The Obama-Erdoğan meeting and economic conduct

Finally, Prime Minister Recep Tayyip Erdoğan’s meeting with U.S. President Barack Obama was held. While political relations, focusing on Syria, were at the forefront, we can say that the economic leg of the trip was less inactive than expected.

Maybe one of the most important consequences of this trip was that Moody’s upgraded Turkey’s rating to investment grade. Markets were expecting this raise for some time anyway, but it had not arrived.

The fact that the upgrading was announced during the meeting with Obama was perceived as a show of strength for Erdoğan on one hand, while on the other hand it slightly lessened the value of the earned rating. While it was observed that markets did not buy any more of this raised grade that they had already bought in advance, it was also observed that the atmosphere suggesting that “this upgrading was a political decision” played an effective role in the lack of excitement in receiving the raise. In other words, the upgrading was not met with enthusiasm especially in global markets.

Before the U.S. visit, one of the most important economic issues was the effort of Turkey to be included in the preparations of the EU and the U.S. to sign a free trade agreement. Turkey, which is punished by the deals the EU strikes with third countries, has wanted to be a side in this agreement for some time.

After talks were held, even though the atmosphere created implied that a huge step had been taken, we observed that not much was achieved. Obama’s statement saying that Turkey’s opinions would be consulted for the deal to be made with the EU and that a bilateral commission would be formed was ineffectively explained as a “concrete development.” However, it can be seen that there was no other additional development, other than making operational a commission that has already been formed before.

In short, it is possible to say that regarding the free trade agreement there is no concrete development besides demonstrating mutual good will.

Energy deal with N. Iraq

One of the items in Prime Minister Erdoğan’s agenda was to ensure the approval of the U.S. regarding the energy deals struck with northern Iraq. As a matter of fact, the statement the prime minister blurted out while departing for the U.S. that “Exxon Mobil and TPAO have made an agreement” did not continue. We can easily say that there was no concrete step taken in Washington in that matter.

While this subject was not brought up during the joint press conference of Obama and Erdoğan, there was no element about this in other leaked information either.

Meanwhile, it cannot be said that during the talks in Washington, Turkey was able to get what it wanted either in political issues, primarily Syria. It needs to be noted that this situation might have negative effects on the economy in the coming term. The extension of the solution for Syria and the stance of the U.S. that opted to act together with Russia seem to be increasing Turkey’s risks.

Even though the second “investable country” grade has been received, the fact that the domestic economy has not yet shifted to the desired growth rates, the acceleration of the flow of hot money, the fact that the current account deficit cannot be solved structurally, and the rise in short term debts - when combined with the three elections to be held in 2014 - show that a sensitive period has arrived.