in the Mideast and perhaps even the Balkans, thus making it a potential loose cannon that may not be geopolitically dependable as a close Russian partner.

Stepping away from the details and looking at the larger picture, Turkey’s challenges with the West are generally of a soft, asymmetrical nature, whereas the obstacles standing before its relations with Eurasia largely represent harder, more conventional interests.

While the West hasn’t proposed any relevant solutions for overcoming its difficulties with Turkey, Eurasia has, and it takes the form of Chinese missiles. Thus, if Ankara does in fact go ahead with the proposed deal to purchase Beijing’s anti-air armaments, it would represent a more tangible shift away from the West and closer to the Eurasia, which may symbolize the larger overall pivot possibly underway in the country’s geopolitical affairs.

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

Courtesy of Sputnik News, © 2015 Sputnik

Turkish banking officials have seized control of Bank Asya, an Islamic bank believed to be controlled by supporters of US-based Turkish cleric Fetullah Gulen, while on the same day Turkey’s foreign ministry confirmed that Gulen’s Turkish passport had been cancelled.

Turkey’s banking regulator, the BDDK, announced in a statement issued late on February 3 that it had authorised the seizure of 63% of the equity of Asya Katilim Bankasi (Bank Asya) by Turkey’s Savings and Deposits Insurance Fund (TMSF), the body that guarantees bank deposits, on the grounds that Bank Asya does not have “transparent and clear partnership structures and organisation schemes” allowing effective auditing of the institution.

According to disclosures made on February 4 to the Istanbul stock exchange (BIST) by Bank Asya, the TMSF has taken over the rights of 120 unnamed shareholders and appointed a new board to administer the bank.

The future of Bank Asya has been the subject of speculation for more than a year, following the collapse of relations between Gulen’s Hizmet movement and the Justice and Development Party (AKP) government of Turkey’s prime minister, now president, Recep Tayyip Erdogan.

That fallout resulted in public institutions and state-owned companies removing deposits held at the bank, causing deposits to fall by 25% over the first half of last year and leading to trading in Bank Asya shares on the BIST being twice suspended during 2014. Shares in the bank fell by as much as 70% over the year.

Analysts cautioned in 2014 that while the bank had a healthy capital adequacy ratio, the loss of deposits coupled with a non-performing loan ratio of around 10% had caused the bank to suffer liquidity problems.

Following the collapse of talks over the possible purchase of Bank Asya from its existing shareholders by Turkey’s largest bank, state-owned Ziraat Bank, in mid-2014, Bank Asya launched a $100mn capital increase to overcome a short-term liquidity problem caused by the loss of funds.

The TMSF takeover of Bank Asya guarantees deposits held at the bank, as well as any dividends payable to the bank’s shareholders. However, it is unclear what the long-term future of the bank will be and whether control will be returned to its existing owners.

The precise ownership of the bank has long been the subject of speculation. Information published by BIST indicates that all of the bank’s shares are traded on the exchange, and does not name any individual shareholders. The bank itself reports five shareholders with less than 5% of equity each, 29% held by “others” and 54% traded on the BIST.

Political Fallout

At the root of the bank’s problems is the souring of relations between Gulen’s Hizmet movement and the Turkish government over the past two years.

Previously, Gulen and his movement were widely understood to have been strong supporters of the AKP government, and to have had close relations with the party’s founders, Erdogan and former President Abdullah Gul. Photographs of a ceremony at the opening of the first branch of Bank Asya in 1996 show a beaming Gulen flanked by Gul and Erdogan, as then deputy Prime Minister Tansu Ciller cut the ribbon (see below).

Gulen left Turkey for self-imposed exile in the US in 1999 and has subsequently been reported as declining invitations from Erdogan to return. The precise reason for the collapse in relations between the two is unclear but Erdogan has made repeated statements over the past year blaming Gulen and his movement for being behind a series of graft probes against his government, and accusing the movement of forming a “parallel state”.

The investigations launched in December 2013 resulted in allegations of widespread graft at the highest levels of government and the resignations of four senior ministers. Subsequently the corruption inquiry was halted, with thousands of police, prosecutors and judges sacked or transferred to other posts.

The first anniversary of the launch of the graft probe was marked by a Turkish court issuing an arrest warrant for Gulen, leading to calls for his extradition. A foreign ministry official confirmed to BNE Intellinews on February 4 that a Turkish court had cancelled Gulen’s passport on January 22 on the grounds that it had been obtained fraudulently and that news of the cancellation had been transmitted to Gulen and to the US authorities.

However, he was unable to confirm whether any application had been made to the US for Gulen’s extradition, suggesting that such a move would have to be made by Turkey’s justice ministry.

Justice ministry officials declined to comment on the issue, as did a spokesman at the US embassy in Ankara, who confirmed that long-standing State Department policy is to not comment on extradition matters.

Courtesy of BNE

Russian President Vladimir Putin traveled to Ankara on December 1 for talks with his Turkish counterpart, Recep Tayyip Erdogan, on foreign policy, energy, and a potential trade deal worth $100 billion.

The talks come as the two leaders are divided on a number of foreign policy issues, most notably Syria — where Putin stands virtually alone in defending entrenched leader Bashar al-Assad — and Ukraine, where Erdogan has expressed concerns over the fate of Tatars in Russia-annexed Crimea.

Such disagreements aside, there are more similarities than differences between 62-year-old Putin and Erdogan, 60.

Both Grew Up Poor And Playing Sports

Putin grew up in a communal apartment in postwar St. Petersburg — then called Leningrad — and has been quoted as saying he had to hunt down rats crowding the stairwell. A rowdy youth, Putin first took up sambo and judo as a teenager, ultimately earning a black belt and issuing an instructional video called “Let’s Learn Judo with Vladimir Putin.”

Erdogan grew up in the modest Kasimpasa district of Istanbul, where he sold lemonade and sesame buns for pocket change and reportedly still returns for haircuts with a local barber. He spent 13 years as a semiprofessional soccer player for the Kasimpasa side and recently scored a hat trick in an exhibition match during his presidential campaign.

Both Have Forged Political Careers On ‘Great Nation’ Rhetoric And Vilifying The West

Erdogan and Putin have both tinkered with their country’s constitutions to extend their political life spans by shifting between presidential and prime ministerial posts, and adjusting the balance of powers accordingly.

Their prolonged careers — Putin has effectively remained in power for 15 years, Erdogan for 11 — have been accompanied by a steep rise in political exceptionalism, with both Russia and Turkey chafing at what they see as Western scolding over Syria, Ukraine, and poor democratic principles.

Erdogan, whose Justice and Development Party (AKP) has sought to impose Islamic governance on traditionally secular Turkey, has hinted his country will drop its bid to join the European Union in favor of the Beijing- and Moscow-led Shanghai Cooperation Organization.

Putin, who has defended Russian interest in Ukraine as an attempt to prevent NATO aggression, has accused the West of provoking a new Cold War.

Both men have used their religions — Sunni Islam in the case of Erdogan, Russian Orthodoxy in the case of Putin — to strengthen their influence.

Both Have Palaces

Much attention has been paid in recent weeks to Erdogan’s newly unveiled White Palace, an Ottoman-themed presidential residence built on 150,000 square meters of formerly public parkland in the capital, Ankara. The compound, which boasts a thousand rooms, marble floors, and a sophisticated security system, cost a reported $615 million. But supporters say the palace is meant to signify the country’s prosperity and reflect Erdogan’s importance as the man remaking modern Turkey.

Unlike Erdogan’s highly public palace, Putin’s reported refuge is a far more private affair — a lavish Black Sea mansion allegedly built with $1 billion in diverted funds. “Putin’s Palace,” as the property is known, is built in the Baroque style of St. Petersburg’s Winter Palace and features elaborate landscaping, a casino, swimming pools, and numerous helipads.The Kremlin has repeatedly denied any connection between Putin and the palace, whose Italian architect, Lanfranco Cirillo, received Russian citizenship in August.

Both Have Crushed Popular Protests

Russia saw massive public protests in 2011-12 as Putin ran for his third term. After the vote, the Russian leader used his newly restored presidential powers to launch a sweeping crackdown against civil society, nonstate media, and participants in the Bolotnaya Square protests against rigged parliamentary elections and Putin’s reelection bid. Over 400 people were arrested and beaten in the wake of the protests; more than a dozen protesters are in prison or still awaiting sentencing.

In Turkey, Erdogan’s plans to demolish Istanbul’s Gezi Park to make way for real-estate construction sparked rallies countrywide in 2013-14, with more than 3 million Turks turning out to protest the government’s growing authoritarianism and attacks on secular principles. Erdogan responded with force, authorizing police to suppress the protests with tear gas and water cannons. A dozen people were killed; more than 5,500 are being prosecuted.

In both Russia and Turkey, the crackdowns have all but silenced the political opposition, with Putin now contemplating a fourth presidential term and Erdogan becoming Turkey’s first popularly elected president in August.

Neither Is Going To Win Feminist Of The Year

Erdogan made waves last week in Turkey when he said motherhood should be a woman’s priority under Islam and that gender equality “goes against the laws of nature.” It’s not the first time the Turkish leader has sought to impose his conservative religious views on the female population. Erdogan has also declared that Turkish women should have three children and has sought to limit access to abortion and birth control.

Putin, for his part, recently shocked onlookers when he reverted to an off-color joke in a debate with German Chancellor Angela Merkel over the EU’s options in supporting its currency union, saying, “No matter how you do it on your wedding night, the end result is the same.”

Putin also adopted a patronizing tone when dismissing a remark in June by former U.S. Secretary of State Hillary Clinton comparing his actions to Hitler’s. “It’s better not to argue with women,” he said, going on to suggest that weakness was a desirable quality in females.

The recently divorced Russian leader once also reportedly said, “Anyone who can live at least two weeks with [ex-wife] Lyudmila deserves a monument.”

Courtesy of Radio Free Europe/Radio Liberty (RFE/RL)

Radio Free Europe/Radio Liberty (RFE/RL) is a broadcasting organization that provides news, information, and analysis in 21 countries where free press is banned by the government or not fully established.  

Copyright (c) 2014. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave NW, Ste 400, Washington DC 20036.