National

ANKARA, Turkey — Turkish President Recep Tayyip Erdoğan’s official visit to the United Arab Emirates this week is aimed at laying the foundation for a strategic partnership between the two former rivals after several years of sharp divergence.

Why it matters: Erdoğan’s first visit to the UAE in nine years, which followed a visit from UAE Crown Prince Mohammed bin Zayed (MBZ) to Ankara last November, is part of a broader effort to reset relations with countries in the region as Turkey tries to build its cash flow and end its diplomatic isolation in the region.

State of play: In the past several years, Turkey and the UAE have intervened on opposite sides in Libya, the Emiratis have criticized Turkey's role in Syria, and Ankara has criticized the UAE's intervention in Yemen.

Ankara also suspected the Emiratis of backing a 2016 coup attempt against Erdoğan, and Erdoğan's harsh criticism of the UAE's normalization with Israel pushed relations to an all-time low.

Despite all that, Erdogan's multiday visit, which began on Monday, had the sort of pomp and circumstance that might be expected from the closest of allies.

Driving the news: The two countries signed 13 bilateral deals on issues including defense, climate change and technology, and launched negotiations on a broader economic partnership. Turkey also agreed to sell drones to the UAE.

The countries are also looking to boost trade, which is already around $8 billion annually, in areas like construction, energy, transport, health care and food.

During MBZ’s visit to Ankara, Abu Dhabi earmarked $10 billion for investment in Turkey’s health care and financial technology sectors.

The central banks of both countries also signed a $5 billion currency swap deal last month.

The other side: Turkish opposition parties are criticizing the rapprochement.

Ali Babacan, who was previously one of Erdoğan's top ministers but now runs a breakaway party, criticized Erdoğan for the apparent U-turn on his allegations about the UAE's links to the 2016 coup attempt.

What’s next: Two senior Turkish officials arrive in Israel on Wednesday to pave the way for Israeli President Isaac Herzog's upcoming visit to Ankara, which is planned for March 9. It will be the first such visit in 15 years.

Worth noting: Turkish intelligence claimed last week to have thwarted an Iranian attempt to kill an Israeli Turkish businessman.

The alleged Iranian plot is seen by some in the Turkish government as a reaction to Turkey’s efforts to improve relations with the UAE and Israel.

Erdoğan seeks reset in unlikely visit to UAE

Turkey needs cash and more friends in the region.

Turkish President Erdoğan (left) is welcomed by UAE Crown Prince MBZ. Photo: Turkish presidency via Getty

Turkey

ANKARA, Turkey — Turkish President Recep Tayyip Erdoğan’s official visit to the United Arab Emirates this week is aimed at laying the foundation for a strategic partnership between the two former rivals after several years of sharp divergence.Why it matters: Erdoğan’s first visit to the UAE in nine years, which followed a visit from UAE Crown Prince Mohammed bin Zayed (MBZ) to Ankara last November, is part of a broader effort to reset relations with countries in the region as Turkey tries to build its cash flow and end its diplomatic isolation in the region.

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

World

ANKARA — Turkey’s year-on-year inflation rate jumped to 36% according to December’s consumer price index (CPI), released Monday. That's the highest rate since 2002.

The big picture: President Recep Tayyip Erdoğan has continued to push for cuts to interest rates amid soaring inflation, arguing it will strengthen Turkey's exports and the construction sector. But that unorthodox approach has seen prices fluctuate wildly and the purchasing power of working class Turks decrease significantly.

Many Turks have moved or joined their households to cope with spiking rents and utility bills, particularly in Istanbul, where around one-fifth of the population lives and where the cost of living has increased by 50% over the past year.

Photos of elderly Turks collecting vegetables discarded by vendors at marketplaces have become common. Street vendors have begun selling half bagels. In Ankara, philanthropists have helped to cover electricity and water bills.

The earnings of ordinary Turks will further erode in the new year due to fresh hikes in electricity and gas prices on New Year's Eve.

The government recently raised the minimum wage by 50%, but the new monthly wage is currently worth less relative to the dollar than the prior wage was at the beginning of the year, underscoring the difficulties of boosting social welfare amid high inflation and economic instability. The rise in wages may also push businesses to use unregistered workers.

Between the lines: The official statistics may not even tell the full story. While Turkey’s Central Bank projected full year inflation at 18.4% just two months ago, the independent Inflation Research Group estimates that it is 82.8%.

Economists have also disputed the official CPI statistics. The Turkish Statistical Institute's senior leaders have been repeatedly replaced, raising questions about the statistical body's political independence. 

Turkey’s economic unpredictability and the discrepancies between official and unofficial figures have spooked some investors.

Driving the news: Erdoğan announced a plan on Dec. 20 to reverse the trend of Turks putting their savings in foreign currencies like the dollar by guaranteeing local currency deposits, with the state covering any losses in value. 

That policy could strain the budget and push inflation rates higher.

It could also hurt the ruling Justice and Development Party (AKP), which has been sliding in the polls, in constituencies where dollar-nominated accounts are common.

The state of play: According to a new poll, some 60% of Turkish citizens do not believe the economy will recover under the current government. That includes around one-third of AKP voters.

Some celebrities close to the government have faced public criticism for their lavish lifestyles and alleged insensitivity to the plight of ordinary Turks.

Flashback: A decade ago, Turks could buy a dollar with around 1.8 liras. Now that figure is over 13, by far the worst decline among the emerging markets. The lira lost 44% of its value against the dollar just in the past year.

What's next: The Central Bank’s Monetary Policy Committee will meet on January 20, and its inflation report will be published on Jan. 27. 

Goldman Sachs anticipates inflation will reach as high as 40% by mid-2022.

Inflation in Turkey spikes to highest level under Erdoğan

And the official numbers don't tell the full story.

ANKARA — Turkey’s year-on-year inflation rate jumped to 36% according to December’s consumer price index (CPI), released Monday. That&#x27;s the highest rate since 2002.The big picture: President Recep Tayyip Erdoğan has continued to push for cuts to interest rates amid soaring inflation, arguing it will strengthen Turkey&#x27;s exports and the construction sector. But that unorthodox approach has seen prices fluctuate wildly and the purchasing power of working class Turks decrease significantly.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

ANKARA, Turkey — The attack that killed nine tourists in northern Iraq last week opened a significant rift between Ankara and Baghdad and could significantly impact Turkey’s military plans in Iraq and Syria. 

Driving the news: The tourists, including a child, were killed last Wednesday after artillery shells hit a park in the Duhok governorate in the Kurdish region of Iraq.

The Iraqi government blamed Turkey for the attack, summoned the Turkish ambassador and demanded an official apology for the strike, which it called a violation of its sovereignty. It also demanded that all Turkish forces withdraw from Iraq. 

The Turkish government denied any responsibility and claimed that the outlawed Kurdistan Workers Party (PKK) was behind the attack.

Why it matters: Any further escalation between Turkey and Iraq could damage bilateral ties between the two neighboring countries, especially when Iraq is heavily dependent economically on trade with Turkey.

Last year, bilateral trade reached $19.5 billion, with Iraq becoming Turkey's fifth-largest export market. But the Baghdad Chamber of Commerce has recently urged Iraqis to stop trading with Turkey.

Ongoing negotiations over the water-sharing deal about the Tigris and Euphrates River basins as well as oil trading with the Kurdistan Regional Government also bind the two countries together.

State of play: The UN Security Council strongly condemned the attack and urged its members to “cooperate actively” with Iraq on the investigation.

The UN special envoy for Iraq said at a Security Council meeting yesterday that Turkey and Iraq were ready for a joint investigation.

The big picture: Turkey has several military bases in northern Iraq, and it conducts regular cross-border military operations there to target PKK militants.

Ankara has ramped up its operations in the region in recent months, leading to Iraqi government concerns as well as outrage from Iran, which fights for influence in these areas. 

Meanwhile, Western countries, including the U.S., have urged Turkish President Recep Tayyip Erdoğan not to make good on his recent threats to launch a new operation against the PKK-affiliated YPG militants in northern Syria.

Last week's attack in northern Iraq could increase opposition to any new Turkish operation in Syria. 

What to watch: Turkey is not expected to withdraw from Iraq permanently, but it may reduce its military activities in the country on a temporary basis to try to calm international outrage.

Yes, but: A withdrawal of Turkish forces from Iraq could be perceived as weakness by Turkish nationalistic voters ahead of next year's parliamentary elections. 

Rift grows between Ankara and Baghdad after attack in northern Iraq

Nine tourists were killed in the Kurdish region of Iraq in an attack Baghdad blames on Turkey and Ankara blames on the PKK.

People in Mosul protest attack that killed nine tourists in northern Iraq. 

People in Mosul protest attack that killed nine tourists in northern Iraq. Photo: Ismael Adnan/picture alliance via Getty Images

ANKARA, Turkey — The attack that killed nine tourists in northern Iraq <a class="gtmContentClick" data-vars-link-text="last week" data-vars-click-url="https://www.reuters.com/world/middle-east/least-four-killed-turkish-rocket-strike-iraqs-dohuk-province-sources-say-2022-07-20/" data-vars-content-id="ad7ae12d-27d2-41d1-86db-d4435081ff9f" data-vars-headline="Rift grows between Ankara and Baghdad after attack in northern Iraq" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.reuters.com/world/middle-east/least-four-killed-turkish-rocket-strike-iraqs-dohuk-province-sources-say-2022-07-20/" target="_blank">last week</a> opened a significant rift between Ankara and Baghdad and could significantly impact Turkey’s military plans in Iraq and Syria. Driving the news: The tourists, including a child, were killed last Wednesday after artillery shells hit a park in the Duhok governorate in the Kurdish region of Iraq.

ANKARA, Turkey — Turkey and the U.S. recently announced the launch of a "strategic mechanism" aimed at repairing relations and unlocking potential cooperation in areas of defense, the economy and counter-terrorism. 

Why it matters: Relations between the two NATO allies have been strained in recent years over a number of issues, including Turkey’s purchase of Russia's S-400 missile defense systems, U.S. support for the Kurds in Syria and human rights issues. 

Driving the news: U.S. Under Secretary of State Victoria Nuland met with Turkish Deputy Foreign Minister Sedat Önal in Ankara last week to "review topics of mutual interest." Nuland also met with President Recep Tayyip Erdoğan’s senior adviser Ibrahim Kalin.

Nuland's visit was followed by that of U.S. Department of Commerce Under Secretary Marisa Lago, who held meetings to "advance the U.S.-Turkey commercial relationship and promote clean and secure energy alternatives in the region."

Under the rapprochement process with Washington, Ankara said it also prioritized its procurement request for new F-16 jets and modernization kits from the U.S. to upgrade its air force.

Turkey’s top defense industry officials were sanctioned in December 2020 over the S-400 acquisition, and Turkey was also expelled from the F-35 fighter jet program.

The State Department recently submitted a letter to Congress supporting the sale of F-16 fighter jets to Turkey.

Between the lines: The launch of the "strategic mechanism" comes as Turkey, which shares borders with Russia and Ukraine in the Black Sea, acts as a mediator between Kyiv and Moscow.

The Ukrainian crisis helped Turkey to get closer to the West, but long-standing tensions remain over the country's foreign policy and democratic backsliding.

The big picture: Nuland also visited Cyprus, where she stressed the importance of decreasing the region's dependence on Russian oil and gas.

She called the proposed plan to supply Europe with natural gas from the eastern Mediterranean too expensive, saying it would be better to build alternative energy resources.

She also called for cooperation between Turkey, Greece, Israel, Egypt and Cyprus on the transfer of liquid natural gas to Europe.

Turkey and U.S. work to repair strained relations

They recently announced the launch of a "strategic mechanism" aimed at repairing relations and unlocking potential cooperation.

Turkey and U.S. flags in Ankara. Photo: Evrim Aydin/Anadolu Agency via Getty Images

ANKARA, Turkey — Turkey and the U.S. recently <a class="gtmContentClick" data-vars-link-text="announced" data-vars-click-url="https://www.state.gov/u-s-turkey-joint-statement-on-the-strategic-mechanism/" data-vars-content-id="c67adbf9-591f-486c-bcb1-86b96ec11c23" data-vars-headline="Turkey and U.S. work to repair strained relations" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.state.gov/u-s-turkey-joint-statement-on-the-strategic-mechanism/" target="_blank">announced</a> the launch of a &quot;strategic mechanism&quot; aimed at repairing relations and unlocking potential cooperation in areas of defense, the economy and counter-terrorism. Why it matters: Relations between the two NATO allies have been strained in recent years over a number of issues, including Turkey’s purchase of Russia&#x27;s S-400 missile defense systems, U.S. support for the Kurds in Syria and human rights issues.

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

ANKARA, Turkey — Turkey's deepening currency crisis could mark the definitive end of the country's economic success story and is making ordinary citizens poorer.

Driving the news: Turkey's currency is fluctuating on a daily basis and has lost 45% of its value against the dollar this year. Investors are abandoning Turkish assets due to concerns about the Central Bank’s ability to control inflation. Ordinary citizens are rushing to convert their savings to foreign currencies and gold. 

Street vendors have begun selling half bagels due to the decreasing purchasing power of citizens.

State of play: The economic crisis has damaged the political standing of President Recep Tayyip Erdoğan and the ruling Justice and Development Party, which has held power since 2002 and based its pitch to voters largely around rising living standards.

Erdoğan's economic team insists on an unorthodox economic policy of cutting interest rates despite soaring inflation and rising poverty. Erdoğan has described high interest rates as the “mother of all evil."

Erdoğan and his team claim their policy will boost Turkey's exports and economic growth by making the currency much more competitive.

A dispute over interest rates led Erdoğan to replace his more mainstream finance minister last week with a loyalist, Nureddin Nebati.

In the past two years, Erdoğan has dismissed three Central Bank presidents, raising questions about the bank's independence.

Central Bank governor Sahap Kavcioglu and Erdogan's new finance minister have both doubled down on the current, unorthodox monetary policy.

What they’re saying: Nebati, who served three years as a deputy finance minister, this week praised the policy of cutting rates and said, "We are determined to implement it."

Central Bank governor Sahap Kavcioglu said the unorthodox monetary policy would begin to show results early next year.

Erdoğan, who blames the current crisis on scheming by foreign forces, predicts a 10% GDP growth rate by the end of this year and a current account surplus in 2022.

Meanwhile, opposition parties are calling for early elections and holding political rallies attacking Erdoğan's economic mismanagement.

Erdoğan is opposed to calling elections before 2023, by which time around 9 million younger Turks will be eligible to vote for the first time.

But he may struggle to win them over. One in five young people are unemployed.

What to watch: The Central Bank has signaled one more limited rate cut in mid-December, after which time the bank will likely end its monetary easing policy.

As the economic struggles spread, a massive brain drain is likely in the coming months.

Currency crisis hits hard in Turkey

Vendors have started selling half bagels.

Waiting to exchange money. Photo: Ozan Kose/AFP via Getty

ANKARA, Turkey — Turkey&#x27;s deepening currency crisis could mark the definitive end of the country&#x27;s economic success story and is making ordinary citizens poorer.Driving the news: Turkey&#x27;s currency is fluctuating on a daily basis and has lost 45% of its value against the dollar this year. Investors are abandoning Turkish assets due to concerns about the Central Bank’s ability to control inflation. Ordinary citizens are rushing to convert their savings to foreign currencies and gold.

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Stories

Rift grows between Ankara and Baghdad after attack in northern Iraq

Turkey and U.S. work to repair strained relations

Erdoğan seeks reset in unlikely visit to UAE

Inflation in Turkey spikes to highest level under Erdoğan

Currency crisis hits hard in Turkey