VZCZCXRO8340
RR RUEHDA
DE RUEHAK #0610 0760741
ZNR UUUUU ZZH
R 170741Z MAR 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 1358
INFO RUEHIT/AMCONSUL ISTANBUL 2346
RUEHDA/AMCONSUL ADANA 1756

UNCLAS ANKARA 000610 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV TU
SUBJECT:  Business Sees Nationalism as Bigger Risk than Elections 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU)  Summary.  The head of Merrill Lynch's new Istanbul branch 
is not overly concerned about the short-term outlook for the Turkish 
economy or politics.  He minimizes the double election year 
political risk, estimating a 95% chance that PM Erdogan will seek 
and get the presidency and a large probability that the AKP will 
retain a parliamentary majority, although a smaller one.   He does 
not expect a strong immediate counter-reaction from the military or 
secular establishment, or least of all, from the business community. 
 He sees the Turkish marketplace as brimming with opportunities, 
including for regional economic leadership.  Such opportunities 
require strong political leadership to ride-out a nationalist trend 
that is fed by rapid political and economic change.  Views like 
these are widespread in the big business community, whose main fear 
is not another AKP government but a return to the drift and 
stagnation of the 1980s and 1990s.  End Summary. 
 
¶2.  (SBU)  A secular Turk who was until recently a senior official 
in a leading Turkish bank, our contact concedes that the AKP has 
pursued business-friendly economic policies, but is worried that the 
fast pace of economic change has fed a resurgence of political 
nationalism to a perhaps unprecedented extent.  He tells anecdotes 
of highly-educated, successful, "liberal" friends railing against 
Kurdish separatists and Greek Cypriots like they never had before. 
Such passions are fed, he believes, by the lack of progress on four 
key foreign issues: 1) PKK and northern Iraq, 2) Cyprus, 3) EU 
accession, and 4) relations with Armenia.  Nationalists assert, 
rightly or wrongly, that Turkey has made "concessions" on each of 
these issues that have been rebuffed, leaving them feeling angry and 
betrayed by the national leadership as a whole (including the 
military).  This is not a short-term, but a medium-term political 
risk that could come to a head in 2008 or 2009, absent progress on 
these four issues. 
 
¶3.  (SBU)  As the economy changes, churning in the employment 
market, replacement of existing firms by new ones, and ongoing 
migration to the cities has created a sense of dislocation that 
encourages nationalist responses.  No political party offers a 
compelling vision of hope in the future to guide people through 
turbulent times of change.  The obvious candidate for such a 
national leadership role, he believes, is PM Erdogan.  But for 
Erdogan to succeed in such a role, he would need to grow beyond his 
current religious/communitarian base and be accepted by a bigger 
cross-section of voters.  Erdogan recognizes this, he thinks, and is 
looking for ways to broaden his support.  This in turn has led to 
the high decibel politics of the opposition, which also recognizes 
his potential.  A broader base would also help the AKP govern in a 
smarter, more strategic way, since new supporters would add to the 
party's intellectual and experiential pool. 
 
¶4.  (SBU)  Nonetheless, Merrill Lynch is bullish on Turkey. 
Nationalist challenges are bumps on the road to modernity, and there 
is a vast untapped growth potential that could be realized with 
continued political stability and economic reform.  Merrill Lynch is 
focusing on the real estate sector, which is a main employment 
generator.  Istanbul will be rebuilt from the ground up in ten 
years, given the huge amounts of money going into property and 
construction.  Merrill Lynch's greater vision of its role is as an 
investment bank for an emerging class of regional business 
powerhouses.  The branch chief cites the strong interest in his 
bank's recent eurobond issuance for Calik Energy as one example of a 
company growing beyond its local roots with foreign financing. 
Airport builder-operator TAV, which was recently taken public by 
Goldman Sachs, is another example, as are companies like Sisecam, 
Enka and Efes that are active in Turkey, Russia, and the Balkans and 
are expanding in the Middle East and Caucasus. 
 
¶5.  (SBU)  Comment:  Even if our contact goes too far downplaying 
election year risks, we report his views as an example of the 
outlook of Istanbul's secular, western-oriented big business 
community, which has traditionally played a decisive political role. 
 The discounting of major election risk is also reflected in most 
market analyses, as is the growing concern -- what our contact 
called "the nightmare scenario" -- about nationalism over the longer 
term.  It is also representative of the business perception of large 
opportunities in the Turkish marketplace that are balanced by large 
risks.  Summed up, that risk is of a Turkey that is inward looking, 
rudderless and adrift, as it was for much of the 1980s and 1990s. 
Turkey's business community is decades ahead of its neighbors in 
places like Iraq, Syria, the Caucasus and Iran and has the potential 
to help those countries develop functioning market economies if 
politics allow.  These views are thus a reminder of what is at stake 
in this election year and of the contribution economic engagement 
can make to Turkey's stability. 
 
WILSON