BRICS with a ‘T’: Turkey is Looking for New Friends

DISCUSSION PAPER BRICS with a ‘T’: Turkey is Looking for New Friends By Mustafa Metin BAŞBAY DISCUSSION PAPER BRICS with a ‘T’: Turkey is Looking for New Friends By Mustafa Metin BAŞBAY BRICS with a ‘T’: Turkey is Looking for New Friends © TRT WORLD RESEARCH CENTRE ALL RIGHTS RESERVED WRITTEN BY Mustafa Metin BAŞBAY PUBLISHER TRT WORLD RESEARCH CENTRE SEPTEMBER 2018 TRT WORLD İSTANBUL AHMET ADNAN SAYGUN STREET NO:83 34347 ULUS, BEŞİKTAŞ İSTANBUL / TURKEY TRT WORLD LONDON PORTLAND HOUSE 4 GREAT PORTLAND STREET NO:4 LONDON / UNITED KINGDOM TRT WORLD WASHINGTON D.C. 1620 I STREET NW, 10TH FLOOR, SUITE 1000, 20006 WASHINGTON DC / UNITED STATES 4 BRICS with a ‘T’: Turkey is Looking for New Friends Introduction I t is no secret that Turkey is looking for new friends. Following the outbreak of the ongoing dispute with the US, Turkey’s President Erdogan said, “Turkey has alternatives” and “failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies” (Erdogan, 2018). Now that Turkey’s conflict with the US has expanded to the economic arena, Turkey has started to look in earnest for new, more reliable economic partners. In that respect, BRICS (association of five major emerging economies including Brazil, Russia, India, China and South Africa) came high on the list of viable alternatives for Turkey. A few weeks ago, Turkey attended the 10th BRICS summit in South Africa as a non-member guest. During the summit, President Erdogan openly stated Turkey’s desire to be the sixth member of the BRICS. He even proposed a new name for the grouping if Turkey joined: BRICS-T (Sengupta, 2018). Turkey has been a NATO ally for last six decades and is a candidate for full membership to the EU. Needless to say, there has been ups and downs in Turkey’s relations with the ‘West’ and especially the US, but being a neighbour of Iraq, Iran, Syria, the European Union, and the Soviet Union (until its collapse), Turkey has been considered as a strategic member of the Western alliance for most of its modern history. This also meant strong economic ties with European countries and the US in trade, finance, and investment as well as following the economic paradigm prevailing in the West instead of the Soviet bloc or other developing countries. Turkey has depended on advanced industrial economies for financing its economic growth and the lion’s share of its trade volume while following the ‘Western model’ in its economic structuring and policy making. For the better or worse, this seems to have worked well for Turkey until recently. However, Turkey’s relationship with the US has been going through a re-evaluation and a potential re- definition in recent years. Turkey feels disappointed with American foreign policy, and consequently drifts away from the West. Now, we have clearly entered a new era in Turkey’s foreign policy where Turkey openly challenges American hegemony in the world economic order and western countries’ dominance over international institutions such as the UN and the IMF. Most recently, the supremacy of the dollar in the world financial system has been a target of Turkish administration as well (Al Jazeera, 2 September 2018). Turkey is looking for new alliances with other major developing countries such as China and Russia, on the basis of a more just and multipolar relationship. Considering that Turkey is currently experiencing some economic turbulence, in part due to the cracks in Turkey-US relations, the need to have new and ‘better’ friends has become even more salient. According to some, a potential BRICS membership may be a viable alternative for Turkey to ‘supplement’ its trade and finance relations with the West. In this paper, I discuss, not the causes or the effects of Turkey’s divergence from the West, but what a potential BRICS membership would economically mean for Turkey in the current context, and whether this is a viable option for the country in the long run. Turkey may benefit a lot from substantial economic ties with the BRICS economies but given its current structure and capabilities, BRICS is still an unlikely substitute for Turkey’s relations with the West. The Western world continues to be the source of science, innovation and technological advancement, and has strong institutional structures. Increasing trade volume and deepening financial relations will certain contribute to the growth trajectory and stability of Turkish economy, however, the best advantage Turkey stands to gain from substantial economic ties with the BRICS is potential leverage Turkey may gain from having alternatives to Western dominated institutions and alliances. 5 BRICS with a ‘T’: Turkey is Looking for New Friends Why Turkey wants New Friends? Relations between the US and Turkey have deteriorated in Syrian politics over the PYD, the US administration over the past several years. Now, two NATO allies are in suddenly decided that Turkey’s trade with Iran was no the midst of an open conflict. The deterioration arguably longer acceptable. In March 2017, the vice president of began with US support for the PYD (and its military Halkbank (a state bank of Turkey) got arrested during wing YPG) in Northern Syria, an organization known to a visit to the US over allegations of managing and have substantial ties with the terrorist organization PKK, coordinating Turkey’s trade with Iran. Turkey of course which Turkey has been fighting against for last 40 years. strongly protested this move. The rift between two That tension escalated when US started to openly arm countries has been further exacerbated by Turkey’s deal the PYD in 2014 while their affiliates were carrying out to purchase the S-400 air defence systems from Russia – suicide bombings in Turkish cities. Then came a further which is a first among NATO countries. This led the US to disagreement over another terrorist organization: FETO suspend sales of F-35 fighter jets to Turkey even though (i.e. Gulenist movement). Fethullah Gulen, the leader Turkey has invested one billion dollars in the project. On of the organization which orchestrated the failed coup the top of all these, in response to Turkey’s detention of attempt in July 2016, continues to live in the US as the US an American pastor on espionage charges in 2016, the administration refuses to extradite Gulen and other senior US recently imposed sanctions on two Turkish ministers members of the organization. Serious claims about US’s (Synder, 2018). involvement with the coup attempt is also a source of tension between Turkey and the United States. These tensions have also affected the economic relationship between the two allies. President Trump has The problems in US-Turkey relations do not stop there. doubled tariffs on imports of iron and aluminium from Turkey, along with a few other European countries, has a Turkey and threatened Turkey with further economic significant trade relationship with Iran. With the escalation sanctions. Specifically, these sanctions are expected to Top Export Destinations of Turkey (billion $) Germany 15.12 (9.7%) China 23.37 (11%) United Kingdom 9.61 (6.2%) Germany 21.30 (9.6% United Arab Emirates 9.18 (5.9%) Russia 19.51 (8.8%) Iraq 9.06 (5.8%) United States 11.95 (5.4%) United States 8.66 (5.6%) Italy 11.31 (5.1%) Italy 8.48 (5.5%) France 8.07 (3.6%) France 6.59 (4.2%) Iran 7.49 (3.4%) Spain 6.31 (4.1%) Switzerland 6.90 (3.1%) Netherlands 3.86 (2.5%) South Korea 6.61 (3.0%) Table 1: Turkey’s imports and exports by country in 2017 6 Top Import Origins of Turkey (billion $) Source: UN comtrade database BRICS with a ‘T’: Turkey is Looking for New Friends include a large fine on Halkbank for violating US sanctions major deterioration of purchasing power, total demand on Iran, or blocking financial institutions from giving of these economies, especially for imported goods, was credit to Turkish banks and companies. This comes at significantly reduced. Consequently, Turkish exports to a time when the Turkish economy is already suffering these economies shrank (Bulu & Gurler, 2013). That is also economic turbulence. Following the Fed (The US Federal when Turkish policy-makers came to a realization that Reserve)’s monetary tightening and growing regional Turkish exports were overly dependent on the fluctuation risks, hot money has been escaping Turkish economy in Western economies, most of which are correlated with for some time now. American sanctions accelerated the each other. capital outflow further deepening Turkey’s problems. Consequently, the Turkish Lira lost 20% of its value within Second, as it is very vividly demonstrated in the recent a few weeks and put Turkey on the brink of a currency problems of the Turkish and Argentinian economies, crisis. most emerging market economies are overly responsive to the changes in the monetary policy of the US. After the Of course, this is not the first time Turkey is having a 2008 financial crisis, the Turkish economy, along with conflict of interest with the US. However, what makes other emerging markets, enjoyed favourable liquidity this current crisis in Turkey-US relations different than conditions because investors were running away previous episodes is that, rather than seeking to solve from crisis-hit developed economies. Now that the US the immediate issues as soon as possible Turkey is more economy is recovering from the crisis, The US Federal interested in pursuing a deeper change in its relations Reserve (the Fed) has tightened its monetary policy by with the US, and the ‘West’ in general, one that is more increasing interest rates and pulling investors back to reflective of Turkey’s growing economic and geo-political the US economy. Consequently, developing economies significance in the global balance of power. This change have experienced a capital outflow. This does not only may involve both more independence and influence for make credit more expensive due to higher interest rates Turkey in its relationship with the developed countries but also leads to devaluation of local currencies, leaving of the North Atlantic alliance. What Turkey is seeking is companies in developing countries in trouble because more of a structural change and a diversification of its most of them are indebted in dollar. Essentially this is a economic relations, rather than short-term solution to the currency crisis triggered by the global flow of the dollar. current crises. The Turkish government is willing to form substantial economic ties with other economic powers so Obviously, that Turkey may enjoy greater freedom in its economic cannot be entirely blamed on the Fed, however it should and geopolitical decision-making, and become more be admitted that shifting monetary policies of central resilient against imposition of any policy agenda from banks in developed countries - most importantly the Fed outside in the future. – can lead to the deepening of business cycles and can emerging countries’ financial problems even result in recession in developing countries (Devlin Turkey’s need for more diversified economic relations & French-Davis 1995). This is mostly because the dollar goes beyond political concerns. In order to create a continues to be the main medium of exchange and unit of stable and affluent economy, Turkey needs to form account for international transactions. More than half of more diversified trade and finance relations with all global currency reserves and trade is in dollars, which other major countries. First, following the 2008 global allows the Fed to single-handedly control the supply of financial economic crisis, the Turkish economy was hit currency and global liquidity conditions. In 1965 French by falling demand for its export products due primarily Finance Minister Valéry Giscard d’Estaing referred to to the deteriorated purchasing power in developed this as an “exorbitant privilege” (Sachs, 2018). As it was countries. As it is shown in table 1, almost all the top previously observed in Latin America in 1980s and East export destinations of Turkey are advanced economies Asia in 1990s, credit boom-bust cycles in developing of the West, including Germany, the United Kingdom, countries are reinforced by the Fed’s decisions to increase Italy, the United States, and France. When the global and reduce global liquidity of dollar. financial crisis hit these countries in 2008, leading to a 7 BRICS with a ‘T’: Turkey is Looking for New Friends But the real power of the dollar is that it gives the US a way but also its long-run dependency on foreign credit for to monitor and control non-Americans trading with or financing its economic growth. This requires a major financing each other. The dollar’s role as the world’s main restructuring of the economy towards more productive, international currency allows US to directly or indirectly sophisticated, and high value-added production and limit global liquidity transfers (e.g. flow of funds related to better paying trade arrangements with trade surplus in terrorism, narco-trafficking, and other illegal activities). the long run rather than finding new credit. In that regard Most recently, it has become a habit for US administration too, new economic allies may contribute to Turkey’s to use this power as an instrument of international politics struggle to deal with its long known current account through sanction programs, as in the cases of Russia, deficit problem. Turkey may benefit from having new Iran, Sudan etc. Das (2018), for instance, says “The mere friends with higher capacity in physical and human threat of prosecution can destabilize finances, trade and capital to collaborate in order to escape from its continued currency markets, effectively disrupting the activities dependency on Western economies for trade, finances of non-Americans.” One way or another, the Fed has the and cutting edge technologies. potential to destabilize trade and finance in emerging market economies, intentionally or otherwise, which is a troubling reality for countries like Turkey. This is obviously why President Erdogan recently declared Turkey will pursue non-dollar transaction in trade and investment and said, “We need to gradually end the monopoly of the dollar once and for all by using local and national currency among us” (Al Jazeera, 2 September 2018). Last but not least, Turkey needs to diversify its financial resources. Turkey has a comparatively low savings rate, which means its considerably high economic growth in recent decades had to be financed through foreign credit (Hevia, 2010). Stubbornly high current account deficits over two decades have translated into a growing external debt stock, mostly to investors and credit institutions from developed countries. This is partly why the Turkish economy is overly sensitive to threat of sanctions coming from the US to block the flow of credits to Turkey. Now that liquidity conditions of the US economy is being constrained and Turkey is in a major conflict with the American government over regional politics, government is looking for new sources of credit. In the current crises, Qatar and China have become useful for overcoming Turkey’s current liquidity problems. However, this is not the first time Turkey experiences financial turbulence following a loss of confidence in financial markets, nor will it be the last. Therefore, Turkey needs to deal with its dependency on Western institutions to finance its growth once and for all so that the US loses leverage in political bargaining. We should recognize too, that Turkey needs to deal with not only the short-run effects of the financial turmoil 8 Most recently, it has become a habit for US administration to use this power as an instrument of international politics through sanction programs, as in the cases of Russia, Iran, Sudan etc. Research says that the mere threat of prosecution can destabilize finances, trade and currency markets, effectively disrupting activities of non-Americans. BRICS with a ‘T’: Turkey is Looking for New Friends What the BRICS is All About? BRICS is a grouping of biggest emerging market economies, first named by Jim O’Neill in 2003, the former chairman of Goldman Sachs. They represent some of the most populous and economically significant countries in the world. The original four members of the grouping (BRIC: Brazil, China, Russia, and India) are among the ten most populous and eleven largest economies (in terms of GDP) in the world (see table 2). South Africa joined later in 2010 as the 5th member, adding ‘S’ to the acronym, and is (GDP) is 30% in PPP terms compared to only 16% in 1997 and 22% in 2007. This is roughly the same as the combined economic weight of G7 countries (see table 3, Reddy et al., 2017). According to some, these statistics clearly marks the emerging of BRICS as a new centre of gravity in the global economic order (Wilson & Purushothaman, 2003). One of the defining characteristics of the grouping, beyond member countries’ substantial economic sizes, is that Population (million) (ranking) GDP (billion $) (ranking) GDP per capita ($) GDP growth (2008-2017) China 1386.3 (1) 12237.7 (2) 8827 8.26% India 1339.1 (2) 2597.4 (6) 1940 7.04% Brazil 209.2 (5) 2055.5 (8) 9821 1.59% Russian Federation 144.4 (9) 1577.5 (11) 10743 1.19% South Africa 56.7 (25) 349.4 (32) 6161 1.77% Turkey 80.7 (19) 851.1 (17) 10540 5.09% Table 2: Main economic indicators of BRICS countries and Turkey (2017) considerably smaller than the original four members both in population and economic size. By 2017, BRICS countries collectively constituted over 41% of the global population and 30% of the global Gross Domestic Product (GDP) in PPP terms (Reddy et al., 2017). The main promise of the grouping is that bilateral relations among BRICS countries are conducted on the basis of non-interference, equality, and mutual benefit, and that member countries cooperate in reforming international financial institutions to better include their interests. During the period between 2008 and 2017, the BRICS accounted for more than half of global growth and averaged During the period between 2008 and 2017, the BRICS accounted for more than half of global growth and averaged a 5.4% growth rate in per capita terms while global average was only about 1.7% (measure in 2015 $PPP). Furthermore, they recorded a growth in trade while world exports and imports have both shrunk. The BRICS share of world trade has nearly tripled within last two decades. BRICS countries’ share in the global Gross Domestic Product Source: World Bank they challenge the established hegemonic structure in the international economic order. The BRICS countries are expected to continue to be the central source of economic dynamism until 2030, and they are seeking ways to ensure that de jure institutional arrangements of international financial institutions, such as the World Bank and IMF, closely follow the de facto changes in the global power balance and better account for the growing economic weight of emerging economies. In 2016, for instance, BRICS countries managed to secure a reform in voting-share at the IMF, which gave them more power and greater say at the lender of last resort (BRICS post, 28 January 2016). This is of course an event of historical significance. The BRICS countries continue to push for more inclusiveness and multilaterism in international institutions. The rising powers of the 21st century wants to rebalance current power relations so that their interests are better represented in international institutions (Atli, 2018). Note that this echoes Turkey’s message to the US and other developed countries. 9 BRICS with a ‘T’: Turkey is Looking for New Friends The BRICS countries know very well that pressuring wellestablished global institutions is not enough to achieve better representation. An important action in that regard was the creation of two new development banks by the BRICS countries. In 2014, the New Development Bank (NDB, also known as the BRICS Bank) was launched with $100 billion initial capital, equally shared among founding members. Unlike the IMF and World Bank, the NDB gives equal voting rights to the all member countries. The main objective of the NDB is “to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies, as well as in developing countries” (NDB website, history, 10 September 2018). The emphasis on financing ‘other’ emerging and developing countries, such as Turkey, clearly presents a Development Bank, said at the BRICs summit in 2011 that ‘it is in the interest of all to practice lending and settlement in local [their own national] currencies’ (Wang, Li, & Ma, 2011; Wang, 2011). Recently, using local currencies instead of dollar became even more of a priority for member countries Russia and China. The US administration continues to abuse the international currency status of the dollar by sanctioning Russia and waging a trade war against China in order to gain political leverage. This accelerates the move away from dollar and has the potential of undermining dollar’s role as the main funding currency (Sachs, 2018). The Official statement of the sixth BRICS summit in 2014 clearly said “International governance structures designed within Shares of World GNP (2005 $PPP) 1997 2007 2017 1988-1997 1998-2007 2008-2017 100.0% 100.0% 100.0% 1.4% 2.8% 1.7% USA 23.0% 20.8% 18.2% 2.0% 2.0% %0,7 Europe 27.0% 23.3% 19.1% 1.8% 2.3% %0,6 Other Developed Countries 14.5% 12.5% 10.8% 2.5% 1.8% 8.0% BRICS 15.4% 21.9% 30.4% 2.1% 6.7% 5.4% Other Emerging Countries 17.7% 18.9% 18.4% 1.5% 3.2% 1.1% World Table 3: Comparative statistics of BRICS and other countries (1997-2007) potential to replace, or at least challenge, the World Bank’s role as the leading international institution for financing productive investments in developing economies. Meanwhile, China has created the Asian Infrastructure Investment Bank (AIIB). The NDB and AIIB are now the first major global financial instruments independent from the Bretton Woods system. The BRICS countries are also interested in using their own currencies to conduct trade and investments, not only among themselves, but also with other developing countries. Gradually increasing volume of trade among emerging and developing economies provides the opportunity to use the New Development (BRICS) bank as a platform for developing the role of a new international currency and new monetary instruments (Chin, 2014). China and Russia have in fact already started to conduct trade using their own currencies. This allows BRICS countries to diversify their foreign reserves and reduce the transaction costs of using the US dollar for trade (e.g. hedging costs). Chen Yuan, then chairman of the Chinese 10 Growth Rates of GNP per Capita (2005 $PPP) Source: Reddy et al. (2017) a different power configuration show increasingly evident signs of losing legitimacy and effectiveness.” While the US dollar is losing its status as a stable and reliable international currency, the BRICS initiative to generate alternative reserve assets can lessen the constraints faced by emerging and developing countries in financing trade and investment. If BRICS countries’ currencies become global, it would give enormous political and economic power to these economies while depriving the US administration of its “exorbitant privileges” (Maradiaga, Zapata, & Pujula, 2012), something Turkey is certainly interested in. In 2014, BRICS also created a rival to the IMF. The $100 billion Contingency Reserve Arrangement (CRA) was created to provide additional liquidity protection to member countries during balance of payments problems where member countries are being adversely affected by global financial pressures. Unlike the NDB, the CRA is not equally funded: China provides 40% while Brazil, India, and Russia provide 18% and South Africa 6% of the initial capital. It is known that emerging economies are particularly BRICS with a ‘T’: Turkey is Looking for New Friends vulnerable to changes in global liquidity conditions especially if they do not have effective capital controls (Biziwick,Cattaneo, & Fryer, 2015). This of course deeply resonates with Turkey, and other developing countries, which have gone through currency issues following the tightening of monetary policy by the Fed. The CRA is meant to be a global financial safety net alternative to the existing international monetary and financial arrangements such as IMF, and intended to reduce dependence on the US and the dollar (Guzman, 2018). Lastly, BRICS has also been planning to launch its own international payment system for some time. As it currently stands, the majority of international interbank messages Other Emerging Countries 18% USA 23% News, 17 June 2015). China has already developed its own alternative payment system called CIPS (The Cross-Border Inter-Bank Payments System). This is an even further backup network for China to send and receive information in a reliable way. SWIFT’s global payment system provides the US with data on international economic activity happening in the world at any time. This gives unprecedented control over global economic activity and makes it much easier for the US to aim sanctions on targeted financial entities whether it be sanctioned countries (e.g. Russia, Cuba, Iran, Sudan…) or corporations doing business with them. The US administration has not refrained from using this power to Other Emerging Countries 19% Other Developed Countries Other Developed Countries 15% 11% USA 19% Europe 20% Europe BRICS 28% BRICS 31% 16% 1997 Figure: Shares of World GNP (2005 $PPP) use the Belgium-based SWIFT network (the Society for Worldwide Interbank Financial Telecommunication) to send and receive information about financial transactions. At the 2015 BRICS summit, Russia initiated consultations for a payment system that would be an alternative to the SWIFT system, engendered by concerns that SWIFT may become a tool for sanctioning Russia over the Ukraine crisis. Russian Deputy Foreign Minister Sergey Ryabkov said, “a transnational multilateral payment system that would provide greater independence, would create a definite guarantee for countries on risks associated with arbitrary decisions made by countries that have current payment systems under their jurisdiction” (RT Business 2017 Source: Reddy et al. (2017) fiercely persecute international banks and companies in the past (Das, 2018). In 2012, for example, SWIFT cut off Iranian banks that were the subject of western sanctions over Iran’s nuclear programme. SWIFT also allows for easy detection of banks and companies doing business with sanctioned countries. In 2014, the US imposed a record fine of $9 billion on French bank BNP Paribas in fines for violating sanctions against Iran, Cuba, and Sudan. In addition, regulators banned BNP for a year from conducting certain US dollar transactions (Reuters Business News, 1 July 2014). Other international banks including HSBC, Standard Chartered Plc, and Commerzbank AG have all paid large fines for similar breaches. 11 BRICS with a ‘T’: Turkey is Looking for New Friends What BRICS can offer to Turkey? Turkey can benefit from potential membership to the reason for this is that, as is characteristic of most middle- grouping in a number of ways. First, BRICS provides an income countries, the Turkish economy continues to alternative channel of financing (Yang and Mwase, 2012). depend on low paying labour-intensive industries. Turkey Considering the problems Turkey is facing, it is apparent needs to transition into more sophisticated and high value- how important it is for Turkey to have alternative credit added production so the gap between country’s imports channels. In times of crisis, countries need to secure the and exports can close. This requires the transfer of better continuation of capital inflow and foreign direct investment technologies and know-how along with a focus on the right in order to reposition themselves back on the trajectory of sectors. Russia has abundant expertise in military industry, sustainable growth. As the IMF has been ruled out -at least and higher education in science and technology, while implicitly- as an option by the Turkish government, when China and India have taken the lead in R&D and software the next shock comes access to development loans from engineering in the developing world. Turkey hopes to the New Development Bank (NDB) and liquidity protection gain from the technology cooperation with BRICS so that from the Contingency Reserve Arrangement (CRA) may it can accomplish its transformation to a higher stage of play critical role for Turkey. This would not only insure economic development without exceedingly depending Turkey against short run fluctuations, but also increase the on Western economies (Sengupta, 2018). confidence of the private investors in the Turkish financial markets in general. The Turkish government seems to have specifically focused on two fields in order to close the gap between exports and Having alternatives brings about not only more space in imports: the defence industry and energy. Turkey currently investment financing but also political leverage against the produces 65% of its military requirement compared to only US in times of diplomatic crisis (Moghadam, 2011). After all, 5% two decades ago. Turkey’s cooperation with Russia the BRICS institutions (NDB, AIIB, or CDA) were all intended in defence technologies is actually one of the reasons (or to create alternatives to existing multilateral lending outcomes) of Turkey’s diplomatic problems with the US. institutions, such as IMF and World Bank, which are seen as As a NATO ally, Turkey’s arsenal has been traditionally biased in favour of the Western world. This is exactly what composed of US made weapons and missile technologies. Turkey is looking for. The US administration’s recent threat However, in accordance with its ambitious plans to improve of sanctions once more made it apparent that Turkey needs its domestic capability in military production and the share other options to by-pass the Bretton-Woods institutions’ of domestic production in its military requirements, Turkey enforcement of conditions and the IMF’s hegemony over has become more interested in technology transfers rather matters of emergency assistance. BRICS may be that option than the mere purchase of weapons. As the US has been when Turkey is seeking emergency loans. This erodes the unwilling to cede as much intellectual property rights soft power in geopolitics the US exerts through the IMF. as Turkey seeks, Russia and China have become more attractive options for Turkey to cooperate with. That’s also Finding more credit may provide Turkey with more space why Turkey settled on purchasing the S-400 from Russia in the short run but does not really solve its problems in instead of US made Patriots after the US refused to provide the long run. In order to overcome its well-known and more know-how about the Patriot missile technology very problematic current account deficit, Turkey needs (Synder, 2018). to restructure its economy in order to generate a trade surplus. Turkey’s exports have gradually increased in Half of Turkey’s current account deficit is due to energy recent decades but this has not been enough as the country imports, which has doubled in last two decades. Lacking continues to import more than it exports. An important its own energy resources, Turkey paid $37.19 billion for its 12 BRICS with a ‘T’: Turkey is Looking for New Friends energy imports in 2017 (TurkStat, 2018). Fast economic enable Turkey to diversify its export destinations. Turkey’s growth requires more energy resources, which widens the trade with the BRICS countries reached $60.7 billion by 2017 country’s current account deficit. This brings us to other ($7.3 billion in exports and $53.4 billion in imports). Turkey’s ways Turkey may cooperate with the BRICS countries. imports from BRICS members have been consistently Russia is currently building Turkey’s first ever nuclear plant rising, and at the moment, the current account deficit with while China has undertaken the establishment of the third. China is the highest (see table 1; TurkStat, 2018). A potential At the 10th BRICS summit in Johannesburg, Erdogan said BRICS membership may enable Turkey to export more to there is no reason whatsoever for not working with the these markets and narrow the trade deficit. Chinese for a fourth nuclear plant (Atli, 2018). In renewable energy too, BRICS provides great opportunities. A major However, it should be noted that given the current structure focus of New Development Bank is renewable energy of the Turkish economy, BRICS markets have little to offer loans to developing countries. In particular, the NDB for Turkey’s exports. Large populations also mean more has earmarked 60% of its lending to renewable energy workers and cheaper labour, which is why BRICS countries investments. This is another area, especially solar energy, mostly specialize in labour intensive products and have where Turkey has made some aggressive investment in considerable competitive advantage in such sectors. recent years. So, there appears another opportunity for Similarly, what still defines the Turkish economy is labour- Turkey to cooperate with the BRICS countries. intensive production. This is unlikely to pay off for Turkey unless the country accomplishes its target to produce more Furthermore, the NDB aims to provide significant credit capital intensive goods with more value added. Then, better for other infrastructure needs of developing countries trade relation which involves buying low value-added (e.g. electricity, water, transport, and telecommunications). primary good and selling more sophisticated technological After two decades of huge investments, Turkey does not products may be a well-paying investment for Turkey. have an infrastructure deficit, but it still has immense capacity in construction that is looking for new investment opportunities abroad, as the domestic market is fast approaching to the exhaustion point. While developing countries usually has huge infrastructure gaps, existing development banks are able to finance only 40% of the needed funds (Desai & Vreeland, 2014). Following NDB’s efforts to fill the investment gap, demand for infrastructure is expected to rise sharply in low income countries (McKinley, 2018). Hence, the NDB’s loans to fund the infrastructure investments gap in developing countries can give Turkey a channel to utilize its capacity in construction sector. However, Turkish companies will need to compete Chinese giants first. On the demand side, BRICS offers other opportunities for Turkey. The large populations of the BRICS countries, despite their low purchasing power and high savings rate, mean more consumers and a potentially large demand base. Consumption in the BRICS is high and increasing at a faster rate than it is in the developed economies where the final demand has been stagnant since the 2008 global financial crisis (Yamakawa Ahmed, & Kelston, 2009). Therefore, potential trade cooperation with BRICS economies can Turkey’s imports from BRICS members have been consistently rising, and at the moment, the current account deficit with China is the highest. A potential BRICS membership may enable Turkey to export more to these markets and narrow the trade deficit. provide Turkish companies with a much larger market 13 BRICS with a ‘T’: Turkey is Looking for New Friends Conclusion: Is BRICS a viable alternative to the ‘West’? A potential BRICS membership offers a lot of opportunities to Turkey. First, diversifying its trade destinations, especially towards countries with large populations and hence market sizes, would give Turkey a much bigger space for export-driven growth. Second, BRICS provides an alternative channel of finance for countries like Turkey. This has proven to be important during the current tensions that Turkey is experiencing with the West, particularly with the United States. Third, Turkey may benefit from technological cooperation to advance its industrial production and improve its level of technological sophistication. Energy and military technologies are two potential fields of collaboration, which hold significant potential for Turkey’s efforts to transform its economy to a higher stage of development. Perhaps even more importantly, BRICS can be supportive of Turkey’s vision for a new global order. What Turkey wants is to position itself as an independent global actor which does not excessively depend on any axis of power, while also avoiding isolation from global trade and finance. Turkey has come to a point where it has to make a choice between protecting its rights and interests as an independent sovereign nation or abiding by US hegemony in its region and the world. The current state of the world economic order represented in the Bretton Woods institutions and the supremacy of dollar in the world financial system gives the US huge potency to coerce and compel other nations to align their economic and geopolitical policies in line with the American interests. A more equitable and participatory system such as BRICS may be liberating for Turkey in many ways and could give Turkey more freedom in its economic and political decision-making. Ironically, establishing and maintaining better ties with BRICS may even help Turkey to rebalance the power relations with developed countries and ultimately resolve the ongoing conflict with the US. The rising tensions between Russia and the US over Syria and Ukraine summons the memory of the Cold War, when the two superpowers fought proxy conflicts for global dominance. Today, the trade war with the Chinese adds another dimension to US’s confrontation with other major powers. Under these circumstances, a country as geopolitically critical as Turkey becomes even more important for the West. If Turkey seriously seeks to shift the centre of gravity away from the West and towards Russia and China, the 14 West may pay a heavy price for losing an important ally especially in the current state of affairs in global politics. This is certainly not a risk which Western countries can look over. Therefore, the Turkish government’s initiatives to find new friends in Eurasia, such as a potential BRICS membership, provides a constant reminder of Turkey’s geopolitical importance to the Western countries and ultimately strengthens Turkey’s hand. However, it should be clearly stated that a total departure from the Western norms and institutions is not a feasible option for Turkey, at least in the short run. BRICS economies have a certain weight in the global economy which makes them impossible to ignore in any global or regional discussion. However, the overwhelming majority of global wealth is still concentrated in the Western hemisphere where most of the international trade takes place and finance capital is controlled and directed. Moreover, industrialized countries and especially the US still drive the productivity growth through innovation and technological advancements. Turkey, as a country with no considerable natural resources unlike Russia and Brazil and no vast population unlike India and China, depends on productivity enhancing innovations and technologies for providing its citizens with better standards of living and improving its economic power as a nation. Turkey should continue to benefit from advanced economies of the West in finance, trade, and innovation. There is certainly great value for Turkey in joining BRICS. The Turkish economy stands to benefit from a larger export market, alternative channels of finance, and technological cooperation to advance its industrial sophistication. However, BRICS is no substitute for Turkey’s relations with the EU and the USA because these countries are still the source of innovation and productivity growth in the global economy through R&D. Detachment of Turkey from developed markets would lead to deterioration of competitiveness and innovative capacity of Turkish companies as well as losing a large market for Turkey’s labour intensive products. Despite frequent ups and downs, Turkey still maintains strong and institutionalized relations with the West. Turkey’s link with the BRICS should not be about replacing its ties with the West but further strengthening them by improving Turkey’s power and importance in the global governance via alternative alliances. BRICS with a ‘T’: Turkey is Looking for New Friends References Armijo, L. E., & Roberts, C. (2014). The emerging powers and global governance: why the BRICS matter. Handbook of emerging economies, 503-520. Atli, A. (2018). ‘Explaining Turkey’s interest in BRICS’. 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