1. Turkey – Russia Adversaries or Partners? Prof. Dr. Seyfettin Gürsel Director of Bahçeşehir University Center for Economic and Social Research IFEA, 19th February 2009

2. PART I Turkey – Russia Complementary Economics

3. 1. A Classical Division of Labor Turkey exports (Russia imports) industrial goods and services (tourism and construction Turkey imports (Russia exports) commodities (energy and raw materials)

4. Turkish Exports Turkish Imports

5. Tourism Number of Visitors Tourism Revenues

6. Construction services

7. Energy exports Current Account Surplus (CAS) CAS either appreciation of the local currency (flexible exchange rate) or CAS increase of the monetary base inflation (fixed exchange rate) Loss of competitiveness (An historical precedent of 16th century Spain) 2. Russia Suffers from the “Dutch Disease” Oil: Curse or Blessing?

8. Russian Current Account Balance

9. Russian Reserves

10. Exchange Rate Appreciation and Inflation

11. Russia is condemned to specialize in energy exportation and industrial good importation Russia has the 8th biggest oil reserves Russia has the biggest natural gas reserves Russian industry is specializing in non- market goods (military etc.)

12. High levels of corruption Government inefficiency Rising inequality Authoritarian tendencies Concentration of state power in the hands of ruling elits 3. Side Effects of “Dutch Disease”

13. 4. Turkish economy suffers from a huge current account deficit

14. More than 1/3 of trade deficit of Turkey comes from Russia

15. Turkish economy has a comparative advantage over the Russian market Per capita GDP and Population Projections for Russia Geographical proximity Transportation costs Adaptation capabilities of the Turkish firms (Laleli story)

17. Anyway Turkish industry should improve its competitiveness. BUT Russian market is comparatively less costly in terms of social costs

18. Russia can contribute seriously to the industrialization of Turkey. SO Russia can help Turkey to become a regional power.

19. PART II Russia - Turkey “ The Great Game”

20. Free Trade Agreement Fair sharing of regional energy outcomes Welfare enhancing for both societies, Making them more prosperous 1. A Cooperative Game

21. The cooperative game implies: Cooperation with the West Joshka Fisher: “Russia must be invited to join NATO” Democratization of Russia Turkey can continue its way to EU

22. Russia spends considerable political, diplomatical, militaristic and economical efforts to control energy resources and their marketing (transportation) in the old Soviet area Russia’s ruling elite oppose to democracy 2. A Non-cooperative Game

23. Major fault lines are: The Caucasus Ukraine Central Asia 3. Conflict with the West (USA & EU and so with Turkey)

24. Turkey breaks with the West 4. Russia can be tempted to choose a cooperative game with Turkey IF

25. Russia seems to follow a “stick and carrot” policy towards Turkey Stick Barriers and administrative difficulties to trade No gas for Nabucco Carrot Solution to trade difficulties Possible free trade agreement (trade with Rouble) Cooperation in military and space-technology related issues Gül’s recent visit was symptomatic.

26. Instead of a conclusion let me raise a critical question? Would Turkey break with the West? –Is it possible? –Is it desirable?