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STOCKS RIDE OUT ERDOGAN OFFENSIVE
By Robert M Cutler
Asia Times
http://www.atimes.com/atimes/Central_Asia/LC 19Ag02.html
March 18 2010
HongKong
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.
By Robert M Cutler
Asia Times
http://www.atimes.com/atimes/Central_Asia/LC 19Ag02.html
March 18 2010
HongKong
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.