Türkiye: Investment attractiveness and brass knuckles Review by Shereshevskiy

After the elections in Türkiye, re-elected President Recep Tayyip Erdogan decided to replace key government officials in the government. The attention of the spectators was primarily attracted by two appointments - the finance and the foreign ministers.

The new Finance Minister Mehmet Simsek was a former head of the London branch of major bank Merrill Lynch and also served as head of the Turkish Finance Ministry from 2009 to 2015.

Erdogan has long advocated an economic policy based on low-interest rates, which some economists call "unorthodox”. He managed to achieve high economic growth in 2022, reaching 5.6 per cent of GDP, but the flipside was inflation. Rising costs caused discontent among part of the population. In addition, these processes caused the Turkish lira to fall, and the government spent foreign currency reserves in an effort to support it.

Finally, as Bloomberg notes, "years of unorthodox monetary policy led to an exodus of foreign investors," as they had no desire to invest in the falling lira. Nevertheless, by increasing the money supply, which helped create new jobs and social benefits, Erdogan was able to attract a significant part of the electorate, including many working-class people.

In addition, his policies benefited the new "Anatolian bourgeoisie" - wealthy entrepreneurs from the Turkish countryside whose export-oriented factories made huge profits and increased manufacturing thanks to the weak lira. Altogether, Erdogan gained the sympathy of a large part of business and wage earners.

However, after the elections, it became clear that the former growth model had run out of steam and many observers expect a return to more traditional policies, i.e., an increase in bank interest rates. If interest rates are increased, this could bring down inflation but also lead to a lower growth rate.

That is why it is important for the government to appoint a leader who has the confidence of international investors. If they invest more in Türkiye, it will probably help avoid a recession. Simsek is that person.

However, with all their trust in him personally, investors will primarily expect concrete changes in interest rates. Also, a lot will depend on Türkiye’s foreign policy - Western partners may approve or disapprove of some of Ankara's actions, and this may affect their decisions, which can reduce or increase investors' interest in the country.

For example, after Türkiye bought Russian S-400 air defence systems, the United States imposed sanctions that excluded the country from the program of manufacture and purchase of F-35 combat aircraft. Ilter Turan, professor of international relations at Istanbul University, noted that the threat of sanctions due to political disagreements with the West (particularly because of Türkiye’s noncompliance with anti-Russian sanctions) is a deterrent to investment.

Much of this is no longer up to Simsek. Nevertheless, this appointment may signal a return to orthodox or "classical" economic policies and it is certainly aimed at gaining the trust of international investors, signalling Erdogan's intentions.

The second appointment of exceptional significance was Erdogan's decision to place Hakan Fidan as head of the Foreign Ministry. Fidan, the former head of the National Intelligence Organisation (MIT), was the first member of Türkiye’s intelligence community to receive such a post. This is attributed to the results Türkiye has achieved in recent years thanks to his clandestine diplomacy.

For example, Israeli experts have noted that Fidan has played an important role in the rapprochement between Israel and Türkiye. Interviews with these experts were recently published in The Jerusalem Post.

"Fidan played a key role in the negotiation and rapprochement process with Israel over the years and had ties to Israeli intelligence leadership even during times of strained relations between the countries," Israel Institute for Regional Foreign Policy President Nimrod Goren said.

“He led the decision-making process to improve relations between Israel and Türkiye in recent years and has been involved in the development of security strategies since Erdogan came to power. He has dealt with all the central issues of Türkiye’s relations in the region. He is trusted by the president and has a lot of experience and knowledge."

SUNY Maritime University Professor Mark Meyerowitz agrees: "Fidan's access to President Erdogan and his close relationship with him will be vital to advancing diplomacy and significantly improving Türkiye-Israel relations in the future... Fidan has the experience and expertise that will contribute to the marked development of bilateral relations."

Israeli President İsaac Herzog’s Confidant, Rabbi Marc Schneier pointed out that Fidan has been directly involved in discussions with Israeli intelligence on a number of issues and is very sensitive to Israeli concerns about terrorist groups in the region.

"Erdogan sincerely wants to improve relations with Israel and therefore Fidan can be useful to us," he added.

But Fidan's role is not limited to rapprochement with Israel. He is a key figure in everything that concerns the restoration of Türkiye’s relations with the UAE, Egypt and Saudi Arabia (SA).

Until a few years ago, there was a lot of tension between Türkiye on the one hand and these three states on the other because of a number of contradictions. Among them are the relations with Qatar, the civil war in Libya, and the dispute over the territories in the Eastern Mediterranean, where the gas fields are located.

A large anti-Turkish bloc began to form in the region, which included not only the three aforementioned countries but also Greece, France and Israel. The fact that the opponents began to form a coalition against Ankara could not be to Ankara's advantage.

In addition, as mentioned above, the Turkish economy needs large investments, and countries such as SA and the UAE are seen as valuable investors. Israel, one of the leading high-tech centres in the world, with a trade turnover of $6 billion, is also important to Türkiye. Finally, Ankara sees cooperation with Israel, the main US ally in the Middle East, as a way to circumvent the sharp corners in relations with Washington and seek rapprochement with it.

Türkiye needs at least $216 billion in 2023 to meet its foreign debt obligations and to cover its current account deficit. In the past, Turkish Ambassador to Vienna Hasan Gogus commented on this: "The deficit is the basic consideration behind Ankara's new foreign policy orientation: Türkiye does not want to turn to the International Monetary Fund [IMF]. There is little chance of foreign investors coming in. No matter how much tourism revenues increase, there is a limit. So that leaves funds and loans to be obtained from the rich Arab states and the Gulf states."

All these considerations eventually led to the search for diplomatic solutions and the easing of tensions between countries. Today it seems that although the conflicts are not a thing of the past, they have been mitigated by Türkiye rapprochement with Egypt, Saudi Arabia, the UAE and Israel. Fidan's role in this process has been exceptional.  

It is also curious that Israeli experts have called what is happening "the securitisation of diplomacy, which is also happening in Israel" (for example, the former Chief of General Staff of the Israeli army, Gabi Ashkenazi, was the country’s foreign minister).

Hakan Fidan, a specialist in covert diplomacy and covert operations, is like brass knuckles in a velvet glove as head of the Foreign Ministry. According to Türkiye’s Daily Sabah, Fidan's appointment is a continuation of a policy of restructuring Türkiye’s various security units, which includes strengthening foreign intelligence operations and making MIT an important player in foreign policy.

But just as importantly, the appointment demonstrates Ankara's desire to continue developing cooperation with a number of Middle Eastern states.