March 12, 2001

The Honorable George W. Bush
President
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

Re: Turkey's Financial Crisis

I write regarding the present financial crisis in Turkey with suggestions as to the U.S. and IMF responses to the situation and factors that should be taken into account in determining what is in the best interests of the U.S.

The Turkish financial crisis has implications for overall U.S. relations with Turkey, Greece and Cyprus. In order to best serve U.S. interests in the region we must carefully analyze the reasons behind Turkey's endemic financial instability.

Turkey has had several financial crises over the past decades, yet the rescue efforts of the U.S. and the IMF have failed to stabilize the Turkish economy. The reason that efforts have been unsuccessful is the failure to identify and address the key factor in Turkey's financial crises: the Turkish military, which controls foreign and domestic policy under the Turkish constitution. The Turkish military's political control is augmented and supported by (1) its ownership of substantial financial assets, and (2) its control of its own budget -- amounting to one-third of state revenues.

The military's constitutional control of domestic and foreign policy and its substantial economic base make it the prime beneficiary of any assistance from the IMF, the U.S. and other organizations. Yet it is the military which is the main cause of Turkey's economic, financial and political problems.

Former French Ambassador to Turkey, Eric Rouleau, in an exceptional article in Foreign Affairs entitled Turkey's Dream of Democracy,(November/December 2000, pages 100-114, copy enclosed), which should be required reading for anyone dealing with U.S. relations with Turkey, describes the Turkish military's control over the Turkish state. He writes:

"A rigid, nationalist ideology and a powerful, activist officer corps: this is what the EU is up against in trying to persuade Turkey to totally revamp a constitution that institutionalizes the army's dominant power and blocks any move toward democratization." (p. 105)

"Even EU membership, the ultimate incentive, may not be enough to convince the Turkish military to relinquish its hold on the jugular of the modern Turkish State." (p. 102)

Mr. Rouleau describes Turkey's National Security Council (NSC), established by Article 118 of the constitution, as:

"a kind of shadow government through which the pashas [generals] can impose their will on parliament and the government. The NSC is made up of six high-ranking military officers and five civilians. Once a month, decked out in full dress uniform, the chief of staff and the heads of the army, navy, air force, and national police, along with a sixth general acting as the council's general secretary, meet with Turkey's president, prime minister, and the ministers of defense, foreign affairs, and the interior. The council is empowered to examine all the affairs of state, whether relating to domestic or to foreign policy. Its deliberations are never made public, and even when decisions are announced, they are presented as 'recommendations' to the government." (pp. 105-106)

Mr. Rouleau points out that:

"the constitution gives the chief of staff more power than the defense minister and all other members of government. Although the chief of staff comes after the prime minister in the order of protocol, in fact he has more authority in the most sensitive areas of the state. The head of the military is, in effect, responsible for the country's internal and external security, including the intelligence agencies. It is he who decides on nominations and promotions within the armed forces and who formulates defense policy." (p. 106)

Mr. Rouleau describes "Mercantile Militarism" under which the general's political power rests "firmly on considerable economic and financial means." He writes:

"In Turkey, it is the chief of staff, not the prime minister, cabinet, or parliament, who oversees arms production and procurement (which do not figure in the state budget). It is also the general staff that draws up the annual budget of the armed forces (even though it absorbs more than a third of state revenues). Given the amounts involved  for example, the modernization of the armed forces will cost some $70 billion over the next 15 years  such budgetary control affords the military huge power. Time- honored tradition has it that parliament approves the military budget as is, without debate and by acclamation, before presenting it to the chief of staff along with its congratulations and good wishes." (pp. 108-109)

Then there are the military-controlled industries. In a recent study, Taha Parla, a professor at Bosphorus University, throws light on the army's most important holdings. The main one, OYAK, is a vast conglomerate comprising some 30 enterprises in sectors as diverse as automobile manufacturing, cement works, food processing, pesticides, petroleum, tourism, insurance, banking, real estate, supermarkets, and high technology. These enterprises employ more than 30,000 people. One of the most important companies of the group is OYAK-Renault, which has an annual production capacity of 160,000 French-designed vehicles.

OYAK, among the three or four largest holding companies in Turkey, is unquestionably one of the most profitable. And with good reason: the group is exempt from duties and taxes. Big business puts up with what could be considered unfair competition because OYAK, shrewdly, has integrated the business community into its activities: OYAK's partners include the powerful holding companies of the Koc and Sabanci families - the 'emperors' of Turkey's industry and trade  as well the private banking baron Kazim Taskent. For their part, big Turkish corporations co-opt retired senior officers to serve on their boards, not only as compensation for services rendered but to maintain links with the current army brass.

OYAK's sister firm, TSKGV (Foundation for the Strengthening of the Turkish Armed Forces), is devoted exclusively to arms production. Benefiting from the same privileges as OYAK, TSKGV comprises some 30 companies and generates tens of thousands of jobs. More than 80 percent of its revenues go into a reserve fund estimated to reach tens of billions of dollars." (pp. 109-110)

These military-owned companies are highly profitable because they are exempt from duties and taxes, a unique form of official corruption. Corruption is endemic, including the smuggling of oil from Iraq with substantial revenue for military commanders, and complicity in drug trafficking. The recent dispute between Prime Minister Bulent Ecevit and President Ahmet Necdet Sezer stemmed from Prime Minster Ecevit's foot-dragging on corruption investigations.

Shoring up the Turkish economy without reforming the military's "hold on the jugular of the modern Turkish state" is self-defeating and only ensures that American interests will not be served. The IMF, U.S. and other outside assistance to Turkey should be conditioned on reform of the military's control of the Turkish state and its military-industrial complex. Examples of conditions which have an economic factor and which the IMF should require for any continued aid under its December decision, include:

• putting the military budget "which absorbs more than a third of state revenues" under civilian control;
• a halt in the ruinous and unnecessary arms buildup, an estimated $70 billion over the next 15 years. Turkey's arms buildup forces Greece into an arms race which is harmful to both nations;
• a halt in the negotiations to purchase 145 Cobra attack helicopters from Bell Textron for $4.1 billion;
• the removal of the military from control/ownership of (1) arms production and procurement companies through TSKGV (Foundation for the strengthening of the Turkish Armed Forces), and (2) OYAK, "a vast conglomerate, comprising some 30 enterprises" and any other companies operating in the private sector. These companies should be sold and the proceeds used to reduce Turkey's external debt, including the billions of dollars owed to the U.S;
• the use in the current financial crisis of the "tens of billions of dollars" in the TSKGV "reserve fund;" and
• A halt of the previous administration's efforts to promote the proposed commercially uneconomic Baku-Ceyhan pipeline to bring oil from the Caspian Sea Basin to the West. It would require substantial unrecoupable subsidies from the U.S. CATO research fellow Stanley Kober, in foreign policy briefing paper No.63, "Washington's Misguided Support for the Baku-Ceyhan Oil Pipeline"(October 31, 2000), discusses the economic problems and also sets forth the political problem: "U.S.-Russia tensions...are being exacerbated over the pipeline issue...Thus, the pipeline, far from promoting U.S. interests in the region, undermines them. The U.S. government should heed its own rhetoric and let the market determine the pipeline route."

Fundamental to any lasting reform is the revision of the Turkish constitution to place the military under civilian control. There is no bar to the IMF making an economic judgment that financial assistance to Turkey, without political reforms, is self-defeating -- that it would primarily help the generals and would not go to the root of the problem.

The present financial crisis gives the U.S., the IMF, the EU and NATO an important opportunity to require Turkey to put the military in the barracks and to establish civilian control over the elitist and racist Turkish military.

Turkey is, and has been, under the control of a self-perpetuating military junta composed of the 6 military members of Turkey's NSC and headed by the Chief of Staff, General Huseyin Kivrikoglu. The chief of staff "decides on nominations and promotions within the armed forces" and names his own successor.

A genuine democracy in Turkey is in the interests of the U.S., Turkey's neighbors and, above all, the Turkish people, including the 20% Kurdish minority. We should be giving full support to the democratic forces in Turkey who are contending with the self-perpetuating military junta.

In a perceptive article in the January 2001 issue of "Defense & Foreign Affairs Strategic Policy," editor Gregory R. Copley cites the Turkish General Staff as the main obstacle to governmental reforms needed for accession to the EU and states that "it is time for Washington to support the real advocates of change in Turkey." (p.9)

Mr. Brett D. Schaefer, fellow at the Heritage Foundation, states in a February 28, 2001 article on the Turkish economic crisis that: "The Administration must not...perpetuate the Clinton Administration's disastrous policy of insuring developing countries and international investors against their own imprudent actions."

The IMF, with the full and open support of the U.S., should make its conditions known to the Turkish government and military leaders and then sit tight. No further aid under the IMF - Turkey December agreement, the seventeenth agreement since 1961, should be made until real and identifiable reforms are institutionalized. The financial crisis presents an exceptional and unique opportunity to get fundamental change in Turkey to everyone's benefit except the Turkish generals and admirals growing rich on the backs of the Turkish people. Let's not squander this opportunity.

Prime Minister Bulent Ecevit is the main political puppet of the military. In 1974 it was then Prime Minister Ecevit who announced the invasion of Cyprus ordered by the Turkish military. Today Ecevit continues to do the bidding of the military. We have the spectacle of Ecevit asking for an additional $25 billion in loans, a Turkish negotiating technique, which is also designed to divert attention from the real issue, the Turkish military and needed government reforms to bring genuine democracy to Turkey. The IMF should demand that Ecevit and the military use the "tens of billions of dollars" from the military's "reserve fund" to assist in the current financial crisis.

The halt in U.S. and other nations' arms sales to Turkey is particularly important for the economy of Turkey and it would send an important message to Turkey. Money Turkey spends on arms should go to a host of domestic needs. There is no real threat to Turkey in the region and those who contend otherwise have other motives. Turkey is the cause of tensions in the region, not the solution.

There is also an overriding moral issue involved in arms sales to Turkey. The arms Turkey buys have been used by the Turkish military in its "war of terror" against its Kurdish minority. From 1984 to 1998 the Turkish military has killed some 35,000 innocent Kurdish civilians in military campaigns, burned over 2,500 villages in its scorched-earth campaign resulting in over 2,500,000 Kurdish refugees, and has had over 17,500 Kurds assassinated in extrajudicial killings.

Ambassador Rouleau details the war of terror by the Turkish military against its Kurdish minority as follows:

"Over the years, individuals who advocate conciliation, including parliamentarians of Kurdish origin, have been imprisoned by the hundreds. Parties formed by moderate Kurds have been outlawed one after another. Torture has become widespread, and disappearances and assassinations of lawyers, journalists, politicians, and business executives suspected of sympathizing with the rebels have multiplied. According to the Turkish Ministry of Justice, in addition to the 35,000 people killed in military campaigns, 17,500 were assassinated between 1984, when the conflict began, and 1998. An additional 1,000 people were reportedly assassinated in the first nine months of 1999. According to the Turkish press, the authors of these crimes, none of whom have been arrested, belong to groups of mercenaries working either directly or indirectly for the security agencies." (pp. 111-112)

The State Department Human Rights Country Report for 2000 devotes 52 pages to Turkey's human rights abuses.

The sale of arms by the Clinton administration  $6 billion between 1993-2000 -- has made the U.S. a direct accessory to Turkey's crimes against the Kurds. Israel's military cooperation with Turkey and Israel's defense contractors' deals with the Turkish military, at the U.S. initiative and encouragement, also makes Israel an accessory to Turkey's crimes.

Mr. President, in response to a question on Iraq in your press conference on February 22, you stated "We're reviewing all policy in all regions of the world." I assume that includes the Clinton adminstration's policy towards Turkey, which is in urgent need of a critical review. In addition to the present economic and financial review caused by the current crisis, an overall review should include political reform as discussed above and should consider the following questions:

• an assessment to determine whether the Clinton policy impeded Turkey's democratization;
• an assessment of the thesis of the Clinton administration that Turkey's strategic value to the U.S. is such that the U.S. should forego its principles and values and the rule of law regarding Turkey actions;
• an assessment of Turkey's reliability as an ally;
• an assessment of Turkey's strategic value;
• a reassessment of the Clinton policy of appeasing Turkey regarding the Cyprus and Aegean issues; and
• an assessment of the impact on U.S.-Russia relations of the Clinton administration's Turkish policy.

As Turkey's closest ally, the U.S. must be prepared to tell Ankara that the military must return to the barracks and allow meaningful reform to proceed. During the December bank scandal in Turkey, the IMF balked at the idea of bailing out a nation whose record of corruption and default was so notorious. After pressure from the Clinton administration, the IMF grudgingly agreed to the bailout -- the prime beneficiary of which is the military. A mere two months later, Turkey has again erupted in financial crisis.

The EU put conditions on Turkey as a candidate for accession, which requires Ankara to make genuine democratic reforms. The U.S. and the IMF should do the same.

I am sending copies of this letter to Vice President Dick Cheney,Secretary of State Colin L. Powell, Secretary of the Treasury Paul O'Neill, Secretary of Defense Don Rumsfeld, your Special Assistant for National Security Affairs Condoleezza Rice and the Congress.

Respectfully,

Eugene T. Rossides
general Counsel