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Foreign Direct Investment in Turkey:Historical Constraints and the AKPSuccess StoryIoannis N. Grigoriadis & Antonis KamarasPublished online: 05 Jun 2008.

To cite this article: Ioannis N. Grigoriadis & Antonis Kamaras (2008) Foreign Direct Investment inTurkey: Historical Constraints and the AKP Success Story, Middle Eastern Studies, 44:1, 53-68, DOI:10.1080/00263200701711812

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Foreign Direct Investment in Turkey:Historical Constraints and the AKPSuccess Story

IOANNIS N. GRIGORIADIS & ANTONIS KAMARAS

Economic development on an unambiguously national basis was one of thefoundational principles of republican Turkey. Indeed, until very recently, foreigndirect investment (FDI) was scant and had a marginal presence in the Turkisheconomy. Since Turkey’s Justice and Development Party (Adalet ve Kalkınma Partisi –AKP) came into power in 2002, however, Turkey has generated more FDI than in theprevious 20 years.1 This study has two interlinked aims in its examination of thisdevelopment. The first is to put it in its inescapably historical context. This is aworthwhile exercise, as it carries explanatory power in relation to the domestic forceswhich have shaped the interaction of the Turkish economy with FDI. Thus, one canalso better evaluate the resiliency of the current market opening in Turkey, which is,after all, shaped by domestic political and economic forces, whether supportive oropposing, whose orientation is historically informed and whose very existence ishistorically determined. The second aim is to render visible the role that FDI in Turkeyhas played as a pillar of the AKP’s overall political strategy which is premised onwinning and consolidating legitimacy through internal and external actors as aresponsible steward of the economy with an unquestionably Western orientation –albeit one that also leaves room for the AKP to underline its representation of thecountry’s Islamic culture. In that respect FDI has been complementary to the country’srelationship with the International Monetary Fund (IMF) and the European Unionand has thus consolidated post-Islamist AKP’s claim to be a worthy trustee of thecountry’s key strategic goals; it has been blessed by the country’s business elite whichhave appreciated its contribution to Turkey’s stability and the confirmation of itsWestern orientation, while also seeming to generate more market opportunities thanthreats; and, by involving investors from Muslim countries – mostly from the Gulf – ithas strengthened the AKP’s ability to relate Turkey to the world in such a way that itcan pay heed to the sensibilities of its own key constituencies.

This article, while not directly addressing contributions on Islamist politicalparticipation in Turkey, indirectly relates to some of the interpretations that havebeen offered.2 In particular, it will be seen how state power has been employed byAKP in order to attract FDI to Turkey not in a defensive fashion but rather in aparticipatory one vis-a-vis both domestic and external agents in the context ofglobalization. In this manner, AKP will be shown to both appropriate and develop

Middle Eastern Studies,Vol. 44, No. 1, 53 – 68, January 2008

ISSN 0026-3206 Print/1743-7881 Online/08/010053-16 ª 2008 Taylor & Francis

DOI: 10.1080/00263200701711812

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the agenda of its secularist opponents, thus neutralizing them to a considerabledegree.

Under the influence of Western powers, the Ottoman Empire started opening up itseconomy to the international markets in the 1830s. The 1838 Commercial Treatywith Great Britain consolidated this shift by outlawing trade controls andmonopolies and turned the Ottoman economy into one of the most liberal of thenineteenth century. Ottoman non-Muslim minorities established themselves in thevery lucrative position of the intermediary between the Ottoman economy andthe world markets. Increasing government borrowing since the 1850s alsointertwined the Ottoman economy with international capital markets. A significantincrease of what we would now call FDI occurred only in the 1880s. The mainemphasis on rail infrastructure and a decreasing British predominance, as improvingrelations with Germany shifted by 1914 the balance in favour of the latter, shapedthe image of foreign investment in the late Ottoman Empire.3 In that early heydayof economic globalization, between 1870 and 1914, the Empire was an exporter ofprimary commodities, an importer of manufactured goods from the more developedWest and a borrower from the world’s capital markets, primarily in order to cover itsfiscal deficits and secondarily to finance its infrastructural investments.

While the Ottoman Empire had comprised one of the most liberal economicenvironments in the nineteenth century, the rise of the Young Turks to power in1908 resulted in a radical shift. Nationalist sentiments against foreign powers anddomestic minority groups were soon channelled into the field of economy. Thedevelopment of a ‘national economy’ devoid of foreign and local minority influencesbecame a strategic target of Young Turk governments. This campaign was two-pronged. On the one hand, there was mistrust of foreign capital and efforts weremade to limit foreign investment and minimize the impact of foreign capital on theeconomy. On the other hand, non-Muslim minorities, Ottoman Armenians, Greeksand Jews were also targeted. Their disproportionate influence upon the Ottomaneconomy, considering their numbers4, was seen as compromising nationalsovereignty and exposing domestic resources to foreign exploitation.

Imperial retreat primarily from Europe also accelerated the arrival of economicnationalism. The embargo against Austrian products declared as a reaction againstthe annexation of Bosnia-Herzegovina to the Habsburg Empire in 1908 was followedby a similar campaign against Greek products in the aftermath of the proclamationof the annexation of Crete to Greece in 1909. The intensification of nationalisteconomic policies was furthered by the outbreak of the Balkan Wars in 1912–13.Measures aimed to limit the economic presence of the Ottoman non-Muslimminorities and support the rise of a Muslim Turkish bourgeoisie were taken for thefirst time, leaving an enduring legacy in republican Turkey. Nonetheless, attacks onforeign capital could not be launched before the entry of the Empire into the FirstWorld War on the side of the Central Powers. With the onset of the war, economicnationalism reached yet another peak, with confiscations of enemy capital andfurther measures against the non-Muslim bourgeoisie.5

The 1923 Treaty of Lausanne which became the birth certificate of republicanTurkey provided an environment favourable for the development of a ‘national

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economy’. The onerous capitulations,6 which had become a symbol of foreignexploitation, were lifted. An introverted economic policy intensified efforts to‘nationalize’ the Turkish economy and eventually pledged faith to etatism. The stateundertook a pivotal role in the modernization and industrialization of the Turkisheconomy. Foreign capital was considered responsible for the chronic financial crisisof the late Ottoman Empire, and efforts were made to eliminate the budget deficitwithout any recourse to international capital markets. Even the promise of financialaid and investment loans by Western states did not persuade Kemalist governmentsto open their economy to international markets. Suspicion of the intentions of foreigncapitalists was consolidated in the minds of Kemalist economic planners, and thebreaking of all links was considered necessary for the achievement of true Turkishsovereignty.7 Mustafa Kemal himself argued in the opening ceremony of the FirstIzmir Economic Congress in 1923 that in the Ottoman Empire the state was not freeto build railways and factories to meet the economic needs of the nation and added‘full independence should reinforce national sovereignty with economic sovereignty’.8

The state spearheaded an industrialization programme aiming to render Turkeyautarkic. Economic development programmes included the nationalization of existingforeign companies in fields such as the railways and placed emphasis on thedevelopment of heavy industry.9 Etatism became one of the ‘six arrows’ of Kemalism,assigning to the state a central role in economic development. The development of a‘national industry’ became a national goal, and selected companies became theprivileged partners of the state. In the words of Mahmut Soydan, president of theleading early republican state bank, _Is Bankası, and Member of Parliament:

Everyone knows the political and economic necessities which force Turkey toestablish its national industry. Our struggle is simple. We want to rescue thehomeland from being an exporter of raw materials, a colonial economy. Insteadof this, we have decided to establish a national economic system. To achieve thistarget, we have launched a war for national economic development. All thefinancial, economic and national institutions of the homeland have beenassigned duties in this war, according to their strength. Those firms whichalways stood in the forefront of homeland affairs were assigned duties in thestate industrialization program.10

As in the days of the Empire, global economic conditions and related political trendsalso had a major bearing on the economic orientations of republican Turkey. TheGreat Economic Depression of 1928–32 could only increase suspicion of foreigncapital and free markets. The resulting and protracted fall in commodity prices andthe worldwide rise of protectionism propelled Turkey, like other countries, towardsautarkic policies, as the benefits of economic interaction with the internationaleconomy were limited. The rise, particularly in Europe, of authoritarianism, fascismand communism, which ephemerally seemed to deliver on the promises of nationaland economic regeneration, provided both impetus and justification to Turkey’srepublican ideology and practice.11

In this global economic and ideational context, foreign and minority influence onOttoman economic life, and the corresponding non-involvement of OttomanMuslims in modern trade and commerce, was widely perceived as one of the causes

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of imperial decline and subsequent defeat. This made it even more natural that statepower would be used in a forceful, and arbitrary, fashion to nationalize the economiclife of the Republic. Henceforth, a new Turkish business class would be created onthe state’s initiative, dislodging the minorities from their long-standing businessprimacy in order to secure modernization and emancipation from foreign or at anyrate ethnically non-Turkish influence. The demise of the Anatolian non-Muslimbourgeoisie during the wars that signalled the collapse of the Ottoman Empire andthe rise of modern Turkey massively contributed towards the attainment of this goal.Close affiliates to the new government took over the immovable assets left behind bythe expelled minorities aiming to substitute for the missing non-Muslim bourgeoisie.

Subsequently, in the 1920s and 1930s, a panoply of legal and administrativemeasures was implemented to further marginalize surviving minority economicinfluence in Istanbul and thus complete the strategic objective of republicangovernment for ethnic Turkish economic dominance.12 The pinnacle of anti-minority policies in that period was reached by the 1942 Property Tax (VarlıkVergisi) which allegedly aimed to punish wartime profiteering, but in practice turnedout to be a confiscatory and arbitrary anti-minority tax, dealing a heavy blowagainst the economic position of non-Muslim entrepreneurs.13

These domestic anti-minority policies powerfully interacted with adverse globalconditions, as the state strove to create a Muslim business elite. Party affiliation andnot business skills determined access to privileged business positions, as there waslimited business expertise among Muslims. In Aktar’s words, ‘the dependency of theemerging Turkish bourgeoisie on the state consolidated the immaturity of theTurkish business class’.14 This immaturity was compounded by the very limitedopportunities offered by international economic exchange at the time, which deniedintensified exposure, and thus entrepreneurial learning and sophistication, to thisstate-created business class. Thus Turkey’s businessmen became even more reliant onthe state, further boosting its etatist, inward looking leanings.

In the aftermath of the Second World War, Turkey embarked on importsubstitution industrialization (ISI) policies, typically featuring allocation ofpreferential credits by the state and awarding of state contracts to preferreddomestic industrialists. The well-connected business elite which emerged as a resultof these policies was adept at navigating an often arbitrary regulatory environmentand expanding into a series of often unrelated activities, depending on what itspreferential access could procure, be it import licences, access to scarce foreigncurrency or financing for industrial plants.

The marginalization of ethnic minorities continued unabated in a regionalenvironment still very much infused with the notion that national developmentshould be undertaken by the nation itself.15 The 6–7 September 1955 pogrom, whichprimarily targeted the Greek minority of Istanbul but also affected Armenians andJews, resulted in the pillage of non-Muslim properties, while in 1964 12,000 Greekswere expelled. These events, combined with the demographic trends of Turkey’sMuslim population, pushed non-Muslims into economic and numerical insignif-icance. Worldwide, the slump in commodity prices started to reverse only in the mid-1950s, while anti-colonialism and all its presumed variants were at their height. ISIwas only picking up steam and indeed was to deliver seemingly impressive results inlater years, in Turkey and elsewhere. Nor did Turkey, at the far end of Europe and a

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neutral in Second World War, partake in the initially tentative and uncertain effortsin economic policy coordination and integration that would eventually lead to thecreation of the European Economic Community.

Still, by the 1970s, the ISI model had reached its limits worldwide. Turkey, incommon with other ISI countries, had resorted to foreign borrowing to sustain itsfiscal transfers to local industry and elsewhere, as it was increasingly incapable ofgenerating the exports needed to service its rising debt. This dependency oninternational creditors pried open for the first time the Republic’s economy – whichis not to say that the state had severed its umbilical cord with the country’s businessclass. The decision to shift its efforts to export promotion in the 1980s was stillaccompanied by substantial transfers, this time through subsidies to exporters,magnified through systematic over-invoicing.16 Nor did subsequent developments,namely capital account liberalization, effected in 1989, and the Customs Union withthe European Union, which came into action in 1996, question that other priority ofthe Republic’s philosophy, the ownership of the commanding heights of theeconomy by Turks.

A succession of short-lived alliance governments – Turkey had 16 governments in theperiod 1989–2003 – and macroeconomic volatility compounded each other. Conse-quently privatizations, a major generator of FDI, never took off, one of the mostnotable examples being the Turkish government’s inability to sell Turkish Telecom(TT), the fixed line state monopoly. A potential strategic investor from abroad wouldcontemplate, at the time, Turkey’s distant EU accession prospects, its pervasiveinstability, and an administrative regime and public opinion still culturally conditionedagainst foreign economic influence, a set of factors which loomed even largerconsidering the country’s durably opaque and arbitrary administrative and legalpractices. Prominent Turkish business entities would confirm these impressions,inflicting sustained damage on the country’s reputation abroad with seeming impunity,by defaulting on their promises and undertakings to foreign entities, as was mostprominently seen by the protracted dispute between the Uzan Group and two of theworld’s most prominent telecom equipment suppliers, Motorola and Nokia. It comesas no surprise that the FDI that did take place either built upon past alliances with localgroups which had their origins in the ISI regime, or consisted of new joint ventures as –in such an unstable environment – Turkish handholding was perceived as indispensableby foreign strategic investors. Indicatively, approximately 50 per cent of FDI up until2000, which did not exceed on average a paltry – considering the size of Turkey’seconomy – $1 billion a year, materialized through joint ventures between local groupsand foreign parties.17 Ironically, another external factor, the country’s relationship withthe United States, primarily anchored in Turkey’s geopolitical significance rather thanits success as a market economy open to international capital, retarded market openingdue to moral hazard considerations, i.e. the well-grounded calculus of the country’sgoverning elites that the United States will employ its leverage with the IMF to bail outthe country should it plunge into a crisis.

The reverse proved to be the case with countries in Central and Eastern Europe(CEE) which, with a clear EU orientation and an increasingly imminent entryprospect, managed to attract ever growing amounts of FDI. Crucially CEE was andis Turkey’s most direct competitor in terms of FDI considering that FDI strategiesare mostly regional rather than global.18 The most successful CEE country in FDI

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terms, Hungary, attracted 13 times more FDI than Turkey, relative to its GrossDomestic Product (GDP), in the period 1988–95 and generated six times moreprivatization proceeds through FDI.19

This last figure is telling as privatization, particularly when it involves foreignacquirers of state assets, is an inherently political exercise. For CEE countries such asHungary, economic reforms – privatizations included – were safely ensconced in theirlegitimate efforts to be reintegrated with Western Europe following the collapse of theSoviet Union and the ending of its dominion over the region.20 Turkey’s position wasnot as fortunate since the prospect of accession was not in the offing. FDI originatingmostly from EU member countries, as is the case in CEE, could not be seen as ahandmaiden of an overarching national goal with all its promise of solidifying arelationship of equality, as opposed to subordination, with the more prosperous andsuccessful European countries. And the Turkish Republic, as a master of its owndestiny since its foundation in the 1920s, could still view the prospect of increasedforeign involvement in its economic life through the lens of that era, i.e. as anabrogation of sovereignty under conditions of duress. Protracted economic andpolitical instability were certainly the main culprits behind the country’s failure toattract FDI both by imposing discontinuity in policy making and making Turkey aprohibitive business risk to many potential investors.21 But Kemalist ideology – in acause-and-effect fashion, as it was not challenged by decisive political leadership –could also be used by its determined disciples to further undermine the capacity foraction of the weak leadership that featured in Turkey in that period. The privatizationsaga of Turk Telekom throughout the 1990s and the early 2000s epitomized the abjectfailure of secularist governments to achieve progress in the field, as well as the insistenceof institutions such as trades unions, chambers of commerce and – most importantly –the Constitutional Court on Kemalist etatist orthodoxy.22

Cumulatively, the consequence has been that in the first two decades, in the 1980sand 1990s, of what is commonly understood as globalization, Turkey abstained fromone of its main precepts: the acceptance and the coming into being of a substantialrole for FDI, which became commonplace in many developing countries for the firsttime since the early twentieth century. Indeed, in many respects, Turkey’srelationship with foreign capital in this 20-year period, and despite the currentaccount liberalization and the Customs Union with the European Union,maintained the limits and was still framed by the understandings that were firstset under the autarkic Kemalism of the first 30 years of the Republic and itsrefinement, the ISI orientation implemented by Ataturk’s successors.

The 2001 economic crisis23 had a truly transformative effect on the relationshipbetween foreign capital and the Turkish polity and economy, plunging Turkeystraight into globalization’s mainstream and dealing a decisive blow against itsKemalist, economic nationalist tenets. Arguably the outcomes of the crisis have beenas all-encompassing as the factors that produced it in the first place. One can identifytwo of those which are profoundly interdependent. First was the arrival of a politicalforce, the post-Islamist AKP, which identified itself strategically with macroeco-nomic stability, an accelerated EU accession effort and increased FDI in Turkey.Second, the elimination of the weaker, less transparent Turkish conglomerates,

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which resulted in the strengthening of those entities and personalities in Turkishbusiness life more capable of relating, and with a greater vested interest in doing so,to the international economy.

The AKP government, because of its outsider status and the historical reading thatthis has entailed,24 has been aware that a macroeconomic crisis would make availablea potentially lethal weapon to its opponents within the country’s secularistestablishment. This risk combined with a sense of opportunity to constitute anoverall strategy that could be characterized as ‘beating their opponents at their owngame’. The AKP first sought to manage key policy objectives so as to disproveprejudiced expectations by its secularist antagonists on how it would comport itself inpower due to its ideological and sociocultural origins. Additionally, the AKP, bymeans of contrast, sought to present itself as a much more successful trustee of thesesame policy objectives than its opponents who, despite the assumption that theymonopolized the necessary outlook and access to technocratic expertise for thepursuit of those objectives, had spectacularly failed to achieve them. Morespecifically, the AKP presented itself as a responsible steward of the economy,establishing early on a workable relationship with the IMF and agreeing to the latter’spolicy prescriptions, particularly with regard to maintaining a 6 per cent public sectorprimary surplus on a yearly basis.25 The goal of macroeconomic stabilization in thecontext of an IMF programme was also linked with the uniquely successful effort bythe AKP to gain candidate status for EU entry, the argument being that the countrycould not possibly pursue its EU membership aspirations if it were to revert back to astate of economic upheaval.26 Concurrently the AKP leader and Prime MinisterRecep Tayyip Erdo�gan made the attraction of FDI in Turkey a priority goal.27

The IMF relationship, the EU accession process and FDI promotion have beendeeply intertwined with each other, as well as with AKP’s strategy to consolidate itslegitimacy. Turkey’s ability to attract FDI has underlain its efforts to secure stablemacroeconomic conditions under IMF direction, as FDI could help cover Turkey’schronic current account deficit and thus help pacify its fickle portfolio investors. Theprospect of EU membership has legitimized the increasing role of Western – whichby and large means EU – strategic investors in Turkey as well as of IMF directionover economic policy. FDI in the context of the EU accession process has enhancedsupport for Turkish accession in Europe, at least within the elite business circles andmercantilist foreign policy establishments of EU member countries. In terms ofAKP’s modernization credentials, increased FDI has undermined the plausibility ofthe charge that it was bent on Islamist-inspired societal regression. Such anaccusation has become increasingly difficult when Western multinationals have beenconfident enough to invest billions of euros in Turkey and the country’s EUmembership prospect has also advanced.28

Turkey’s business elites largely shared AKP’s aims. The severity of the 2001 crisis,which threatened the survival of even Turkey’s largest and most stable conglom-erates, undoubtedly introduced a stability bias in Turkish economic life. Thisstability bias was reinforced by the evolving competitive position of the majorTurkish conglomerates. Those which had entered joint venture partnerships withEuropean manufacturers, most prominently in the automotive sector in the days ofISI, were now struggling to upgrade these alliances in the context of an open Turkishmarket where they had to survive through increased exports –for example the Koc

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Group and its partnerships with Fiat and Ford. Consequently, they have been keenlyfeeling the competition from similarly low-cost destinations in CEE, with a strongmanufacturing tradition and geographically adjacent to Western Europe, in theirefforts to attract additional investments in their partnerships. Alternatively, asexporters of their own brands and products, they also needed to confrontinternational competition, whether from CEE or even China – again Koc, with itswhite goods brands of Beko and Arcelik, and the Zorlu Group with its consumerelectronics subsidiary Vestel. Both groups of businesses, in order to continue raisingproductivity and migrate into higher value added market segments, needed apredictable macroeconomic and political environment which would enable reason-ably long planning horizons and access to cheap capital.29 It should be rememberedthat, in the 1950s and 1960s, the essentially state-created Turkish business class,established in conditions of economic autarky and lacking historical experience inentrepreneurship, let alone sustained international business exposure, reinforcedpolicy tendencies towards protection due to its own inherent weakness. Thedescendants of this same class, in notable cases such as the Sabancı and KocHoldings literally so, after the growth in size and sophistication which have accrueddue to more than 20 years of market opening, have clamoured for a policy regimevery similar in its philosophy and qualitative characteristics to the economies ofWestern Europe.30

Importantly the 2001 crisis has also made FDI more welcome by separating thewheat from the chaff in corporate Turkey, as it forced into bankruptcy the lessstable, less reputable Turkish conglomerates.31 The corporate survivors of the crisis,because of their best-of-local-breed characteristics, have been in general the onesmost inclined and capable of interacting profitably with the resulting marketopenness.32 This has been because of their substantial size and their superior trackrecord in relating to key foreign constituencies, be they financial or strategic providesof capital. As such they could, either on their own or in alignment with foreignpartners, grasp emerging opportunities, some of which had been generated by thesell-off of the assets of the corporate victims of the 2001 crisis,33 as well as raisingfunds from abroad under increasingly favourable terms, as we will see below, whichhave been engendered by AKP’s friendly FDI posture and its embrace of the twinIMF/EU anchor.

In sum, the key business entities that owed their creation and development toKemalist autarky in the 1920s and 1940s, ISI from the 1950s to the 1970s, and state-financed export orientation combined with an arms-length relationship with foreigncapital in the 1980s and 1990s, had made a decisive shift. They would thereafteractively encourage cohabitation in Turkey with foreign capital, not only inpartnership, but also in competition with it, in the interest of their wider strategicinterests.34 Not incidentally, they had arrived at that position at a time when theywere increasingly reliant on success in open European markets, and Turkey itselfheld the promise of inclusion and participation in Europe. This was contrary to theconditions which had spurred economic nationalism in the Empire and subsequentlyTurkey in the first half of the twentieth century, namely the expulsion from theEuropean continent and the raising of barriers to economic interaction, eitherthrough policy choice – as in the tariff regimes of major European economies – orthrough economic depression and war.

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The AKP’s incipient alliance with Turkey’s business elite and their evolving,mutually reinforcing strategies might well have been stillborn. This was not the casehowever, as Turkey’s entry into the international mainstream, in terms of itsrelationship with FDI, has been realized under exceptionally benign conditions.35 Inparticular, global liquidity conditions have raised the demand for Turkish assetsboth by foreign strategic and portfolio investors, i.e. the institutions which are therepositories of that liquidity and have been actively seeking to place it in emergingmarkets such as Turkey, among others. In a virtuous circle, benign internationalconditions have eased the government’s efforts, thus making it possible to advanceits key economic policy priorities, which have in turn further expanded the demandand value of Turkish assets. Furthermore, such benign conditions have meant thatdevelopments in Turkey have been ensconced in a resilient global orthodoxyregarding the desirability of open markets and the search of national comparativeadvantage through the attraction of unimpeded capital flows. Last but not least, USforeign policy in the Middle East, in the period under consideration, adopted atransformative agenda in the context of which Turkey’s own role was changed fromone of sentinel to that of model: a Muslim country which is also a successfuldemocracy and market economy. Just as the world depression further compoundedTurkey’s inward direction and solidified its etatist ideology, a currently supportiveglobal environment has fulfilled a very similar role in the opposite direction.36

Macroeconomic stability, under the twin IMF–EU anchor and by raising thevalue of state assets under privatization, actually enabled the implementation of theprivatization process in Turkey. Importantly such conditions have not only obtainedwith regard to foreign strategic investors, such as Vodafone and the Oger Group, theacquirers respectively of the mobile telecom operator Telsim and Turk Telekom, butalso local groups, such as Koc and Ordu Yardımlasma Kurumu (OYAK), therespective acquirers of Turkiye Petrol Rafineleri Anonim Sirketi (TUPRAS),Turkey’s major oil refining company and Erdemir, Turkey’s leading steelmanufacturer. The AKP government, by thus being more effective in implementingan agenda to which its opponents have been its nominal claimants, has actuallyexpanded the realm of what is possible and acceptable for local groups as well,further limiting the state’s direct involvement in the economy and making assetsavailable that previously were not. Local participation in market opening has in turnrendered legitimate the overall privatization exercise by neutralizing criticisms thatTurkey is being sold off lock, stock and barrel to foreigners. Thus the AKP and bigbusiness in Turkey have both conferred legitimacy and key assistance to each otherin pursuit of their respective key aims.

But local corporate actors have not only been direct participants in thegovernment’s privatization process. As we suggested above, they have also beenindirectly rewarded by the government’s economic and foreign policy through risingvaluations in the Istanbul Stock Exchange where their companies are quoted and byrising demand for their assets by foreign strategic and portfolio investors attracted bythe ‘Turkish story’.37 They have thus acquired a very substantial and ongoing vestedinterest to join the government in narrating this story, one of the main subplots ofwhich is how welcoming to foreign capital Turkey has become.38 In turn, these risingvaluations of privately owned Turkish corporations, quoted in the Istanbul StockExchange, have also boosted FDI inflows whenever there has been an acquisition of a

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local by a foreign entity. This has been particularly evident in a series of acquisitionsof Turkish banks by foreign financial institutions, over a two-year period, whichresulted in one acquisition being more expensive than the other and in foreignparticipation in Turkish banking rising from 2 per cent to above 30 per cent.39 Suchdevelopments have strengthened the government’s efforts in maintaining macro-economic stability directly by limiting the current account deficit and indirectly bysolidifying Turkey’s image in international markets as a country increasingly capableof attracting long-term investment, resilient to short term volatility and stronglytethered in the global economy and such anchors as the IMF and the EU.

The alliance between the government and the domestic business elite and theconsensus which they have fashioned through their mutual interaction with globalcapitalism proved resilient to political attacks. We can advance two main reasons forthis. First, for the AKP government, the pluralistic origins of FDI – mostlycorporations headquartered in EU member countries, but also from the UnitedStates, Israel and the Gulf region – cancel each other out as there is no traction forpopulist claims of the type that ‘that Turkey is about to be taken over’ by anyparticular country or culture. Actually having originated from diverse countries andincreased in volumes, FDI has also managed to appeal to disparate domesticconstituencies in Turkey, depending on its source of origin. On the one hand, Arabinvestment, i.e. investment from the oil-rich Gulf, has served an important politicalfunction for the AKP government by assisting it in its attempt to draw a foreignpolicy profile distinct from its predecessors, as it incorporates the Islamic world, andthus more satisfying to the pious Muslim supporters of AKP. Gulf investorsundoubtedly make business decisions based on the same criteria as their Westerncounterparts. But these decisions are eased by the government’s friendly rhetoric andhigh profile prime ministerial and ministerial visits to the Middle East and Muslimcountries such as Malaysia. Such governmental initiatives sent the message to AKPfollowers that Turkey’s interaction with the world is something that they can claim‘ownership’ of too, rather than being the exclusive preserve of the resolutely secularforeign policy and military elites which have enjoyed natural access to theircounterparts in Brussels and Washington. As a side benefit, AKP-friendlybusinessmen, administrators and politicians got the chance to leverage their Islamistcredentials in an Arab world which enjoyed high liquidity, due to rising oil prices,and actively sought investment opportunities in its neighbouring region.40

On the other hand, and from a Turkish secularist’s point of view, the AKP’ssuccess in attracting foreign capital – despite occasional misgivings on foreigninfluence in Turkey – helped attenuate the much greater fear of the party’s allegedhidden social and cultural agenda. That, in turn, compelled secularist opinion, whichhas prided itself on being attuned to global developments and believed that Turkeyshould be able to partake in them, to embrace the global consensus on free capitalflows and economic modernization through FDI. It is on this pluralism of FDIorigin that the Turkish prime minister’s most effective rhetorical formulation of‘capital racism’ (sermaye ırkcılı�gı) rested. This response to criticisms on FDI wasoccasioned by the noise against the origins of two high profile real estateinvestments, one to be undertaken by a United Arab Emirates business group andanother by a consortium where the lead participant was an Israeli company.Erdo�gan, addressing his detractors, replied with a question: ‘You are an enemy of

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the Jewish capital, you are also an enemy of the Arab capital, with whom are you afriend?’ He then proceeded to describe those who were against foreign capital as‘capital racists’.41

Second, increased FDI was not only enabled but also sanctified by Turkey’scorporate icons, those business groups and their leading personalities which havetraditionally been perceived as the industrial and financial vehicles of Turkey’seconomic emancipation from foreign influence. If they actively support this outcomewhile managing to hold their position in Turkish economic life, as well as succeedingas exporters and investors outside Turkey, what room is there left for other economicactors to voice effective opposition to FDI? Turkish history, in that respect, hasgrounded the present and future: it has granted massive material importance andsymbolic legitimacy to business entities and personalities, due to them enacting theirassigned role as enablers of national self-sufficiency. It is this legitimacy that today isextended to the counter-proposition, i.e. that Turkey cannot progress further withoutopening itself to foreign capital.42 Even when significant opposition did arise, as in thecase of the privatization of the steel producer Erdemir, it ended up undermining itsoverall purposes. The potential acquisition of Erdemir by Mittal or Arcelor, two ofthe world’s leading multinational steel enterprises, mobilized a coalition of domesticbusiness associations – including the Ankara Chamber of Commerce – that wereinstitutional repositories of traditional thinking. The final acquisition of Erdemir bythe Turkish Army pension fund OYAK, this seeming victory of anti-FDI thinking, byrendering legitimacy to the overall privatization program, made opposition to othersignificant sell-off items, such as that of Turk Telekom, untenable. Subsequentstatements by OYAK to the effect that it would seek a foreign partner with which tomanage Erdemir, its financing of the Erdemir acquisition by foreign sources and itsdeclared intent that it would sell its mid-sized OYAK bank to foreign investors for thesame reason also demonstrated how, in the present environment, even corporatestrategies that seem to serve the goal of national control have actually generatedadditional linkages with and even furthered the entry of foreign capital into thenational economy. This went beyond the realm of hypothesis when OYAKannounced the sale of its cement subsidiary Elazı�g Altınova Cimento to the Turkishsubsidiary of the Italian company Cementir. A domestic brokerage house questionedwhether dividends to be distributed by Erdemir in the years ahead would be enough tocover OYAK’s debt and interest payment for the loan raised to complete Erdemir’sacquisition. In that case (of Erdemir dividends being insufficient for debt servicing),OYAK might consider selling some of its assets, including cement companies.43 Thisbecame even more pronounced almost a year later, when OYAK announced in June2006 the sale of its financial sector subsidiary OYAK Bank to the Dutch financialgroup ING, an event that generated widespread dismay and confusion amongTurkish economic nationalists.44

The Turkish Republic, like its predecessor Ottoman Empire, has been influenced bylarger trends operative in the global political and economic environment. Thus as atraumatized legatee of a defeated imperial order by a militarily superior West, whichhad previously exercised pervasive economic influence directly or via the morewesternized Ottoman non-Muslim minorities, Turkey chose the road of economic

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self-sufficiency and modernization that so many of its peers also adopted in the sameperiod. World economic depression and the high tariffs and authoritarian ideologiesthat it spawned confirmed that choice. Post-Second World War anti-colonialism,geographical distance from the European core and its incipient integrationistmovement and predominantly geopolitical concerns of Turkey’s main patron at thattime, the United States, did nothing to change that orientation, well into the 1960s.

Turkey reached the limits of ISI in the 1970s, similarly to other developingcountries. Rising deficits, a manifestation of the limitations of development of aneconomy with limited interaction with the international economy, undermined itsdrive for self-sufficiency creating instead dependency on its debt holders andmultilateral institutions such as the IMF. Export-led development, substituting ISI,and accompanied first by current account liberalization and then Customs Unionwith Turkey’s core region, that of developed Europe, shaped an economy of a sizeand a sophistication which could only be sustained by further success ininternational markets. Yet this success was threatened by political and macro-economic volatility at a time when Turkey’s competitors, particularly in the CEEcountries, were fast being integrated in Europe’s production networks, a processpowerfully assisted by their EU accession.

The 2001 crisis exposed the shortcomings of the Turkish political economy, todramatic effect, producing also the means through which they could be at leastpartially overcome: a new political force, the AKP, which because of its Islamistorigins had a vested interest in grounding its legitimation on its responsiblestewardship of the economy and its corollary, increasingly effective interaction withthe external environment represented by the twin anchor of the IMF/EU and foreigncapital. Crucially, the AKP enjoyed a coincidence of purpose with Turkey’s businesselite which, shorn of its weakest members after the 2001 crisis, became a powerfuladvocate of stabilization and was well positioned to benefit, rather than bethreatened by, a market opening which was premised on active foreign interest. TheAKP government and Turkey’s business elite cross-legitimized and cross-operatio-nalized their alliance. The former did so as a democratically elected governmentcapable of sustained action on the economic front and the latter as the vehicle ofKemalism’s economic nationalism which has seen, at present, its own strategicinterests best served by accelerated cohabitation with foreign capital in Turkey whilepartaking in the same set of AKP-generated opportunities either as competitor or aspartner to FDI. Last but not least, this alliance between the AKP and the businesselite has been underwritten by benign global economic conditions which haveprovided liquidity to sellers and buyers of Turkish assets, domestic and interna-tional, and denied external legitimacy to any voices critical of the practices andprinciples which caused this shift in Turkey’s political economy.

Notes

1. In the period between 1990 and 2004 annual average FDI inflows amounted to US$1 billion and in the

preceding decade of 1980–90 well below this amount, on average. By contrast, the increase of FDI in

Turkey was 240 per cent during 2004–5 and 105 per cent during 2005–6. In 2006, Turkey attracted

US$20.2 billion, the highest ever amount of FDI in its history. Based on that figure, Turkey ranked

among the top five developing countries. Based on A. Erdilek, ‘Turkey’s Recent Inward Foreign

Direct Investment Developments’, Today’s Zaman, 22 June 2007; H. Loewendahl and E. Ertugal-

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Loewendahl, Turkey’s Performance in Attracting Foreign Direct Investment: Implications of EU

Enlargement (Brussels: European Network of Economic Policy Research Institutes, 2001); A. Hadjit

and E. Moxon-Browne, ‘Foreign Direct Investment in Turkey: The Implications of EU Accession’,

Turkish Studies, Vol.6, No.3 (2005), pp. 321–340.

2. We refer here to works such as those by Y. Atasoy, Turkey, Islamists and Democracy: Transition and

Globalization in a Muslim State (London and New York: I.B. Tauris, 2005), and M.H. Yavuz, Islamic

Political Identity in Turkey (Oxford: Oxford University Press, 2003).

3. D. Quataert, ‘The Age of Reform, 1812–1914’, in H. _Inalcık and D, Quataert (eds.), An Economic and

Social History of the Ottoman Empire, Volume Two 1600–1914 (Cambridge: Cambridge University

Press, 1994), pp.773–4.

4. See C. Issawi, ‘The Transformation of the Economic Position of the Millets in the

Nineteenth Century’, in B. Braude and B. Lewis (eds.), Christians and Jews in the Ottoman

Empire: The Functioning of a Plural Society (New York: Holmes and Meier Publishers, 1982),

pp.262–3.

5. On this, also see A. Aktar, Turk Milliyetcili�gi, Gayrimuslimler ve Ekonomik Donusum (_Istanbul:_Iletisim, 2006).

6. W. Hale, The Political and Economic Development of Modern Turkey (London: C. Helm, 1981),

pp.38–9.

7. B. Kuruc, ‘Ulus Devletin Payandaları: Ekonomik Buyume ve Mali Disiplin, 1923–1950’, in

Demokrasi ve Genclik Vakfı (ed.), Uluslararası Ataturk ve Ca�gdas Toplum Sempozyumu (_Istanbul:_Is Bankası Kultur Yayınları, 2002), pp.42–3.

8. A.G. Okcun, Turkiye _Iktisat Kongresi 1923– _Izmir: Haberler–Belgeler–Yorumlar (Ankara: Ankara

Universitesi Sosyal Bilimler Fakultesi Yayınları, 1981), p.248, cited in A. _Insel, ‘Milliyetcillik ve

Kalkınmacılık’, in T. Bora (ed.), Milliyetcilik (_Istanbul: _Iletisim, 2002), p.769.

9. Kuruc, ‘Ulus Devletin Payandaları’, pp.47–8.

10. Ibid., pp.49–50.

11. For an overarching account of the global ebbs and flows of market opening, which the Empire and

subsequently Turkey, has followed, see J.A. Frieden, Global Capitalism: Its Fall and Rise in the

Twentieth Century (New York and London: W.W. Norton & Co., 2006).

12. Istanbul non-Muslims had largely escaped the fate of their co-religionists in Anatolia and managed to

maintain a prominent position in the economic life of Turkey’s main business centre.

13. A. Aktar, Varlık Vergisi ve ‘Turklestirme’ Politikaları (_Istanbul: _Iletisim, 2000), pp.140–41.

14. A. Aktar, ‘Homogenising the Nation, Turkifying the Economy: The Turkish Experience of

Population Exchange Reconsidered’, in R. Hirschon (ed.), Crossing the Aegean: An Appraisal of the

1923 Population Exchange between Greece and Turkey (New York and Oxford: Berghahn Books,

2003), p.92.

15. Similar were for example the nationalization policies of the Egyptian economy which Gamal Abdel

Nasser followed in the 1950s, aiming to marginalize Egypt’s Levantine, Greek, Jewish and Armenian

minorities.

16. For a periodization of the evolving relationship between the Turkish state and business, see A. Bu�gra,

State and Business in Modern Turkey: A Comparative Study (Albany, NY: State University of New

York Press, 1994).

17. Loewendahl and Ertugal-Loewendahl, Turkey’s Performance in Attracting Foreign Direct Investment,

p.7.

18. A.M. Rugman, The Regional Multinationals: MNEs and ‘Global’ Strategic Management (Cambridge:

Cambridge University Press, 2005).

19. Loewendahl and Ertugal-Loewendahl, Turkey’s Performance in Attracting Foreign Direct Investment,

p.13.

20. For a debate on how and why contemporary economic nationalism has actually been supportive of

free market reforms in certain CEE countries, see E. Helleiner and A. Pickel (eds.), Economic

Nationalism in a Globalizing World (Ithaca, NY: Cornell University Press, 2005).

21. Surveys and scholars of FDI agree that a powerful combination between administrative inefficiency

and lack of transparency together with political and macroeconomic instability acted as an effective

constraint to FDI in Turkey despite the fact that the economy was open and that legislation no longer

discriminated against FDI. See Loewendahl and Ertugal-Loewendahl, Turkey’s Performance in

Attracting Foreign Direct Investment; TUS_IAD and YASED, FDI Attractiveness of Turkey: A

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Comparative Analysis (Istanbul: TUS_IAD and YASED, 2004); and Hadjit and Moxon-Browne,

‘Foreign Direct Investment in Turkey’.

22. See, for example, Turkiye Anayasa Mahkemesi, Telgraf ve Telefon Kanununun Bir Maddesinin

De�gistirilmesi ve Bu Kanuna Bazı Ek ve Gecici Maddeler Eklenmesine Dair Kanun ile Ilgili Anayasa

Mahkemesi Kararı (22027/1994).

23. The banking crisis of 2001 resulted from the interplay of a variety of factors. Weak banking

supervision perversely made sense, as it eased deficit finance and rollover of maturing state debt – local

banks held 70 per cent of government securities at the time of the crisis. Banks in turn increased their

short term foreign exchange exposure in order to speculate on longer term lira denominated assets. In

addition, a series of coalition governments provided protection, from regulatory censure, to their

various business allies engaged in banking. To compensate for losses from directed lending, to loss-

making companies and agriculture, state banks resorted to bidding up deposit rates, thus putting

pressure on their private competitors and promoting excessive risk taking throughout the industry.

Private banks channelled lending and investment to group affiliates in the absence of forceful

supervision by the central bank. Significantly, at the time of the crisis the value of the banking system’s

non-financial participations was equal to that of their lending, 26.8 per cent to 27 per cent of Turkey’s

GDP respectively. A shift in international investor sentiment, partly occasioned by Turkey’s rising

trade deficit and inflation, brought the whole house of cards down in 2001.

24. The AKP’s antecedent political force in the 1950s, the Democrat Party (Demokrat Parti–DP) was

toppled by a military coup in 1960. The poor status of the economy was one of the pretexts used by the

generals.

25. See Government of Turkey, Letter of Intent of the Government of Turkey to the IMF (Ankara, 2003).

Available from: http://www.imf.org.

26. For a broad analysis of AKP’s strategy and coalition-building, see Z. Onis, ‘The Political Economy of

Turkey’s Justice and Development Party’, in M.H. Yavuz (ed.), The Emergence of a New Turkey:

Islam, Democracy and the AK Party (Salt Lake City: University of Utah Press, 2006). Onis argued that

the AKP, by ignoring the reflationary policy references of its own small and medium business

supporters and agreeing to IMF’s scriptures, actually moved closer to Turkey’s secular business elite,

as it was represented by the business association TUS_IAD. What the AKP lost in potential

dissatisfaction within its own ranks was more than made up in increasing domestic and external

legitimacy, as well as accelerated economic growth.

27. On numerous occasions in his travels abroad, Erdo�gan promoted the attractions of Turkey as an

investment destination and defended this practice domestically by arguing that it was part of his job,

like other foreign leaders, to market his country to investors. He also chaired high profile meetings of

the Investment Advisory Council (Yatırım Danısma Konseyi), a body established by the Turkish

Treasury, which brings together personalities from the Turkish business elite, heads of major

multinational enterprises (MNEs) and international financial institutions, the aim being to lift barriers

to FDI in Turkey.

28. It is indicative of the AKP’s success relating to FDI, in substance and perception, that Turkey in the

2005 FDI Confidence Index compiled by A.T. Kearney, the management consultancy, jumped to the

thirteenth place as a most attractive FDI destination from below the top 25, with Italian investors

ranking Turkey their number one investment location. The Index is based on a survey of senior

executives from the world’s 1,000 largest corporations so it would tend to reflect formed, educated but

also conventional opinion on a country as it is reported in international business media. Thus the

higher visibility of Turkey recorded in the A.T. Kearney Index signifies something which is at least as

important as the shifting opinion of this global corporate elite: the increasingly positive perception of

Turkey as a marketplace and with a promising economy, a perception which is generated abroad and

then is imported back into the country, critically influencing public discourse. See ATKearney, FDI

Confidence Index Volume 8 (Alexandria, VA: Global Business Policy Council, 2005).

29. For a discussion of the impact of macroeconomic volatility on Turkish productivity see McKinsey

Global Institute, Turkey: Making the Productivity and Growth Breakthrough (London, 2003).

Available from: http://www.mckinsey.com/mgi/publications/turkey/executive_summary.asp. Accord-

ing to McKinsey, macroeconomic and political instability accounts for half of the gap between

Turkey’s current and potential productivity levels.

30. In fact, TUS_IAD, the business organization that represents Turkey’s largest enterprises, argued

forcefully in favour of Turkey’s democratic consolidation from the mid-1990s onwards. This policy

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stance reflected the realization, on the part of an increasingly mature Turkish business elite, that they

could optimize their benefits from international interaction and secure their successful development in

such a political environment, and particularly in the context of Turkey’s EU accession process. On

these, see A. Bu�gra, ‘Class, Culture and State: An Analysis of Interest Representation by Two

Business Associations’, International Journal of Middle East Studies, Vol.30, No.4 (1998), pp. 521–539,

and Z. Onis and U. Turem, ‘Entrepreneurs, Democracy, and Citizenship in Turkey’, Comparative

Politics, Vol.34, No.4 (2002), pp. 439–456.

31. As a result of the 2001 crisis, ownership of 21 financial institutions, often with their associated holding

companies and their subsidiaries covering a diverse range of activities, were transferred to the Savings

and Deposit Insurance Fund (Tasarruf Mevduatı Sigorta Fonu–TMSF), a state organization

administering failed financial institutions and their assets.

32. Macroeconomic stability by producing sustained interest by foreign institutional investors to a

company’s stock would tend to encourage greater transparency in corporate accounts and

management. See M. U�gur and M. Ararat, ‘Does Macroeconomic Performance Affect Corporate

Governance? Evidence from Turkey’, Corporate Governance, Vol.14, No.4 (2006), pp. 325–348.

Establishing causality is complex, however, as the companies that would be most capable of improving

their corporate governance mechanisms would tend to have acquired the size and sophistication to do

so even earlier than the arrival of such stability. We should not fail to notice, in that regard, that

Sabancı University, established by the homonymous leading Turkish business group, has spearheaded

the initiative on improving corporate governance in Turkey. Sabancı Group has had a great deal of

experience in relating to third parties from abroad, either through a series of joint ventures with highly

reputable MNEs or through its flagship Akbank, which is the largest capitalization stock on the

Istanbul Stock Exchange. On the other hand, it is the case that companies that have deeply

problematic relationships with foreign institutional investors and other third parties from abroad do

change their colours when incentives change. See for an example the Russian Yukos company

obituary at: A. Ostrovsky, ‘Yukos Creditors Finally Bow to the Inevitable’, Financial Times, 27 July

2006.

33. Turkey’s top three business groups, Sabancı, Koc and Do�gan, have taken advantage of opportunities

offered by the 2001 crisis and its aftermath, which has involved more aggressive regulatory

intervention by the Turkish state and government, particularly in the financial sector. This has

involved assets sold by the Tasarruf Mevduatı Sigorta Fonu (TMSF). In particular Do�gan Group has

bought mass media assets that used to belong to the Uzan Group, Sabancı Group has bought a

cement company that was also a subsidiary of the Uzan Group and Koc Group was able to acquire a

controlling stake in a joint venture with the Italian bank Unicredito, at Yapı Kredi Bank, one of

Turkey’s four largest private banks, where TMSF had become a shareholder.

34. Although we do not focus in this paper on the rising pro-AKP business class, they have also been

beneficiaries of macroeconomic stabilization combined with increasing foreign interest in the Turkish

economy. Bank Asya, an Islamic financial institution which offers only ‘interest free’ banking

launched its Initial Public Offering (IPO) in April 2006 on the Istanbul Stock Exchange, benefiting

from the high demand for Turkish banking stocks from both local and international investors. It was

followed by Albaraka Turk, an institution also engaging in Islamic banking, in June 2007. _Ihlas

Holding, a group which had faced great difficulties in the 2001 crisis, was covered by local brokers in

the same period as a ‘restructuring story’ and was the first Turkish media company to sell the TV

channel TGRT to a foreign investor, News Corporation owned by the media magnate Rupert

Murdoch, for US$81.5 million.

35. Emerging market stocks, on the basis of the Morgan Stanley Capital International (MSCI) Emerging

Markets Index have appreciated more than 100 per cent from mid-2003 to mid-2006, which is the

period when Turkey attracted the unprecedented FDI flows which are the subject of this inquiry.

Turkey has a 2 per cent weighting in the MSCI index which is composed of the major capitalization

stocks quoted and traded in emerging market stock exchanges. For an extensive analysis of the trends

and consequences of the recent record private capital flows to developing economies such as Turkey,

see also World Bank, Global Development Finance – Development Potential of Surging Capital Flows

(Washington, DC: World Bank, 2006).

36. For an astute analysis of how global liquidity conditions affect the dynamics of policy advocacy and

implementation in emerging markets such as Turkey, see G. Pettis, The Volatility Machine Emerging

Economies and the Threat of Financial Collapse (Oxford: Oxford University Press, 2001), p.48.

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37. The main index of the Istanbul Stock Exchange, the ISE-100, composed of the top 100 listed Turkish

companies, had appreciated from November 2002, when the AKP won power, to the end of 2005 by

215.89 per cent in US dollar terms, outperforming the MSCI Emerging Market Index, which in the

same period rose by 107.89 per cent. This rise had represented gains by Turkey’s capital holders in the

hundreds of millions and even billions of US dollars. Nonetheless, by 11 August 2006, the ISE-100 had

declined by 12.54 per cent, suffering from the generalized fall in emerging market equities, which had

commenced in May of the same year, as well as by the perception of enduring Turkish weaknesses.

For the purposes and timeframe of this study, capital market flows have been crucially helpful to

AKP’s economic policy, as well as to the sustainability of its alliance with Turkey’s business elite.

38. This can be even literally true: the Do�gan Group has a leading market share in the Turkish press, to

the extent that its vehicles were generating, at the end of 2005, 60 per cent of newspaper advertising, 47

per cent of magazine advertising and 28 per cent of TV advertising in Turkey, following the collapse of

most of its mass media competitors in the 2001 crisis. Under the AKP government, (i) it has benefited,

in terms of the profitability and stock price valuation of its media subsidiaries, because of the increase

in advertising revenue that the growing economy is generating; (ii) it has been an active participant in

the government’s privatization process as a buyer of state assets; and (iii) it has sold at a very

considerable profit its financial sector subsidiary Dısbank to the Belgian/Dutch company Fortis.

Do�gan group newspapers, such as Hurriyet, Milliyet, Radikal and Referans have been broadly

favourable of FDI under AKP.

39. Developments in the banking sector are highly illuminating in that they reveal the whole range of

options made available to Turkey’s main business groups under the AKP’s stewardship of the Turkish

economy. The Zorlu and Do�gan Groups opted to realize major capital gains by selling their mid-sized

banking subsidiaries to the Belgian Dexia and the Dutch Fortis, respectively, in order to redeploy

capital to core activities where they have a defensible position. Koc Group took advantage of the

weakened position of the Karamehmet Holding and in a 50–50 alliance with the Italian Unicredito,

together with strong support from the Turkish government, acquired Yapı Kredi Bank. Do�gus Group,

weakened by low performing non-core participations, realized capital gains by selling a controlling

stake of its Garanti Bank to the US GE Consumer Finance. Fiba Holding sold its main shareholding

in its subsidiary, the medium sized Finans Bank, to the National Bank of Greece in order to exit

banking and redeploy its capital to other activities such as real estate. The Sabancı Holding sold 20 per

cent of its flagship Akbank to Citigroup, while the military pension fund OYAK sold its financial

sector subsidiary OYAK Bank to the Dutch ING. The diverse national origins of the acquirers,

including Greeks, the elimination of the financial influence of whom had been planned and

implemented since the end of the Ottoman period and throughout the Republican years, is particularly

noteworthy, considering the perceived role of finance and banking, in Turkey and elsewhere, as one of

the commanding heights of a national economy.

40. The phenomenon of how Gulf countries, in contrast to the 1970s, have recently tended to recycle their

petrodollars in their increasingly diversified own economies and region, has been well documented by

leading investment banks. The following are indicative: Morgan Stanley, ‘The Case of the Missing

Petrodollars’, 28 Nov. 2005, Merrill Lynch, ‘Middle East Opportunities’, 8 Dec. 2005, and HSBC,

‘The Gulf’s Petrodollars-How Much and for Whom?’, 10 Feb. 2006.

41. See A. Burosu, ‘Erdo�gan: Bunlar Sermaye Irkcısı’, Radikal, 12 Oct. 2005; Y. Bulut, ‘Sermaye Irkcılı�gı. . .’, Radikal, 13 Oct. 2005; and E. Baysal and _I. Sezen, ‘Sermaye Irkcılı�gı Yabancı Yatırımı Kacırıyor’,

Zaman, 15 Oct. 2005.

42. It is indicative of the levels of legitimacy that Turkish business leadership has enjoyed, by virtue of

having proved that Turkey could become a modern industrial nation in the absence of foreign

involvement, that when Sakıp Sabancı, the elder statesman of Sabancı Holding, died in 2003, he was

given a state funeral.

43. EFG Istanbul Securities, ‘OYAK to Sell its Stake in Elazı�g Altınova Cimento’, 1 Aug. 2006.

44. See _Istanbul Burosu, ‘Ulusal OYAK Bank Hollandalı ING Oldu’, Yeni Safak, 20 June 2007; _Istanbul

Burosu, ‘Asker Bankasını 2.7 Milyar Dolara Sattı’, Radikal, 20 June 2007; and _Istanbul Burosu,

‘Medya Banka Satısında ‘Tisortlu Erdemir’ Haberlerini Hatırlattı’, Zaman, 21 June 2007.

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