Will Saudi Arabia cure Turkey’s economy?

Gulsen Solaker & Emre Eser

As President Tayyip Erdoğan continues his visit to Saudi Arabia, where the normalization of relations is targeted, it is assessed that the expected economic benefit from the contacts will not be a solution for the country’s economy in the long term, but can be used as a short-term electoral investment.

The deterioration of relations between the two countries, which fell to different poles during the Arab Spring period, culminated in the assassination of Saudi journalist Jamal Khashoggi.

Journalist-writer Cemal Kaşıkçı, who entered the Saudi Consulate General in Istanbul on October 2, 2018, was never heard from again and it was later revealed that he had been killed. Khashoggi’s body was never found.

At that time, Turkey was trying to sensitize international public opinion, in particular by accusing the Crown Prince of Saudi Arabia of this murder.

The ongoing legal process in Turkey regarding Khashoggi has been closed in recent weeks and the case has been transferred to Saudi Arabia. Thus, it was declared that the condition set by Saudi Arabia for the improvement of relations was also fulfilled.

Erdogan’s visit, which started yesterday with a large delegation, is considered important in terms of the normalization process that Turkey has recently embarked on with countries with which it has problematic relations.

The bad days in relations between the two countries seem to be over with the transfer of the case and the visit that followed. Meanwhile, Erdogan’s embrace with Crown Prince Mohammed bin Salman, whom he accuses in harsh words, albeit anonymously, of Khashoggi’s murder is also widely discussed.

CHP Chairman Kemal Kılıçdaroğlu made a statement on his social media account: “He sentences innocent people to life in his country and defends him at the airport. Then he gets off the plane and runs to kiss the killer. In his own country, he bows to the one who destroys people, his eyes laugh at him with love. It’s you, Erdogan. I will say shame, but in vain”.

Why did Erdogan back down?

According to experts, the reasons for Turkey’s desire to improve its relations with Saudi Arabia are different and closely linked to the evolution of balances in the region. However, efforts are being made to overcome the current economic difficulties, even in the short term, as the most important source of motivation.

Turkey, which has recently requested foreign currency and international investment, wants to both provide foreign exchange inflows and attract investment with this visit. In addition, Saudi Arabia should be included in the exchange network it has previously established with countries such as the United Arab Emirates, Qatar, China and South Korea.

So, can these measures, which are expected in exchange for this embrace, which made Erdogan back down, be an economic remedy for Turkey’s problems? More importantly, does it provide a permanent solution?

According to economists, the exchange agreements may not benefit Turkey in the long term, on the contrary, it could harm it.

Stressing that swap deals cannot be a permanent solution, economist Arda Tunca said: “Because swap deals are an instrument that provides very short-term funding opportunities, funding opportunities between 60 and 90 days, maybe 3 to 6 months. Therefore, it is not possible to offer a permanent solution.” says.

According to the opposition, these agreements can only offer short-term solutions. Bülent Şahinalp, Deputy Chairman of the Democratic Party, said the following in a statement to DW Turkish:

“Since the beginning of the year, such a maneuver has been underway against the United Arab Emirates, Israel, Egypt and finally Saudi Arabia by initiating a very important shift in foreign policy. However, a swap of 3-5 billion or even 10 billion dollars agreement does not solve our problem, it only delays the problems.

Recalling that Turkey faces a problem of very high inflation due to its own mistakes and uses a significant amount of reserves to maintain the exchange rate at a certain point, Tunca draws attention to the fact that the possibility of a global recession poses great risks for Turkey in terms of foreign exchange earnings. Tunca interprets recent foreign policy measures in this context as follows:

“Therefore, Turkey is trying to recover the relations it has severed not only with Saudi Arabia but also with other countries. You can call this a foreign policy reflex caused by desperation.”

A lifeline for short-term power?

It is said that the economic benefits Ankara hopes to derive from its visit to Saudi Arabia could be a pre-election lifeline for the government in the short term, if not for the country in the long term.

Economist Tunca stresses that measures like the swap deals will not be beneficial in the long run for the Turkish economy, which is in a bad spiral, and will not bring prosperity to the country, and continues his remarks as follows :

“But if you want to use this as election material and say, ‘Look, it’s okay’ and fool people who don’t technically understand economics, yes, it works in that sense. But is it beneficial to society? No, on the contrary, it harms the Turkish economy in the long term, society will pay the price.

Tunca said that swap agreements are used as a method by the Central Bank of the Republic of Turkey to intervene on the exchange rate and prevent its financing in case of financing need, and this is also wrong, and said: “So some interventions may work to suppress the exchange rate a bit in the short term, but it doesn’t work in the long term, it didn’t work. And we’ll see if it works,” he says.

Trade relations are on the way

The tension with Saudi Arabia in recent years has had a direct impact on trade, and Turkey’s export sectors have also felt it closely. Saudi Arabia had started to boycott Turkish products, although it did not declare it openly and officially.

Some demands for Turkish products started in Saudi markets and the phrase “Turkish product” was included in the texts hanging on the shelves. According to Kazım Taycı, Chairman of Istanbul Cereals, Pulses and Oilseeds Exporters Association (İHBİR), who said that food exports have shown a significant slowdown in this process, the negative atmosphere has suddenly dissipated from today.

“We have contacted the distributors in the region. There is not even a single obstacle at the moment. There was already a political attitude and today we see that this attitude has disappeared. The first shipments will start after the holidays “, Taycı said, adding that the export losses of the past period can be compensated.

Recalling that their sectors exported $205 million to Saudi Arabia in 2017, $227 million in 2018, $230 million in 2019, $181 million in 2020, Taycı said that in 2021, these exports have decreased to $3 million, or close to zero. Taycı said an export of $250 million will be reached, if not exceeded, in the 12-month period.

Treasury and Finance Minister Nureddin Nabati said two days ago that he had an online meeting with his Saudi counterpart, Mohammed Al Jadaan; announced that they had discussed what could be done to increase cooperation in the areas of economy, investment and trade.

According to data from the Turkish Statistical Institute (TUIK), Turkey’s imports from Saudi Arabia amounted to 693 million 945 thousand dollars in the first two months of 2022, while exports remained at level of 20 million 442 thousand dollars.

However, exports increased to $58 million in March, bringing first-quarter exports to $78 million. In the first three months of last year, Turkey’s exports to Saudi Arabia amounted to 74 million 834 thousand dollars. In the first two months of last year, the import was 313 million 739 thousand dollars.

President Erdogan is expected to return to Turkey this evening after completing his contacts.

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