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THE ATLANTIC COUNCIL OF THE UNITED STATES
BLACK SEA ENERGY & ECONOMIC FORUM 2010
FINANCE AND TRADE
WELCOME AND MODERATOR:
GUVEN SAK,
RECTOR,
TOBB UNIVERSITY OF ECONOMICS AND TECHNOLOGY
PANELISTS:
ULRICH ZACHAU,
COUNTRY DIRECTOR FOR TURKEY,
WORLD BANK
STEPHEN BIEGUN,
VICE PRESIDENT OF INTERNATIONAL GOVERNMENTAL AFFAIRS,
FORD MOTOR COMPANY
JOHN MORAN,
MANAGING DIRECTOR, INVESTMENT DEVELOPMENT & COORDINATION, OPIC
THURSDAY, SEPTEMBER 30, 2010
Transcript by
Federal News Service
Washington, D.C.
GUVEN SAK: Good afternoon. We have come to the finance and trade panel, and we are also expecting His Excellency Mr. Mehmet Simsek right at the end of this panel. The objective is to discuss the impact of this global economic crisis that started in the center of our system on the Eurasian dynamics, basically, on how it affected Eurasia.
And it can come – of course, we are right in the middle of a recovery process, many of the countries, including Turkey, is now already – it looks like we will get the numbers that we will be recovered from the impact of the crisis. Regarding income, generation has increased rapidly to pre-crisis levels. There are, of course, issues that we have been discussing – whether this process is actually sustainable or not in the case of Turkey.
We have great panelists today in order to discuss the issues. Maybe what I should do is – let me introduce them by asking questions to them. We have here Dr. Ulrich Zachau. He is the representative of the World Bank office. So we are both from Ankara, living in Ankara, basically, and following the Turkish economy very closely, let’s say.
Let me start with Mr. Zachau by asking the – (inaudible, audio interference) – this crisis in different countries. There are countries that are coming out of the crisis more rapidly than the others. And the impact of the crisis, also, has been felt in an asymmetrical way. So it might be useful to start by painting a picture, let’s say, about how the crisis is and how we are coming out of the crisis and what are the lessons, when you look at what are the policy lessons that we have to take into account and when we look at the picture, let’s say.
ULRICH ZACHAU: Thanks, Guven. Yes, as you said and we all know from reading the press, from living in our countries, that experiences have differed. In fact, there are people in the U.S. who are wondering whether the crisis is really over already. There are people who think we’re still in a crisis. I think people would not say this here in Turkey.
MR. SAK: We’re told that it’s already over here.
MR. ZACHAU: Yeah, exactly. I think people here in Turkey think it’s largely over. Certainly, for the economy, if you measure it by traditional standards – economic growth rates, et cetera – it’s over. In fact, Turkey has been growing at 10 percent this year so far, which is really high.
And I think in general, the more general message is that I think developing countries and emerging-market economies have done relatively well, in terms of emerging from the crisis. And this country has done particularly well. So I think in terms of policy lessons, in terms of looking back, I think one issue is that the policies of those countries that have grown a lot, which have been those countries that are open to trade, despite the crisis.
They initially suffered quite a lot, but now, they have also recovered quite quickly, and better than other countries. Those policies have been vindicated. Also, in terms of the policies to have some macroeconomic loosening and some macroeconomic support, fiscal support, but not too much, and begin exiting – I think that policy by some countries, including Turkey, has essentially been vindicated. Of course, it’s a little too early to celebrate, but I think it is clear that the policies have worked in these countries here, and that more of the same will be needed, but a gradual withdrawal of the fiscal stimulus.
Now, looking ahead, one key challenge will be what happens in the Europe and the U.S. for countries in this region, including Turkey, but pretty much all open economies and emerging-market economies. And the key question is what monetary policy does in advanced economies. And if it stays very loose and the yield differential remains very high, investments here, capital flows to Turkey, to emerging-market economies, will remain high.
But if the yields start rising in the U.S. and in Europe, for example, because there continues to be fiscal stimulus and, in fact, there’s a supply constraint, then of course, the yields start rising and the relative differential declines and so there is a risk for countries like Turkey, and other similar countries, that these capital inflows won’t remain at the current levels.
And of course, we can later on talk about more of the policy implications of that. So I think that’s the broad picture. These countries have done relatively well. Their future depends a little bit on how the global picture evolves.
MR. SAK: But I think there is also a difference when you look at the economies – (inaudible, audio interference) – including Turkey. Turkey looks even more diversified and, as far as I see, we are growing the domestic economy, also, at this stage. And when I look at the Central Asian republics, basically, the petroleum price thing looks to be much more important. Shall I go with you, Mr. Stephen Biegun from Ford Motor Company? He’s the guy from the area – from the real markets, real sector.
STEPHEN BIEGUN: Thank you. Against the economic backdrop that you just heard are the practical implications for a company like ours – but we aren’t unique in this – companies that are well-invested throughout this part of the world. For Ford Motor Company’s part, we’re a longstanding and major investor in Turkey, but also in Russia, also in Central and Eastern Europe, and of course, heavy investment in the European Union.
So when we see the decline of the global economy in such dramatic terms, certainly the first impact can be seen and most heavy impact can be seen on the producers of high-value consumer goods, which are one of the first retreats of the consumer. And so not surprisingly, the automobile industry was severely impacted by the financial crisis. And just as was the case with macroeconomics, in terms of facilitating the recovery and, in some cases, the survival of the industry, government actions are a mixed bag. There’s been a variety of actions across the region.
Turkey, I would hold out as an exemplar, actually. Through a well-regulated stimulus –reductions in the consumption tax in order to facilitate the purchase of automobiles, they’re able to sustain a domestic market that is now recovering and growing at a decent rate. More problematic, actually, for a company like ours, especially one that produces in Turkey, is that Turkey doesn’t constitute even the majority of the market that we serve with our vehicles.
We’ll send vehicles from Turkey to 70 destinations around the world this year. By far, the largest customer is the European Union, but also Russia, for example, is a very robust customer. Unfortunately, in our industry, the European Union is currently in decline. After an enormous stimulus of scrappage programs that spurred the purchase of new cars last year, we see European sales volumes declining dramatically this year against a backdrop of the rest of the world, more or less, recovering at a slow pace.
But other public policy actions that were taken that certainly have disrupted the recovery of the industry are in places like Russia, which imposed protective tariffs. Russia had been a very important export market – and I think, not only for the automobile industry, but my guess is, for many other sectors of the Turkish economy, as well.
And Russia, which is not a WTO member, was free, among other things, to – fully legally, within its rights – to enact trade barriers, which did have the effect of not only cutting off Turkish exports, but also, I think, compounding some of the issues in Russia’s economic recovery.
Nonetheless, looking forward, we do see a recovery globally in the automobile industry reflecting, I think, an overall recovery in the economies. But as we’ve said and I think everyone here has seen that recovery is uneven. And so the Turkish economy is recovering at an impressive, double-digit growth rate, but Western Europe is particularly slow recovering, and in some cases not recovering.
MR. SAK: Western Europe, and also the region that we are interested in – it looks that it is much more tied to the base of the petroleum prices, also, or the natural resource prices.
MR. BIEGUN: I think there were many people who thought that the crisis would wean economies in this region – and North Africa and the Middle East and, also, in Central Asia – would wean them away from an overdependence on oil prices. And from what we’ve seen – and this includes Russia – it has done nothing of the sort. In fact, those economies’ recovery, particularly a robust recovery, appears entirely tied to the recovery of oil prices.
MR. SAK: And let me turn to this side. Mr. Zolnikov (ph) is a commercial banker from Bulgaria. And when we are talking about an uneven recovery process, one of the questions that was asked for this session is whether it is possible to maintain the access to financial markets, basically. Is that also uneven? How would you assess it?
MR. : I would slightly disagree with my colleague, but also agree; to some extent it’s too early to celebrate the end of crisis.
MR. SAK: It is for Turkey. (Chuckles.)
MR. : Yes, I’m just picking up – because you just have to have a look at what’s happening in Western Europe. So Spain was downgraded today. Just look at that one and the other countries in Europe. So unfortunately, we are about to feel the consequences of the crisis for a longer period than expected. The financial markets are giving mixed signals. As you can see, industrial production is declining, so this is a very bad signal. So in the near future, the access to the financial markets from the real sector is not going to be that easy.
So I feel worse about my country. We were, to some extent, lucky because in Bulgaria, there is a currency board, so the financial discipline was at an acceptable level. So we did not face, that much, this credit crunch. And I believe that in the near future, in order to facilitate the access to the financial markets, new regulations have to be imposed. A step in that direction –
MR. SAK: Regulations on what?
MR. : On the banking sector – I mean, the financial sector, as a whole. A step in this direction is the new set prepared by Basel III, which practically envisages strong regulations on the sector, which is a key issue in that direction.
MR. SAK: Would you like to add something about direct investments, also?
MR. : (Inaudible.)
MR. SAK: Okay, let me then turn to Mr. Moran. Mr. Moran is from OPIC. That’s the American agency for providing investment insurance for the American companies, basically, as far as I remember. So he is very much related to the issue at hand, regarding maintaining access to finance or to financial markets by the investors in the – (inaudible, audio interference) – the investment flows, or everything just halted?
JOHN MORAN: We didn’t really – you’re correct in that we are the U.S. government development finance agency focusing on investment, distinct –
MR. SAK: Because the U.S. government did a lot to maintain the system, as a whole.
MR. MORAN: To maintain the system and they did certain – people came to us and talked about whether we might expand our mission, for example, to provide a source of trade financing, which we don’t do, actually, because that’s our export credit agency, or Ex-Im.
But what we did do – we became more active – or we’re not really reactive, in the sense that we try to get out and make good deals, deals that are commercially sound and good for the host country or region that is where the direct investment is going to go with a U.S. participant, which can also include other, non-U.S. investors. But we do need some kind of U.S. commercial nexus or private investor to sponsor the deal and to have real capital at risk for us to then be able to provide either insurance, or to be a debt provider to a project. And we also support privately managed equity funds.
So we have political risk insurance, debt finance – medium- to long-term debt finance – three to 20 years, similar in our insurance – and then we do privately managed equity funds, where we support them with – we can’t do equity, unlike, say, the IFC or EBRD or some of the other, European countries have development finance institutions like OPIC – DEG, KfW in Germany, FMO, and there are others – Proparco – but what we cannot do is, we are not able to do equity.
We cannot take direct equity stakes in companies, and nor do we finance our support our investment funds that we establish or that we motivate with equity; we do it with debt, basically, with a smaller upside than a traditional limited partner does. What we’ve seen in the market is people coming back to us, particularly in this region – in Turkey and elsewhere in Central and Eastern Europe and Eurasia.
We’ve seen people that had access to private finance – because we are not supposed to compete with the private sector; we’re supposed to play a role. We can do complementary finance and cofinance, but we’re not supposed to finance deals where there’s ready access to private lending, private equity. What we’ve seen is the market shrank, as there was the global contraction, is that good, bankable deals that lacked access to debt capital at reasonable prices or at fixed-rate longer terms were coming back to us. Good, solid deals were coming back to OPIC because their financing had dried up.
And on the funds – very briefly, the way we support equity funds is, we do a call – what we call a call – and we’ll say we want to do a fund or funds in a region or in a sector. And so for example, most recently, we did a global call for investment funds for technology, innovation and access. And this was pursuant to President Obama’s Cairo speech.
And what we found in those cases, once we select fund managers, they go out and raise about two-thirds of the total capital of the fund, and we match it with one-third of it in the form of a debt. And we also did, in 2008, a global renewable energy fund call. And what happened there was that a lot of those funds in the 2008 – very solid fund managers, some of them – in fact, the most recent call, we had almost all non-U.S. fund managers, but very well-established, good track record, very capable.
And one of the principal reasons that we make in selecting a fund manager is their ability to do the private raise. And what has happened is the private limited partners have gotten very wary of investing. And conversely, what the fund managers say is, we can’t do the private raise as well, so that means if they’re talking about a $450 million fund, they’re having trouble raising that 300 (million dollars) private so can come in with our 150.
What the fund managers say is that the private LPs are very – as contracted – but we see a lot of opportunities on the ground that, if we had the money, we see very good values that we would be able to invest in. So what we’ve had to do, as a result, is try to be more creative and innovative, in terms of doing deals that are good, commercially sound, but maybe don’t have access to private capital, whether it’s on the debt side or on the investment side.
MR. SAK: Regarding, for example, the geographic distribution of your interests, how much importance you are attributing to this region?
MR. MORAN: Well, it’s coming back. And I say that –
MR. SAK: I’ll ask that question to you, too.
MR. MORAN: Yeah, we used to have an OPIC representative based in Turkey for about six, seven years, largely – and focused on, as part of the Caspian finance center based in Ankara covering Eurasia. When I first came to OPIC, I was based in Zagreb and covered southeast Europe and spent a lot of time in Sofia and other places around, looking at deals.
At the time – and what happened, really, interestingly, was the market kind of matured and all of a sudden, private banks were very well-established and our role was fairly short-lived, in terms of being needed in terms of development finance institutions. There were other – all of a sudden, banks and investors kind of catapulted ahead. We did some funds that – we had two funds for southeast Europe, for example, and we’ve done a number of funds that were able to do investing in Eurasia and Turkey.
But there was a period there where, all of a sudden, people were able to go to the private side without needing our function. Of course, the EBRD and the IFC have also played very significant roles, as well, because they don’t need the U.S. commercial nexus and we always need some kind of U.S. private sponsor.
What’s, again, happened is, I think we are now seeing more interest in our being able to support projects – political risk side, debt finance, as well as investment funds – because the market has retracted a little bit and now the role for a development finance institution, based on market response, seems to be more preeminent. So our pipeline and portfolio is going back up in this region.
MR. SAK: Thank you. And Mr. Zolnikov, regarding – I’ll counter your pessimism. I’ll ask you to discuss that in a few minutes, but regarding your company’s operation in the region, how you are seeing the situation now? How you are seeing the region? Because as Ulrich has already noted, it’s uneven – this recovery process is uneven. I mean, I’m sorry it’s not that good in Europe, but it’s not that bad, also, in Turkey.
And we are also seeing some – that’s why Ulrich has mentioned the importance of some policies to be pursued, because there are risks that are accumulating, no question about it. It’s not normal yet. The new normal is not around yet. But how you are seeing the business situation? Are you looking for new deals, especially regarding the geographical distribution? Are you looking at this region? Are you seeing something different?
MR. : No, we believe that this region has a very good potential for growing. For instance, the infrastructure projects that are under development are giving good opportunity because this involves, more or less, the support of the state, as well, which is quite important these days. Of course, after the crisis, the bank started reviewing the projects in a different way because a few years ago, it was –
MR. SAK: – different because the capital is going to be costly because of the new regulations?
MR. : For various reasons. It’s a complex – there is a complex set of reasons.
MR. SAK: Or are there any inherent risks in the region?
MR. : First of all, the inherited risk in the region; second, the cost of obtaining the financing –
MR. SAK: Is it increasing now?
MR. : Yes, it’s increasing. The investors are pretty cautious and are reviewing the projects in a different way, so that it turns out that at the end of the day, there are not that many bankable projects. So this is on the one hand. On the other hand –
MR. SAK: So you still see this as a transitory stage – that, that may be the reason why –
MR. : Yes, more or less.
MR. SAK: – we are all more cautious.
MR. : On the other hand, there is pressure from the markets because there is a desperate need of yield. So by this way, I think that within the next maybe 12 to 18 months, sort of break even should be found because the economy needs fresh money in order to grow.
MR. SAK: I see. So let me come to Stephen, also, regarding that similar issue. And Ford Motor Company is looking at this region. Are you basically looking only Russia – as you have mentioned Russia and Turkey a lot – you’re not looking at the other parts?
MR. BIEGUN: Well, we’re globally invested. We have 35 countries around the world where we manufacture. Turkey exports to 70 markets around the world – 70 different countries around the world. So our business is completely integrated on a global basis. In this region, we manufacture in Turkey, Poland, Romania, Russia – nowhere in the Middle East, so Turkey really is our access point to Central Asia, the Caucasus –
MR. SAK: Are you doing anything together with some joint ventures with the Turkish companies?
MR. BIEGUN: Here in Turkey, of course, it’s not a wholly owned Ford Motor Company. We have a joint venture partner, Koc Industries, with whom we’ve been building cars for 50 years. So we’re in a joint venture here in –
MR. SAK: That’s an old one; let’s look at the new situation, also.
MR. BIEGUN: Well, going forward, it makes most sense, when you can finance, to own your own business entirely. But different countries have different requirements. In the case of Russia, for example, in the earlier panel, there was some discussion about the nature of the Russian auto industry. Actually, the Russian government is beginning to copy the features of the Chinese auto policy in pushing investors to partner with domestic companies in order to make a stronger indigenous industry. There are trade rules and investment rules that we contend with on a global basis.
We haven’t put an investment in Turkey in a few years. We have about $2 billion here now, although that is constantly being financed with materials in the assembly of the vehicles and procurement of the commodities that we use to build the cars. But our investments are growing globally, for sure, although by far, the weight of growth, not only in investment, but also in the market itself, is in Asia today.
What makes Turkey, and countries like Turkey – shouldn’t be limited to Turkey – extremely interesting, though, is when they have access to those markets. So in the case of Turkey, some important free trade agreements and, of course, the access to the European Union, which takes the competitive nature of an emerging market like Turkey and gives it tremendous opportunity globally. Where we get hurt, of course, is where I mentioned earlier, is when the trade rules start breaking down. And then we can increasingly get boxed in to only be operating in the economy where we build the vehicles, which, in today’s world, is an uncompetitive model.
MR. SAK: But then I am looking for example that the fund flows into Turkey, as the access issue is important, was one of the issues that was raised here. In terms of Turkey’s basically portfolio flows that we are setting, are you investing directly now – that is, making investments somewhere around the globe in this, let’s say, transitory stage?
MR. BIEGUN: Yeah, absolutely. We’re investing billions of dollars this year in India, China, Thailand –
MR. SAK: In foreign direct investment?
MR BIEGUN: Directly, yeah. We’re a capital-intensive industry. We finance the bricks and mortar; we finance the assembly of the vehicles; we finance the sale of the vehicles; we finance the export of the vehicles. So we’re constantly borrowing and paying off loans. We’re constantly moving capital in and out of the company. First preference, oftentimes, is self-financing, but it’s impossible, in our industry, to self-finance, entirely, our growth. So we borrow money.
MR. SAK: What should we do to attract Ford Motor more to Turkey, for example?
MR. BIEGUN: Well, Turkey’s doing some great things. There’s the basic rules of thumb that I think an emerging market always want to pursue, which a country like Turkey has the ability to offer incentives to investors around tax policy. This is extremely important, and Turkey does not have to conform to all the same rules of the European Union because it’s not a member, but it has that access.
So in terms of incentives around tax reductions and infrastructure development, Turkey’s been quite effective at that. Second is a stable regulatory and tax environment, and here, Turkey has done a decent job, but no government is perfect. Third is macroeconomic stability. We’ve been in Turkey for 50 years, so you can imagine what we’ve seen. But right now, it’s looking pretty good. But that’s this year.
MR. SAK: So Turkey is looking pretty good, but as Mr. Zolnikov said, he’s relatively pessimistic, let’s say, as a conservative banker. If you have anything to say, you’ll jump in, but let me ask Ulrich about it. Are we underestimating this situation with the developments in Europe and Turkey, basically? Or is it, you know –
MR. ZACHAU: I don’t know, Guven, whether you are underestimating them, but we, however – (laughter) – we hope that we are not. I want to come back to this notion of an uneven recovery, and I think that’s the whole point. The picture is different in different places. So you’re right that the PIGS – Portugal, Italy, Greece and Spain – they don’t look all that good right now, and some other parts of Europe, too. And overall, it’s really quite slow.
It’s also true that in the U.S., the recovery is extraordinarily slow. I’m German. Personally, I’m not optimistic on Europe, okay? I think it will take a while. And additionally, in addition to take a while, I think there are risks of some pretty nasty secondary incidents. So I don’t think that’s likely, but I think there are risks. I’m skeptical about the U.S. I’m not optimistic or pessimistic.
But I do think that developing countries, especially the better-performing advanced and emerging economies are really doing quite well, relatively speaking. And that’s true for Turkey. We will see for how long. But there is a bit of catch-up in the numbers, so it’s not all pure, new economic genuine growth. There’s some catch-up – simply because last year was so bad, it looks this good this year. But there is also some portion of genuine, good economic growth.
So because of this differentiation, I think there are three things that are really important. The first one is – and I’m picking up on the points that were made by my colleagues on the panel – the first one is back to basics. And back to basics means stable macroeconomic policy, which was just highlighted, and also is the very reason why, you know, Spain was downgraded.
And I think it’s a perfect illustration why it is important to be prudent in fiscal policy and actually not keep the over-stimulus, keep that going. I think there is an end to that road, and that end is pretty close. So I think it’s really prudent to watch macroeconomic policy pretty closely and not to overdo it on the easing. So I think that’s point one on the macro policy. That’s true for fiscal, as well as monetary.
Secondly, trade – you mentioned trade restrictions in Russia. I think this is exactly the point. I think in this situation, if you want to have a recovery of trade, that’s kind of the worst thing you can do. So you really want to have a trade regime that is attractive to trade and promotes trade, so few restrictions, if possible.
One point back on the macro: There is this sort of beggar-thy-neighbor, competitive devaluations policy going on around the world, including between the U.S. and Japan. And quite frankly, you know, some people – few people, if any, in this group – may remember what happened a few decades ago, but the world has been through this. And it led to universal, global disaster. And I think, really, the policymakers of this world –
MR. SAK: You expect that to be deepened, for example?
MR. ZACHAU: I would hope that policymakers in this age are wiser and have more responsibility, more sense than to go that route all the way. Unfortunately, what’s happening in the U.S. and Japan right now is not a good model, and I hope it will come to an end. But that was back on the macro.
So trade is the second thing, and I think the third one is access to finance. And you mentioned, and we agree with you, that in significant parts of the countries where the crisis is still going on, it remains constrained. And in fact, we know from many of our clients around the world that banks are still asking, routinely, for confirmed letters of credit where they used to be asking – or were quite happy to get unconfirmed letters of credit. This isn’t like it was, anymore.
Now, in some very few parts, it’s beginning to ease. But I think it is important for public institutions – Ex-Im, yourselves, ourselves – to actually help this and support this. So one thing we do as the World Bank in Turkey, but also in other countries in the region and in the world, is actually promote access to credit through credit lines, which provide medium-term credit, not just short-term credit.
And we do that for trade, for exporters; we also do it for small- and medium-sized enterprises; we do it in industries like renewable energy and energy. And I think it’s a very important part – it’s a small part, and obviously, we can’t make up for all the demand of the private sector around the world. That’s impossible. We’re like a little drop in the bucket, compared to the total that’s needed. But I think it’s important, both in terms of giving a little bit, but also important as a signal to the world that, I think, it’s actually possible to do this and watch the effect. And there are some good results in some of the countries that we see.
And lastly, a note on jobs: We haven’t talked about people. We’ve all talked about abstract things, like firms and profits and investment opportunities. There is a hard truth, which is that the people who have suffered are really the individuals and the families because lots of them are unemployed all around the world. And that’s very clear in the United States. It’s also clear in Europe.
It’s less clear in this country, and I think one thing that’s remarkable in this country is the speed at which employment has actually stabilized, and unemployment has begun falling again. One important part of that, of course, is the informal sector. So you have a lot of recovery in the informal sector. I’ve been talking for a while, so I’ll stop. (Laughter.) But so I think we actually agree on most things.
MR. SAK: Okay, that’s basically the situation that we are in now. We are at the transitory stage. There are still problems. And as far as – I mean, I can’t ask what you expect things to be like, let’s say, five years from now. I don’t think it’s possible to do that at the moment. But how do you envisage 2011, for example?
How do you see the environment in 2011, better than this one or – I can ask this to you, too – or do you expect anything like these trade war things to deepen the pressure on – I mean, kind of government-induced pressure on currencies to continue like this? Because there are so many discussions about the overvaluation, et cetera, and that discussion is in many countries now.
MR. BIEGUN: I would hope – and I think this is our view as a company, as well – that things will get better. So full stop, that’s our general expectation. At a very slow pace, with lots of strain on policymakers and governments because of chronic unemployment – unacceptably high unemployment – but still, things get better.
On the currency side, this spat is so new that it’s hard to see how far it’s going to go, honestly. And there’s more players than Japan and the United States, as well. Korea’s actually been an active intervener in its currency over a period of time. The IMF just came out with a scathing report on Korea’s manipulation of the won, quietly, through what’s called secret-agent interventions, through commercial banks, but nonetheless doing it.
China, of course, is a subject of a global debate. So the currency issue is a big one, and it’s huge for Turkey, because the lira is getting strong. And these things can, for a global manufacturer, can absolutely erase the competitive advantage. If you get a 20 or 40-percent swing on a currency against an importer on a $20,000 automobile, that’s $4,000. That’s decisive. There are things I worry about.
I don’t want to sound hopelessly optimistic, and let me just tell you the things that I worry about. One is, I travel around the world – I actually work with all of our global enterprises and meet with governments in every market. And every single government has one strategy: export-driven growth. And my question is, if everybody’s exporting, who’s going to be doing the buying?
And I really worry about that, because the other side of that is protectionism. We’ve seen an economic model that’s developed in Asia that’s export-driven growth with protective markets, particularly in the auto industry. I worry about that, and I think the currency wars are a fixture of this newfound devotion to export-driven growth.
Otherwise, protectionism is a worry. Turkey’s a fairly well-situated country from which to export. It’s got a competitive cost base and it has access to the European Union market. But that has an upside and a downside. The upside, of course, is that Turkey had access to one of the largest consumer markets for its goods, duty free. That’s a great boost for the economy.
But when the European Union expands its reach in trade, through free trade negotiations, Turkey is not an automatic beneficiary. And in fact, what we’re increasingly seeing is, as the European Union negotiates free trade, the party with which they’ve negotiated refuses to reach a deal with Turkey because those countries understand Turkey has the potential to actually export into their markets. So that’s very problematic for us.
On the slightly more positive side, we see – we’re forecasting a conclusion to Russia’s negotiations to join the WTO. And if that’s the case, when Russia does officially sign – (inaudible, audio interference) – document, probably at the end of next year, all the duties that they have that – (inaudible) – the situation are going to be, by agreement, required to stamp (ph) back and then decline over a period of seven years. That’s going to be very consequential for Turkey because Russia, I think, stands as probably one of the most promising markets for Turkish imports on a global basis.
MR. SAK: Mm-hmm. How does a commercial banker see 2011 when you look from here? I mean, you can jump on those issues – these trade war issues, currency wars – (inaudible) – I may say that, and also, there are regulations that are coming towards the banks.
MR. : I would like to talk more about the region because globally – (inaudible, audio interference) – well, Turkey is a very good example. The growth rate in Turkey could be the core issue or core – (inaudible) – for the development of the region after the priorities have been set on what, of the list of the eight construction projects – (inaudible). Because building –
MR. SAK: That is going to be anyway, related to petroleum prices. You also mentioned about the Russian role, Russian economy, et cetera – imports. Isn’t that also tied to the petroleum prices and that is somehow related to the global – (inaudible) – situation at the end of the day?
MR. : Yes – (inaudible) – are on the table, including linking natural gas and now, making connection between – (inaudible) – which allows the goal to be achieved for energy – (inaudible) – of the region.
MR. SAK: (Inaudible, audio interference.) Do you have anything to add? Okay, so let me just sum up quickly, as the minister is here. (Inaudible) – it should be all right. So when we look at trade and finance issue in 2010, there are positive developments around the globe, but – (inaudible).
As far as I understand from what you have mentioned, we are still in the transitory stage and there is still a role for the public sector and public policy to – (inaudible) – U.S. government agencies, also, seem to be important in the process. That’s the message that I got. I don’t want to say we are pessimists, regarding the issue, but we are not that optimistic on this panel, as far as I see. So let me close by saying that and yield the floor to Ross, now.
ROSS WILSON: Ladies and gentlemen, our next speaker was supposed to be Minister of Finance Simsek. His staff called us just a couple of minutes ago to advise that his flight was delayed from Ankara to come here, or I think from – (inaudible) – to come here. And rather than hold everybody here for what would be a very long time and disrupt the dinner, we will just conclude this particular session.
I understand it was a good session. I know it was a good session with good leadership from my friend, Guven Sak. Minister Simsek may be able to join us for dinner at Topkapi Palace, and that would be a wonderful thing. I believe the transportation to Topkapi begins at about 5:45. There will be a series of buses leaving, basically, as they get filled.
Reception starts at Topkapi at 7:00. For those who wish, there is an opportunity for tours of the Topkapi Palace grounds, which is very interesting if you’ve not been there. And people will be seated at some point not long after, maybe, 7:30, 7:45, somewhere in that timeframe. So we’ve very sorry about Minister Simsek. We look forward to seeing you at Topkapi.
(END)