FUTURE TRENDS IN TURKISH ECONOMY AND POLITICS Prof.Dr.Mehmet Erdas, 03.09.2010 In my Ph.

D thesis 1982, I referred to the balance of energy and financial markets over the interest rates mechanism. The idle overcapacity threat has been built since 1980s in the world economy. Iraq Wars and the rapid growth and development of BRIC economies disturbed the balance of energy and financial markets. The aggregate demand and supply on global scale can not be matched anymore through the interest rate mechanism of financial markets. The global financial markets crisis has put the banking industry and the flow of funds, investment banking in a collapse. The recovery of asset values and the rapid increase in unemployment in EU and USA; Greek debt crisis and the high ratio of debt to GNPs of UK, USA, Japan, Spain, Ireland, Portugal creates a new risk profile for the global banking industry. The consumer confidence stays low globally threatening the export oriented german economy. The Debt to be collected only in Europe amounts to 400 billion Euro. A new power game is in being, which might lead to new tensions and regional wars in Balkan, Middle East and Far East. A new global threat of banking industry and uncontrolled deficit spending and financing of economies, the imbalance of economical power against military power, could probably lead to a global war. The history repeats itself, as long as the mankind resists to learning necessary lessons from history, failing to adapt themselves to the law of natural economical and financial selection, suggesting always the survival of the fittest (Charles Darwin), without any priority.

Turkey can play a very important power balancing role between East and West, North and South, by joining the BRIC Countries, just by keeping on Atatrks Foreign Policy of full independence and neutrality without USA dominated NATO membership. Turkey is a switching country in the Middle East, securing all of energy transportation lines to Europe. If Turkey would be governed in a proper way, utilizing her scarce energy and natural resources, like Cobalt, Bor, Iron, Copper, Water, Coal etc. in a planned and optimized way for more health and educational progress of turkish population, the next stage would be the production of software and knowhow intensive soft goods like computer programs, new web services, ERP-Enterprise resource planning, SOA-Service oriented architectures and CRM -Custumer relationship management software like SAP, Microsoft, ORACLE. The production of technology needs more quality in education by more infrastructure investments like computer labs, Nanotechnology, Material Test and Development Labs at the Universities and Technology Institutes. The export of skilled people like computer and industrial engineers, mathematicians, physicists to world markets would bring more knowledge and wealth to Turkey. The amount of R&D investments are at a very low level, less than 3% of GDP as compared to developed countries. The political and civilian social institutions in Turkey are not well organized, not very inefficient in increasing the quality of people in politics and higher decision making levels. Instead of using more modern business intelligence tools, the decision makers follow their intutions and their own nonverified qualitative risk profiles and preferences. This leads to inefficient use of resources and more loss in productive human

capital in less-valued more energy consuming, labor intensive industries like textiles, metal processing, agriculture in rural areas. The negative real capital accumulation, increasing unemployment rates, high current account deficit, worsening trade balance, much more imports than exports and decreasing industrial production in Turkey, could lead to a change in political power after the 12th September 2010. The popularity of Justice and Development is decreasing after supporting the kurdish democratic movement leader calan and PKK increasing disputes about Northern Iraq and the solution of separatist kurdish problem. The FOREX exchange rates could rise again very sharply, leading to 1 USD =2,5-3 TL, distorting all import and export balance, increasing the current account deficit, worsening trade balance, and decreasing the industrial production. Since 60 years of democracy in Turkey, no other political party, has succeeded to be able to rule and keep political power steadily more than 10 years. This historical evidence implies that there will be probably a big power game after the elections in 2011. The increasing social tensions and the worsening of income distribution could lead to a civil war and separation of eastern Turkey, if security forces like military, police and justice could not keep the social peace and order in all over Turkey.