Spotlight: Challenge-ridden Turkey set to bump along in 2017

Turkey is staggering toward the end of 2016 under a heavy load, only to find the coming year not brighter with serious challenges lying ahead, in particular in the fields of economy and foreign policy.

In 2017, Turkey will be grappling with serious economic, security and foreign policy problems amid an increasing polarization in society due to the ruling party's hard push for a switch to a presidential system.

Many fear that Turkey is in for a serious economic crisis in the coming year if the government fails to come up with measures to boost production while strengthen the rule of law.

Alarm bells have been ringing louder for the economy since the end of September when the Turkish lira began to plummet in value against the U.S. dollar.

Since then, the Turkish currency has lost as much as around 15 percent against the greenback.

In July, a military coup was thwarted by the ruling Justice and Development Party (AKP), following which an emergency rule was imposed.

As the indications of an economic slowdown have become all the more apparent, the government is seeking to replace the country's parliamentary system with an executive presidency, a move feared to further increase the division in society.

It is widely expected that the economic crisis will make itself felt more strongly in the coming months, as the bound in dollar will get reflected in the prices in the domestic market.

There is an economic recession looming, many economists warned, predicting an around zero or negative economic growth in the third quarter of the year.

"The biggest problem of the Turkish economy is the low growth rate," said Seyfettin Gursel, director of the Bahcesehir University Center for Economic and Social Research (BETAM).

Noting the average real income growth per capita in Turkey has regressed from four percent between 2003 and 2011 to around two percent since 2012, Gursel predicted that the figure is estimated to "decrease even further this year and the next."

Figure showed that the Turkish economy grew by four percent last year and is expected to rise less than three percent this year.

The economy suffers from structural problems such as current account deficit, a very low savings rate, low labor productivity, dominance of small-size firms and low spending on research and development.

The country needs to borrow each year over 200 billion dollars from the world to pay off its debts and spin the wheels of the economy which needs to import intermediate goods for production.

The AKP government has long been criticized for adopting an economic model that favors the construction sector instead of industrial production to boost economic growth.

The hot money that flowed into Turkey over the years was mainly spent to pay off debts and in the consumption of luxury items, economists noted.

After U.S. President-elect Donald Trump takes office next month, the economic picture may become even gloomier for Turkey as the interest rates in the U.S. are expected to rise, making it difficult and costly for Turkey to attract hot money.

Turkey may well enter into recession, said Selva Demiralp, a professor of economics with Istanbul's Koc University, in an interview with the Hurriyet daily news.

Noting the depreciation of the lira will push up the inflation, Demiralp, who has previously served as an economist in the U.S. Federal Reserve Board, said that there could be a currency-triggered economic crisis.

Unlike many other economists, BETAM's Gursel does not expect a sizable economic crisis as long as major mistakes are not committed in economic policies and Turkey's accession talks with the European Union do not come to a halt.

He underlined, however, that unless the economy's structural problems like low productivity in labor persist, and the rule of law is not respected, Turkey's growth is bound to remain quite moderate, bringing possibility of social problems such as rise in unemployment and poverty.

Since the failed coup, the government has often been accused by the opposition of ruling the country by statutory decrees against democracy, human rights and the rule of law.

Under the emergency rule imposed in the wake of the coup bid, tens of thousands of public servants and hundreds of university professors have been removed without a court verdict for alleged links to the Gulen movement.

Companies owned by sympathizers of Fethullah Gulen, a U.S.-based Turkish cleric who is accused by Ankara of masterminding the coup attempt, were also seized by the state.

Some media outlets have been shuttered by the government while journalists were arrested in the ongoing crackdown.

In the face of a dire situation, the government announced on Thursday an economic package to revive the economy.

The year 2017 will be one of savings for the public sector, Prime Minister Binali Yildirim said, underlying that fiscal discipline would be kept strictly.

Many argued, however, that the package will not be enough to stem lira's fall.

"The Central Bank should increase the interest rate in a sharp way," Dogan Cansizlar, a former head of the Turkish Capital Markets Board, said on Halk TV after the package was unveiled.

He also warned that the slowdown in economy would turn into a real sector crisis, which could in turn trigger a crisis in the banking sector.

Yet the Central Bank is strongly pressured by President Recep Tayyip Erdogan to lower interest rates with a view to boosting investments.

Fitch Ratings announced last week that it had revised the outlook for the Turkish banking system from stable to negative.

President Erdogan blamed the sharp rise in dollar essentially on some foreign powers, which he accused of seeking to force Turkey to its knees by sabotaging the country's economy.

While conceding the economy has some problems, the president argued that the rise of the dollar is speculative, calling on people to convert their dollars into gold or Turkish lira.

While the economic woes are intractable, Turkey will also have to face not a few foreign policy challenges in 2017, as the country is notably on bad terms with many of its neighbors and allies.

Ties are strained with Syria, Iraq and Egypt, while Iran, despite the maintenance of good relations otherwise, is highly disturbed by the Turkish government's support to rebels fighting the Syrian government.

Turkey only managed to mend ties with Israel and Russia in midsummer.

Mehmet Simsek, a deputy prime minister in charge of economy, revealed the seriousness of Turkey's situation, calling it "the most troubled period since the First World War."

He put the blame for the country's troubles on the chaos engulfing the Middle East.

In recent past, tension has occasionally risen between Turkey and its two war-torn southern neighbors, Syria and Iraq, due to Ankara's unwelcome intervention.

"The pursuit of policies along a Sunni sectarian axis is seriously damaging Turkey's ties with the Euro-Atlantic community and resulting in loss of friends in the Middle East," said Faruk Logoglu, a retired diplomat who held top posts in the Turkish Foreign Ministry.

The Islamist AKP government has often been criticized for pursuing a Sunni-based sectarian foreign policy in the Middle East in the aftermath of the so-called Arab Spring.

Pushed by the Syrian military's recent success against rebels on the battlefield and possibly under Russian pressure, Turkey may now feel obliged to concentrate its efforts on preventing the formation of a Kurdish state in northern Syria.

Turkey should change its hostile policy toward Syrian President Bashar al-Assad in favor of a more inclusive one and push for peace, remarked Logoglu, adding that Turkey has lost credibility and confidence in the country due to mistakes made from an overestimated capacity and wishful thinking about shaping regional developments.

Turkish troops have been in Syria since August to prevent the formation of a Kurdish corridor along Turkey's border.

The emergence of an autonomous Kurdish region in northern Syria, if not an independent state, is a nightmare scenario for Turkey as it fears the formation of such an entity would whet the appetite of its own Kurds.

Turkish troops in Syria are currently aiming to capture from the Islamic State (IS) al-Bab, a strategic town about 30 kilometers from the Turkish border.

The Turkish army's presence in Syria risks confrontation with the Syrian army, which is backed by both Russia and Iran.

Four Turkish soldiers were killed and nine others wounded in an air attack near al-Bab on Nov. 24, exactly one year after a Russian warplane was shot down in Syria by a Turkish F-16 fighter.

According to a report by the Hurriyet daily Friday, an Iranian-made drone and a Syrian jet were involved in the attack.

Turkey has so far lost 19 soldiers in its Syrian operation.

What is more, Turkey has found itself in a state of alienating farther from its traditional Western allies -- the U.S. and the EU.

Turkey accuses some EU countries, such as Germany and Belgium, of harboring terrorists and criminals and the U.S. of providing weapons to the Kurdish People's Protection Units (YPG) in Syria.

In return, the EU in particular has sharpened, following the botched coup, its criticism of Turkey regarding the violation of freedoms and the rule of law.

The YPG, the Kurdish militia forces fighting for a Kurdish autonomous region along the Turkish border, is seen by Ankara as the Syrian offshoot of the Kurdistan Workers' Party (PKK).

The PKK has been waging a bloody war against Turkey for more than 30 years in its attempt to establish a Kurdish state in the country's predominantly Kurdish southeast.

Turkish Interior Minister Suleyman Soylu vowed on Thursday to deal the PKK a "massive destruction" by spring.

Turkey, still smarting from a spate of terror attacks over the past year mostly blamed on the PKK and the IS, is concerned that the scourge of terrorism may even get worse in the coming months, as the PKK has managed to obtain additional bases in Syria and Iraq.

Ankara is also greatly disturbed by the support the PKK is getting from Turkey's Western allies under the guise of anti-IS fight.

A Turkish military offensive into Iraq, therefore, is not out of the question.

After the IS was driven last year from Sinjar, a town not very far from the Turkish border in northern Iraq, the PKK has established bases in its surrounding region.

Turkish Defense Minister Fikri Isik said early last month that Turkey would not tolerate a terrorist group getting a foothold in Iraq's north.

In the past months, Turkey has deployed tanks and armored vehicles along the border with Iraq.

Turkey also had warned Iraq that it would not allow any ethnic cleansing against Sunnis in Mosul and Tal Afar after the two cities are liberated from the IS.

"Turkey has redlines. If those redlines are violated, Turkey will do what it must do," Isik said challengingly at the time.

Numan Kurtulmus, another Turkish deputy prime minister, saw the specter of a world war evolving in the Middle East.

"The point we are on is the eve of a third great war," said Kurtulmus Thursday, arguing the countries which are the real parties behind the ongoing proxy wars in the region could one day be dragged into the fight themselves if the raging conflicts are not stopped. Endit