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Turkey – Russia Adversaries or Partners?

Turkey – Russia Adversaries or Partners?. Prof. Dr. Seyfettin Gürsel Director of Bahçeşehir University Center for Economic and Social Research. IFEA, 19th February 2009. PART I. Turkey – Russia Complementary Economics. 1. A Classical Division of Labor.

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Turkey – Russia Adversaries or Partners?

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  1. Turkey – RussiaAdversaries or Partners? Prof. Dr. Seyfettin Gürsel Director of Bahçeşehir University Center for Economic and Social Research IFEA, 19th February 2009

  2. PART I Turkey – RussiaComplementary Economics

  3. 1. A Classical Division of Labor • Turkey exports (Russia imports) industrial goods and services (tourism and construction • Turkey imports (Russia exports) commodities (energy and raw materials)

  4. Turkish Imports Turkish Exports

  5. Tourism Number of Visitors Tourism Revenues

  6. Construction services

  7. 2. Russia Suffers from the “Dutch Disease”Oil: Curse or Blessing? • Energy exports Current Account Surplus (CAS) • CAS either appreciation of the local currency (flexible exchange rate) or • CAS increase of the monetary base inflation (fixed exchange rate) Loss of competitiveness (An historical precedent of 16th century Spain)

  8. Russian Current Account Balance

  9. Russian Reserves

  10. Exchange Rate Appreciation and Inflation

  11. Russia is condemned to specialize in energy exportation and industrial good importation • Russia has the 8th biggest oil reserves • Russia has the biggest natural gas reserves • Russian industry is specializing in non-market goods (military etc.)

  12. 3. Side Effects of “Dutch Disease” • High levels of corruption • Government inefficiency • Rising inequality • Authoritarian tendencies • Concentration of state power in the hands of ruling elits

  13. 4. Turkish economy suffers from a huge current account deficit

  14. More than 1/3 of trade deficit of Turkey comes from Russia

  15. Turkish economy has a comparative advantage over the Russian market • Geographical proximity • Transportation costs • Adaptation capabilities of the Turkish firms (Laleli story) Per capita GDP and Population Projections for Russia

  16. Anyway Turkish industry should improve its competitiveness. BUT Russian market is comparatively less costly in terms of social costs

  17. Russia can contribute seriously to the industrialization of Turkey. SO Russia can help Turkey to become a regional power.

  18. PART II Russia - Turkey“The Great Game”

  19. 1. A Cooperative Game • Free Trade Agreement • Fair sharing of regional energy outcomes Welfare enhancing for both societies, Making them more prosperous

  20. The cooperative game implies: • Cooperation with the West Joshka Fisher: “Russia must be invited to join NATO” • Democratization of Russia Turkey can continue its way to EU

  21. 2. A Non-cooperative Game • Russia spends considerable political, diplomatical, militaristic and economical efforts to control energy resources and their marketing (transportation) in the old Soviet area • Russia’s ruling elite oppose to democracy

  22. 3. Conflict with the West (USA & EU and so with Turkey) Major fault lines are: • The Caucasus • Ukraine • Central Asia

  23. 4. Russia can be tempted to choose a cooperative game with Turkey Turkey breaks with the West IF

  24. Russia seems to follow a “stick and carrot” policy towards Turkey Stick • Barriers and administrative difficulties to trade • No gas for Nabucco Carrot • Solution to trade difficulties • Possible free trade agreement (trade with Rouble) • Cooperation in military and space-technology related issues Gül’s recent visit was symptomatic.

  25. Instead of a conclusion let me raise a critical question? Would Turkey break with the West? • Is it possible? • Is it desirable?

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