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Washington Report on Middle East Affairs, December 1997, Pages 26, 132

Central Asia

Turkey’s New Government Looking Again to the Caucasus and Central Asia

By Gordon Feller

After a 13-month break during the rule of the Islamist Welfare Party, Turkey again is focusing on the Turkic states of the Caucasus and Central Asia. In mid-September, Turkish Foreign Minister Ismail Cem arrived in Baku for talks with the Azerbaijani leadership, and Turkey's new prime minister, Mesut Yilmaz, scheduled a follow-up visit for less than a month later.

Turkey's diplomatic focus on relations with the Turkic successor states to the former Soviet Union constitutes a return to foreign policy priorities espoused by the governments of Suleyman Demiral and then Tansu Ciller from 1992-96. By contrast, the Welfare Party government headed by Necmettin Erbakan sought to strengthen ties with other leading Muslim states but virtually ignored Central Asia and the Caucasus. Charging that as a result Turkey's influence and standing in the region had declined, Yilmaz declared on being appointed prime minister in late June that his first trip abroad would be to Central Asia.

Since late 1991, when the Muslim republics of the U.S.S.R. declared their independence, Turkey's relations with them have been less than harmonious, despite the linguistic and cultural similarities between the Anatolian Turks and the related Turkic peoples. Western expectations that, following the demise of Communism as the state-imposed ideology, Turkey and Iran would engage in a struggle for the hearts and minds of the Turkic peoples of Central Asia proved misplaced. The overriding concern of the newly independent Central Asian and Transcaucasus states was not to import a new ideology but to develop the broadest possible economic and infrastructural ties with the world at large.

Euphoric predictions by the late President Turgut Ozal of a Turkish sphere of influence extending, he said, "from the Adriatic to the Great Wall of China" engendered hopes that Turkey would provide urgently needed investment in the newly independent Central Asian states. But these hopes proved unrealized, as did the aspirations of some Turkish political figures to secure for Turkey, with Western backing, the role of a regional power.

After several years of uninterrupted economic upswing between 1984-1990, by 1992 the Turkish economy was heading for crisis. Ankara therefore was unable to provide economic aid in the desired quantities, but continued to fund a program of expanded cultural contacts, including satellite TV broadcasts to Central Asia and scholarships for Central Asian and Azerbaijani students to study in Turkey.

Because the Azerbaijanis are closer to the Anatolian Turks, both geographically and linguistically, than are the other Turkic peoples of the former U.S.S.R., Azerbaijani-Turkish relations were perceived as a barometer for measuring Turkey's influence throughout Central Asia. Moreover, by virtue of its geographic position, Azerbaijan was perceived as Turkey's gateway to Central Asia. However, Turkey's failure unequivocally to condemn the ouster in June 1993 of Azerbaijan's enthusiastically pro-Turkish President Abulfaz Elchibey served to highlight both the limits of Turkey's influence in the region, and Russia's undiminished ability to intervene in the domestic political affairs of the newly independent states.

Since 1993, the five Turkic Soviet successor states (Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan) have determined their respective foreign policy orientations and priorities. None of them regard Turkey as more than, at best, one of a number of economic partners. True, Azerbaijan hopes to build a major export pipeline for its Caspian oil from Baku through Georgia to the eastern Mediterranean terminal of Ceyhan—a project that Turkey is keen to implement but unable to finance, and which has the backing of the U.S. government. By contrast, Uzbekistan and Kazakhstan are reaping the benefits of U.S. and German investment while vying for the role of regional leader within Central Asia, and Kyrgyzstan is increasingly oriented toward China as a major economic partner.

Turkish Minister of State Ahad Andican recently formulated the new Turkish government's priorities with regard to the Turkic Soviet successor states as follows: First, to fortify the independence of these countries and thus enable them "to stand on their own feet." And second, to develop "a system of relations based on equality," abjuring what Andican described as the "sentimental" approach of the early 1990s. The old system, he said, treated these countries with condescension, "as though they were part of the Third World."

In particular, Andican pointed out, this latter assumption was mistaken because the Central Asian states were more advanced than Turkey in certain infrastructural aspects, such as science and their educational systems. Turkey's state ministry for relations with Central Asia last month established an Economic Cooperation Council and a Social and Cultural Coordination Council as part of this overall program to foster closer ties. Whether the activities of these bodies, and the visits this month of Prime Minister Yilmaz and Foreign Minister Cem, will open a new chapter in relations between Turkey and Central Asia remains to be seen.

Armenia's Economic Recovery Slows in 1997

Armenia's main economic indicators during the first half of 1997 were less favorable than in the past few years. The growth of gross domestic product slowed to 1.4 percent from 5.8 percent in 1996, and industrial production fell by 2.9 percent, after increasing by 1.2 percent in 1996. Official unemployment rose to 10.6 percent in June, from 10.1 percent in December 1996.

External developments were also worrisome in the period from January to June. Exports decreased by 21 percent, while imports rose by 16 percent, yielding a trade deficit (net of foreign assistance) of $326 million, compared with $571 million in 1996 as a whole.

Nonetheless, the economic situation in the first half of 1997 had its positive sides, including low inflation. Consumer prices were up by only 7.2 percent compared with the same period last year. Moreover, performance may improve in the second half of 1997, as was the case last year, when GDP growth was 3.2 percent for the first five months and 5.8 percent for the year. In addition, in 1996 inflation turned out to be lower than projected during the year.

Armenia enjoyed the best macroeconomic performance in the Commonwealth of Independent States (CIS) from 1994 to 1996. GDP grew by 5.4 percent in 1994, 6.9 percent in 1995, and 5.8 percent last year. The figures for 1994 and 1995 were the highest in the CIS those years. By 1996, consumer-price inflation had fallen to 5.7 percent on a December-to-December basis, the lowest of any former Soviet republic since the break-up of the U.S.S.R.

The biggest macroeconomic problems are sizable external imbalances, which result from very weak export performance, and large budget deficits. Although both types of deficit have been largely financed by international assistance, such a situation cannot persist indefinitely.

From 1991 to 1993, GDP fell by 63 percent, while four-digit annual inflation continued through 1994. That disastrous performance was caused by such factors as the 1988 earthquake, the shutting down of the Medzamor nuclear power plant in 1989 (reopened in 1995), the disruption of trade with the rest of the former Soviet Union, blockades by Turkey and Azerbaijan, and civil unrest in Georgia, which cut off Armenia's only remaining outlet to the sea.

In early 1995, the economy rebounded almost immediately after the IMF awarded the country its first $23.6 million loan in December 1994. Inflation fell from almost 61 percent in that month to 3.9 percent in January, while GDP growth went from -14.8 percent in 1993 to 5.4 percent in 1994.

In February 1996, the IMF granted Armenia a three-year, $148 million loan. Although the fund has generally praised Armenian economic policy, it has expressed concern this year over poor performance on tax collections and a growing debt burden. Such concern has resulted in a delay in its release of the first tranche of the loan from the first to the second quarter.

There are grounds for uneasiness about the future of Armenia's economy beyond slightly worse statistics and a more standoffish IMF this year. It is unclear whether Armenia will be able to generate the sustained, rapid economic growth necessary to raise its standard of living. As in most transition countries, foreign investment—especially in new plant and equipment for production of goods for export—is vital for achieving such growth. Several factors make it difficult for Armenia to attract such investment, however.

The country is landlocked, isolated from world markets, and has no direct economic contact with two neighbors, Turkey and Azerbaijan. It is also rather poor in natural resources, although there are good prospects for the exploitation of copper and molybdenum deposits (as well as gold in territory disputed with Azerbaijan). Most important, the threat of a renewed conflict over the unrecognized Nagorno-Karabakh Republic hangs over its economic prospects.

It is likely that the Armenian diaspora, by itself, could provide sufficient foreign investment to improve the country's macroeconomic performance. But so far, cumulative foreign investment is in the range of only $12 to 24 million. Another obstacle to growth are banks unable to mobilize domestic savings or stimulate investment.

Better economic prospects might result from improved relations with Russia. The two countries signed a treaty on "friendship, cooperation, and mutual assistance" on Aug. 29. They also signed a second accord creating a joint venture to re-export Russian gas to Turkey. But Armenian Energy Minister Gagik Martirossian's prediction that revenues from the transit and export of gas will enable Armenia to repay its foreign debt within two years and pay off its external finance requirements is perhaps overly optimistic.

Gordon Feller is president of Integrated Strategies of San Rafael, CA, and publisher of Russian Business News, a monthly intelligence report for government and industry.