Turkey’s economic growth stuck between Hamas and PKK?

I was at a meeting with a group of officials from the European Investment Bank (EIB) recently. The EIB is more and more interested in supporting infrastructure projects in Turkey. I told them about how Turkey’s inadequate transportation and logistics infrastructure prevent our inland regions from joining the European Customs Union, thus foregoing all the benefits of connectivity that comes with it. We went over the relevant sectors for the European integration process. Everything was going well until a little caveat at the end. “Of course,” I was told, “if Turkish membership of the Financial Action Task Force (FATF) is suspended in February 2013, the EIB will not be able to extend any more loans and grants in Turkey.” As it turned out, there was a loaded story behind this.

FATF is the Paris-based intergovernmental body that was established by the ministers of its member jurisdictions in 1989 and is the main international body combating money laundering, terrorist financing and other threats to the integrity of the international financial system. It was initially mainly about money laundering, but went heavily into terror financing after 9/11. Turkey has been a member since 1991.

The FATF has a list of noncompliant countries, headed predictably by countries such as Iran and North Korea. Turkey is also the only member that is also on the institution’s list of non-cooperative countries. Sounds absurd? It should do. On Oct. 19, 2012, the FATF decided to suspend Turkey’s membership at its February 2013 meeting, unless the country enacts adequate anti-terrorist financing legislation. That did not prevent Prime Minister Erdoğan, who was in Berlin recently, from asking once again for Chancellor Merkel’s support in the fight against the outlawed Kurdistan Workers’ Party (PKK) terrorism. So, we ask for people’s help in combating terrorism, yet we do not contribute to the global framework against terrorist financing networks.

There are two reasons for this. First, Turkey has not yet put together an action plan of its own to combat money laundering. Second, Turkey could not enact an effective legal framework to combat terrorist financing. Both of these processes have been in the works for about ten years now. One of the difficulties seems to be that Turkey has not yet found a definition of terrorism that includes the PKK, while excluding Hamas. If Turkey sticks to this ideological stance and gets kicked out of the FATF, it will also be automatically excluded from dealing with financial institutions like the European Investment Bank. Thinking of the potential role of EIB in upgrading Turkey’s long forgotten infrastructure bottlenecks, this is certainly bad for Turkey’s long term economic growth prospects.

We have to choose between business and ideology. This is a good litmus test if there ever was one; Turkey has a lot to lose from being excluded, more than we can imagine.