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Financial Times: I’d like to start, if I may, with the accession negotiations and where they’ve got to. I know that [European Commission President José Manuel] Barroso and [EU enlargement commissioner Olli] Rehn were in Ankara last week, so I’ve been very interested to find out what they were saying and what you said to them, and where you think this stands.

Ali Babacan: Since the end of 2004 Turkey is not just a candidate country for the EU but we are a negotiating country and accession country. And, in order to get that status, in 2003 and 2004 we made many reforms to meet the Copenhagen criteria sufficiently. That was only possible when we did the amount of reforms which were necessary to exceed the critical threshold, so to say which we did. It was October 2005 when we had our negotiations framework document accepted by the EU member states and Turkey so that our negotiations formerly started. Now we are in a process, this is a process which will last many years which will continue until Turkey becomes a full member of the European Union.

After the end of 2004, after the date which I said that we have fulfilled the Copenhagen criteria sufficiently, it was time for us to deepen our reforms, in a way, to refine our reforms in the political area. When I talk about political reforms this is about democratisation, this is about practices of fundamental rights, freedoms, this is about rule of law, and Turkey has gone through a very important transformation process in all of these areas. A lot has been done. A lot remains to be done also.

This is one path of reforms, I should say, which are of a political nature, but then, with the negotiations starting, we also opened a new path in a way of reforms…in order to adopt the EU acquis. Turkey has declared a programme which will last until 2013. We declared this last year in April, actually. This involves 188 laws and 576 secondary laws; secondary laws meaning things which do not really have to go to Parliament that the Council of Ministers could approve or a Ministry could declare a communiqué, and so forth. Out of this, so far, we have completed 20 laws out of 188, and out of 576, 98 secondary legislations have been completed. But, as I said, this is a calendar between 2007 to 2013 which we had declared last April. In a way, although we don’t have a set date for accession, we declared our own calendar and in a way implicitly announced that by year 2013 we will be able to say, we are ready and then probably wait for the European Union to be ready for Turkey. The fact that especially after the situation in the Netherlands and France where the EU Constitutional Treaty was rejected, that signalled a very important mood and new crime [?] in a way in the European Union where things are probably not going as well as people were expecting them to. Then recently, actually, we are happy to see the EU coming over with this difficulty by having the Lisbon Treaty in place and now having all the member states, one by one, going through their own investigation processes. We are happy to observe that because the more self-confidence the EU has, the more capable the EU is dealing with its own domestic issues, the more outward looking, the more, in a way, the stronger stance on the side of the EU we are going to be seeing, and then probably less worries about enlargement and less worries about Turkey’s accession process as well.

So, referring to your original question, where we are, vis-à-vis negotiations, as I said, we have a political reform path, we have an [unclear] reform path which is, as I said, continued and will continue until 2013, and now we have another path, actually, which is the legal, or formal pace of negotiations which means things about opening the chapters or closing the chapters. For many new member states, when you look at the Eastern European countries or Romania or Bulgaria, the new members, as you say, these were evaluated purely on technical factors, but for Turkey we have found out that the opening of the chapters and closing of the chapters could be influenced by reasons which are of a very political nature. For example, the Cyprus issue. Now we cannot open eight chapters, we cannot close any of the chapters until the Cyprus issue is resolved…Or, for example, the French Government defined some five chapters which they think will take Turkey to full membership and they say that since these five chapters are taking Turkey to full membership we should not maybe discuss these yet, let’s deal with the other 30 [other] chapters and let’s postpone these and see what’s going to happen. When we look at those five chapters, not only us but many member states actually have difficulty understanding why those five. So, the negotiation framework document does indicate any kind of approach like that, but that’s the reality that we are facing, so we need to have the consensus of all the 27 member states to open a chapter or to close a chapter.

That’s why last year we announced this programme which I mentioned, the programme until 2013, so that we would put a distance between our actual reform process versus the formal opening and closing of the chapters. So far we have opened six chapters for negotiations and we closed one. We were able to close one because it was before the Cyprus issue came up, and several more chapters are expected to be opened during the Slovenian presidency which is the first half of this year.

FT: How many chapters are there in all? I can’t remember, I’m afraid.

AB: It is a total of 35 chapters, but two of them are…not to be negotiated until after all the other 33 are handled. So, there are a total of 35. It was less for the previous new members. And, opening of the chapter takes 15 minutes. I know it because I have done it six times. It’s a like a wedding ceremony. Turkey sits, all the EU members sit, and we read pre-written texts and the EU presidency reads pre-written texts, and then they ask all the members, is it okay… Closing takes another 15 minutes. So, we thought, just because those ceremonies will not take place for some chapters we cannot wait but we have to move forward in all the chapters because when we studied the documents, we have found out that most of the things that we are going to be doing will help us anyway. We are not going to lose anything but we are going to gain a lot because it will help the quality of life in Turkey. It will help raise our standards, our norms, and it will help our environmental issues, it will help our food safety and health and transportation system, energy, in many, many aspects, so that’s why we have every interest to proceed with the negotiations.

During the last one to one and half years there have been a lot of talks about whether Turkey slowing down reforms, is Turkey taking the EU related reforms less seriously, and so forth. The most important reason for that was probably the infamous Article 301 of our Penal Code. Maybe you heard it already. I will tell you before you ask the question. That Article is actually an Article of our brand new Penal Code, so it is not one of those laws which have been antiquated and which have been there for decades. It is an Article of our new Penal Code which we introduced within our EU related reforms. Look at the implementation of that Article. We saw that there are lots of things happening which are not actually in the spirit of our understanding of freedoms in Turkey, especially freedom of expression. There has been a lot of debate in Turkey, many, many debates, and that Article has become such an important brand, so to say, that when that Penal Code, Article 301, is not changed then it means the reforms have stalled in Turkey, but if it is changed then the reforms are moving on in Turkey, so that has been such a perception building up. The European Commission was very eager, the capitals were very eager for that and it became an emblematic, in a way, piece of legislation. Actually, it was last week when we sent the draft to our Parliament and this week the Commission on Justice in the Parliament will handle it, and very likely next week or so we could be able to finish the amending process of that Article. So, of course, everything stopped during the last one and a half years, no, because the figures that I have given to you, the 20 laws versus 98 secondary legislation, these are of very technical nature so that doesn’t really catch the attention of people at large. If you, for example, change the organisational structure of a Ministry, let’s say, or put a new unit to the Ministry to make it more in line with the institutional standards of the EU, this does not really catch the attention of people, but we have been doing many such changes or introducing new standards in different areas, and so forth. So, the EU process is continuing. Things are on track.

Most of the difficulties, as I said, are of a political nature, especially, coming from a couple of member states rather than anything else, and especially when some leaders for the EU member states make speeches or rhetoric about the fact that Turkey will not will not, or cannot, become a member of EU, that gets huge press coverage in Turkey, although countries like the UK, I can give many other examples, are very strongly supporting our process…The negative messages coming from some member states are influencing public opinion [within Turkey].

FT: Do you feel that the European Union as a whole is negotiating in good faith?

AB: When we talk about the EU, of course, it is a very, very multi-faceted structure. I cannot categorically say the EU is like this, the EU is like that, and so forth. But I can talk about the EU Commission, for example, which is working very professionally, helping us in many aspects in terms of the technical progress, the information sharing and technical toleration is very strong with the European Commission. With the European Parliament there is a majority of the Parliament who are in favour of Turkey’s accession, and when you look at the capitals, actually, then we see maybe a couple of countries, not too many of them, who from time to time we hear negative comments from the leaders. I cannot say categorically the EU is fair or not fair, but some of the individual member states, actually, have given us a hard time on the way to accession. Probably that’s a better way of putting it.

FT: There is another way of looking at this. Going back earlier to what we said, yes, in 2003/2004, several major packages of reforms in effect of the constitutional revolution, the opening of accession negotiations which are not, as you know, a negotiation, but it’s the transcription. There is nothing to negotiate. It’s a process, a lengthy process, but it’s a transcription of the acquis [communautaire] gradually absorbed into [unclear], whereas on the really terribly important political issues, and in particular, as you mentioned, 301 which I would’ve thought has done the most damage internationally to Turkey’s reputation. I realise how it works. I know how it works, but the perception then is that a re-elected government with a massive majority, absolutely massive majority, an increase of 12 per cent, having overcome the constitutional crisis, has an absolutely unique platform in which to press ahead with that constitutional revolution, and what happened instead was you have a Prime Minister who apparently lost interest, raised far up the agenda issues like the head scarf, or alternatively went round the country saying, women should have three children and so on, and leaving issues like 301 to fester. That is the perception. One might add that there is now a second political aspect which could underpin this already strong platform which is the possibility of some movement, not immediately, but on Cyprus as a result of the Cypriot election. What is being made of that, and, sorry, a final aspect of this perception, which is widespread inside Turkey, it’s not really international at all, is that the departure, the elevation, of Foreign Minister Abdullah Gül, has basically decoupled the locomotive, that the pro-European momentum has run out of steam since that departure. So, those are all the things, it seems to me, that you have to address regarding this perception. Of course, we all recognise the difficulties that are created in certain capitals. I think Turkey has almost universal sympathy on the issue of Cyprus, going back to the Annan referendum, and so on, of course.

AB: I think it’s important to also recognise the fact that the reforms that we did in 2003 and 2004 were good enough just to pass that critical threshold, so it is not that we have done everything or we have done a lot. It’s not like that. This means we still have a huge agenda of reforms in front of us. But then in 2007...

FT: And implementation.

AB: And implementation, because passing the laws through Parliament is something but also implementation is something which we have to be very careful about because, in a way, changing the laws or amending the constitution is like changing the rules of the game in the middle of a game where we have the same players on the field. We have the same police force. We have the same prosecutors. We have the same judges. And, in order to actually implement those new laws we also have to go through this mental transition. It is also a new way of thinking that people have to adapt themselves to, and it doesn’t happen overnight. It does need an adjustment process. And, in my view, that is actually at the core of the Article 301 problem that we have, that we have faced, because very similar Articles to exist in the Penal Code of some member states, but how they’re interpreted, how they’re implemented in those countries, is totally different from what’s going on in Turkey.

FT: Wouldn’t it be simpler just to repeal it [301]? Don’t you have the power to do so?

AB: The thing is it is quite a sensitive issue. It’s about insulting the Turkish nation. It’s about insulting Turkish institutions and so forth. It is not that easy to completely get rid of it, so what we are doing is linking the necessary amendments so that there is going to be a penalty only if, only if, there is a very open and serious insult, an insult does have ramifications in every country, and freedoms do not lead people to make an open insult to others, and so forth. I think it’s at the core of that debate – freedoms versus what are the limits and are we going to let insult as a part of the new aspect of freedoms, and so on. There has already been a lot of debate about this. Actually, the EU also does not really ask for totally taking it out of the Penal Code…but they know that many member states do have similar Articles. But in a way... [overtalking]

FT: Given the politics in history of Turkey which you know much, much better than I, as long as this law exists, it is going to be used and it is going to create problems. I understand there’s a different history here from most other places.

AB: The thing is if we cannot actually make it possible for people to go through that mental transition, then I’m sure that they can find dozens of other Articles and different laws to give a hard time on people. So, this is also a signalling, I think, the signalling effect of what we are going to be doing is much more important than the actual wording of the Article, and so forth. So, the changing of that Article is a very strong signal to the judiciary that Parliament is not happy with how this Article is being implemented. In a way, the will of the people is not in line with what is being done…Of course, we will look at implementation. It doesn’t mean, that’s it, we are not going to touch anything again. It doesn’t mean that. Of course, we are going to monitor the implementation and do the necessary amendments if necessary.

But coming back to the original question, actually, I think it’s important to realise that especially the year 2007 was a relatively difficult year for us because it was actually 17th April when we announced that programme of until 2013, and then it was 27th April when a statement came from Turkish Armed Forces – I’m sure you remember that statement and our response?

FT: We remember it very, very well.

AB: Our response as the government on 28th a very prompt and important response, saying that this is a new Turkey, and there are things which can be done and there are things which cannot done, and that was our very, very strong message. But then we had this constitutional court decision of quorum requirements, of 367 [members of parliament] so that the Parliament is able to elect the President, and all of us were not able to make our Presidential election because of that forum requirement which was introduced, although we had a former case when a President was elected and that quorum was not there because the constitution was not openly saying that. But, anyway, what we had to do to get over that crisis situation, we immediately called for an early election, and it happened just three hours after the ruling of the constitutional court. It was, like, six o’clock that evening and nine o’clock we went to early elections because we had to get over that crisis situation, and then the elections were a big success for us, not just for my Party but also for Turkish democracy I think because… we had 84 per cent participation rate… so our democracy proved to be actually more representative and more participative as a result of last year’s elections. Of course, our Parliament was not able to pass that many laws as they were expected to do. When I give the number 20, for example, in terms of the number of laws that we passed, probably that number would not be 20 but much more if we had regular operating hours and weeks and months of our Parliament last year which was not there. And then right after the elections we had our budget in the Parliament which took until December and in 2008 we already declared as the year of EU reforms, for the same reasons that you indicated because had a supposedly perfect base to move on, huge support from the Turkish nation, a single party government, so not a coalition so that we will have quarrels and so forth, and also 62 per cent seats in Parliament, and also a very reform-oriented President. I wouldn’t actually look at Abdullah Gül becoming the President as a problem about the reforms, but actually it is a huge impetus for the reforms because we had many problems vis-à-vis our reform efforts because of the Presidential vetoes [of legislation] that we having seen during the time of our former President. So, with a reform-oriented President with a President who truly believes in the merits of the EU for Turkey, I think it is a big, big plus that we have a President like him…

And then, this year seems to be having all kinds of difficulties, as you are again following. Now we have a case where our party is now on trial at the constitutional court, so it’s difficult to tell what exactly is going to happen, but it does bring, of course, as you say, it makes Turkey to become a less predictable country, definitely. But, when this case was introduced we announced that we are going to continue our reform efforts regardless, so now that we have Article 301 in the Parliament we have already passed the foundations law which was another very important piece of legislation. This has to do with how foundations operate in Turkey, especially for non-Muslim religious minorities foundations have been in the scope of this law, and we introduced very liberal and very modern ways of looking at the foundations with the law. But, ironically, this law, after we passed it about two months ago or something like that, then the opposition Party took this law to the constitutional court again and there is another case at the constitutional court, at the very same constitutional court, about the new foundations law which we have passed. So, it seems that this year really has its own difficulties, but on the other hand we have every reason to push ahead our reforms, article 301-related reforms and political reforms.

FT: And the constitutional reform issue, where is that?

AB: The constitutional reform, actually, right after the new government was founded…we immediately invited a group of lawyers to work on a draft, a new constitution which is in line with the Copenhagen criteria, in line with the Venice Commission work and so forth, and we already had a draft. Now, that draft is going through political considerations of my Party. We are working on it as the political Party. We already have a draft which has been circulated – I think people already had a lot of ideas already about it – and now we are actually about to decide what to do with the constitution. Shall we go ahead with a wide range of constitutional reforms covering all aspects, or shall we come up with a medium-sized package of amendments so that we deal with this Party closure conditions and also some other urgent issues, and then push forward that kind of medium-sized constitutional amendment package? It has a lot to do with the timing because we have only two and a half months before Parliament will go into recess. If it is a really important case of course the summer recess can be delayed. It is not mandatory that we have to go to recess at the end of June. The Parliament can always decide to continue with the work. So, we are actually just in the middle of those discussions and studies.

FT:When do you think you will decide?

AB: Very soon, I think, in a couple of weeks we have to decide because we don’t really have a long time in front of us.

FT: Isn’t it also tied up with the constitutional court deliberations? You could envisage some kind of compromise negotiation with the court so you change the constitution and the court backs off or...? It must be tied to that issue as well, right?

AB: It is difficult to estimate how long it will actually take the court to make its decision. In the previous party closure case there was a timeframe of, let’s say, six to 12 months for a decision. Theoretically it could be even earlier, but on the other hand, as I said, Turkey does need constitutional amendments anyway, regardless of this case and it was already in our agenda. Probably if the constitutional amendments were made early enough maybe we wouldn’t have this case at all on the table, so that’s also another way of looking at the issues. But also I would just like to touch a little on the head scarves issues that you have raised. I think it’s important to look into this because we look at this issue from the perspective of religious freedoms, and also from the perspective of the right of being educated, the right of getting a university education. Then you ask a person why you are wearing a head scarf - let’s say you ask a woman – and if that woman says that I’m doing it because it is a requirement of my faith, then it becomes a huge question whether a state, a government, or a school administration does have the right to ask that woman to do otherwise. Then it becomes a huge question whether a state, a government or a school administration does have a right to ask that woman to do otherwise. I think that’s at the core of the issue.

Another issue is are we actually eligible to limit, to restrict pupils from their rights to getting education at the universities just because of the way they dress because this is a matter of personal choice. It’s a matter of, especially for those who say that they’re practising it because they believe it’s a requirement of faith. Do we have the right to urge them, to push them to do otherwise? I think it’s at the core of the issue and if we are improving the practise of fundamental rights and freedoms in Turkey. And the European Union actually asks us to do so even for minorities in Turkey because we are asked and we are doing it not just because we are asked, but because we think it is the right thing to do. And if there are only let’s say 3,000 representatives of a religion in Turkey or a religious sect in Turkey and if we as the government of Turkish state should protect the rights of even the smallest minority, if you have to do it, then how about the majority and how about the rights of the religious majority in Turkey and Arab. Can we actually put restrictions over that? I think it’s at the very core of the issue.

So it was a long-standing problem for many, many years and there was going to be a time when we had to deal with this. And we couldn’t let this problem continue for ever also.

FT: I fully understand that there’s the issue of equity, access of young women to education. I fully understand there’s an issue of religious freedom. What I don’t understand is the tactics. That’s what I don’t understand. Furthermore, it’s what your party in its origins clearly placed in a secondary position going back to 2002. The list of concerns among the, I believe there was a survey of 41,000 people carried out by that party. Number one, the economy, number two, Europe, number nine, headscarves, okay. Secondly, if I’m not mistaken, this is an issue that was inserted into law by the military in the 1982 constitution. Is that not the case, in which case doesn’t it fall under constitutional reform? It’s the cart and the horse issue.

AB: The ban has been there only during the last 10 years or so. We had this February 28th process and the ban was introduced during that quasi coup time, which we experienced [in 1997]…so although we had identical constitution, during that military coup time there was a new interpretation of the constitution, of the legal framework and the ban was introduced then, which was only the last ten years or so. And before that, headscarves were never banned at the universities. So it is an issue of the last ten years. It did not exist before. I don’t know if you heard about it or not, and that’s another thing, which is listed in all the EU reports and that’s something about 20-30 students being able to get religious education at a Greek Orthodox church school. And if you make a public opinion poll and ask people, is this an issue? I don’t know if there’s going to be 9th issue or the 19th issue or the 900th issue that’s in this report. Then we talk about freedom and fundamental rights. I don’t think we can just talk about any compromise or any other way and so forth but we have to do it, if we can, as soon as possible because it is very, very basic issue. So in terms of the timing and tactics, well, in politics it’s not easy to optimise the sequence of the things because some of the things that we do are under our control in terms of timing, whereas some of the other steps just happened and then come to the agenda sometimes. It’s difficult to delay or postpone them and so forth.

FT: One charge that’s been made is that you didn’t handle the opponents of this change with sufficient sensitivity. You didn’t prepare the way to reassure women that eventually they wouldn’t be forced to wear headscarves, that you didn’t reach out to all these people who might be alienated by the change.

AB: But do you know what kind of constitutional change we made for headscarves?

FT: It doesn’t matter what you wear? You said in the constitution it doesn’t matter what you wear in terms of your right to education.

AB: No, it is not like this. The constitution amendment that we said is nobody can be restricted from his or her education rights at the universities. That’s it. We didn’t even talk about the clothing or something like that. So it was a very liberal …. Remember that we had at the constitution [unclear] any kind of dress or anything so we didn’t say headscarves are imposed or headscarves can be worn. We didn’t say that. We just talked about the freedom to get education at the universities, so … And also in Turkey, even from the Ottoman time, we do have the culture of co-existence. We do have the culture of respect for others. You walk in Istanbul in the old districts of Istanbul, you will see a synagogue and a church and a mosque next to each other. And how come this case could be presented as something dividing the society or polarising the pupil and so forth so I think … I’m not saying this for headscarf issue or for anything like this, but I think at the core of this problem is now a huge shift of power in Turkey from certain circles to the people of the country. Turkey used to be a closed country. And we have to admit that. Turkey was a country where we had custom barriers, where we had only one black and white TV channel in 1070s. It was 1985 or so where we had the very first colour TV. We had still only one channel. Now we have more than 400 TV channels, 1,100 radio channels, Internet access in almost all the primary schools. We have issued 550,000 PCs only to the primary schools during the last several years and now even seven, eight year old kids have access to the world through their computer lives in their schools, even in the villages, in the very remote places of the country. And the elections of November 2002, elections of July 2007 signalled more and more that there is a huge shift of power. Now individuals are more empowered and that is the reality. And this is an irreversible change that’s happened. A country, which is walking on the EU path, a country, which is targeting as the EU norms and standards in terms of its democracy and fundamentals of society. This is inevitable. This is going to happen. Some circles will lose their privileges and that’s the faith. That’s what’s going to happen. And now it’s a painful transformation that we’re going through and it’s not easy for many.

FT: What privileges would be lost by whom?

AB: I wish I could be more explicit in telling you.

FT: So it would be right to see this as a long running story, on the outside, what we would see is a long running story in which you are successful electorally and obvious elements in the establishment are using a series of tactics to obstruct your progress and reduce your power, in this case against the party as just another in this series?

AB: I wouldn’t call it necessarily the power of the government and the party and stuff like that. I’m talking about ordinary citizens. People are being more and more aware of what’s going on around you. People are being more and more opening their eyes and seeing their realities and they’re seeing the best in the world through the internet, through the hundreds of TV channels and so forth and they have more and more the capability of judgement on their own, of what kind of a country they want for future. And also this is not only about Turkey. This is a process, which is followed very closely by countries in North Africa, by countries in Middle East, Central Asia. I met with minister from a very remote part of the world. I wouldn’t maybe say the name of the country, but he said it is very important for Turkey to move on the reform path, move on the EU path for their own culture [or country]. It takes probably 3,000, 4,000 miles to reach there. Why? Because Turkey’s proving more and more that Islam, democracy and secularism can co-exist and function properly together. And there are many reform-oriented people, young intellectuals in many, many Moslem countries and those are looking for, in a way social inspiration, working models in a way. And now Turkey’s proving that this is going to be possible. And the events of last year, the events of this year is also being very closely monitored by many, many countries in our region.

When I talk about, of course, Islam, democracy and secularism, it is also very important to understand what we mean by secularism. What is secularism? And although we don’t have any kind of a description in our constitution, as the government, as AK party, how we see secularism is very open. It is about the distinct separation between the state and the religion. This means no religious rule should reign how the government is run, how the state should function. Also, the state should not be involved in daily religious practises of pupils, so it is also about religious freedoms. And also the state being at equal distance to different religions, religious sects, atheists, anti gods [?] whoever, so the state putting the exact identical difference to different religious systems. So that’s what we understand by secularism. That’s what we are actually implementing, so that’s why our success in Turkey is very crucial for our region and even beyond.

People even from Australia, New Zealand, they tell me it’s very important for the, for Turkey to be successful in the EU related reforms. And I say why? It takes 24 hours to fly from Istanbul to Australia and New Zealand, and they say no, no, the stability of our neighbourhood has a lot to do with the success of Turkey. So that’s why we feel that that is possible not only for Turkey, for Turkish people but also the where the world is going vis-à-vis East-West relations, vis-à-vis Islam, West relations, especially after 9/11, especially after all the rhetoric about pressures and resistance and so forth. Now we are proving that a country, which has a predominantly Muslim population can also share the western values about whether you call it democracy…freedoms, tolerance, taking diversity, pluralism, taking diversity as a richness. Now we are sharing more and more of this. And the future membership of the EU [for Turkey] will actually put a big seal, a proof of seal in a way that this is possible and this is happening. So I think it’s a very, very crucial process that we are going through and we have to be successful.

But what’s going to happen in Turkey? Well, I trust in the merits of an open country, open society. As long as people are free to talk what they want. As long as there’s freedom of expression. As long as there’s freedom of media. As long as a Turkish person who sits in front of the TV and pushes a remote control button to see maybe 20, 30 different debates in different channels, this is healthy. And I believe that wisdom will win. Common sense will win in the end, so last year we had difficulties. We overcame those. This year seems to be another kind of difficulties that we face, but I believe in the strength of an open society because free debate is very healthy and will give meaningful results. That’s how it should be.

FT: I know we’ve got very little time and we haven’t talked about the economy at all but … can you just say what you are looking for from the IMF as a government? We’ve heard a lot about some sort of standby, as it were. And how confident you are. I know you have little time but you know the brief very well, how confident you are that Turkey can cope with what are obviously clearly pretty troubled times in the world economy? If you can comment on those two questions, I’d be very grateful.

AB: Well, first of all I think I have to highlight the fact that the Turkish economy at the end of 2002 versus the Turkish economy at the end of 2007 is almost like two different economies. Our public debt to ratio at the end of 2002 calculated in the Maastricht way, in the EU way I should say, was 73.7 per cent. At the end of 2007, again within the EU way of calculating it, it was 38.8 per cent. As you know, 60 per cent is the limit for the eurozone and the average of the Eurozone is around 60 per cent and there are still countries like Italy, Belgium, Greece, which does have percentages more than 100 per cent and now we are 38.8.

In terms of budget deficit, last year we closed with a deficit of 1.2 per cent of our GDP. Maastricht limit is, as you know, 3 per cent over there. So, then you look at inflation, interest rates, when I started back then as the minister in charge of treasury in 2000, 2002, the Turkish treasury was borrowing at 66 per cent and loans [unclear] were only 9 per cent, and now at the end of 2007, we have much longer maturities and still high, but comparatively lower interest rates that we are paying.

So first of all the progress has been tremendous and hence the dependency on IMF funds has also reduced considerably. Maybe at the end of 2002, the IMF funding was essential. But probably not that essential any more in terms of the funding only. But do we need to work with IMF? I believe yes because it does bring aspects of transparency. It does bring a good in a way, outside monitoring mechanism, and it does help us to strengthen the confidence in the country, in the economy. And if we are able to bring down the interest rates a little more by working with IMF, then why should we give away that opportunity?

So now actually in terms of our relations with IMF, there are two important things. One of them is the completion of the current review because the current standby arrangement is expiring in May, next month, which was a 36 month arrangement and now my colleagues at the economic departments are working hard to complete the review. I hope we can.

And the second question is what will Turkey do with IMF after the current standby expires? And also for that we are looking into different formats of working with the fund. Is it going to be another standby? Is it going to be a precautionary standby? Is it going to be a post programme monitoring?

FT: When will you decide, by the end of May? You don’t have that much time…

AB: Serious considerations are being made. The government, the ministers who are in charge of economic issues and prime minister also are innovating and probably we’ll make a decision some time soon.

FT: Are you going to be affected by the slowdown?

AB: Well, the slowdown, I don’t think any country’s immune from what’s going on globally. There’s a big, big earthquake going on in the global economy.

FT: And growth has been slowing.

AB: Yes, we closed last year by 4.5 per cent [growth] compared to 6.9 [per cent growth] the previous year. Why last year? Well, maybe something to do with the global economy but also to do with what’s going on domestically in Turkey as well because our growth, one of the most important components of our growth was private sector investments, which translates as confidence. Private sector continues to invest only if there is no further confidence in the country. So global volatility plus domestic political situation in Turkey will have some inevitable results I think in the growth. It did have last year and it will have this year also. But on the other hand, when we look at our financial system, our banks, for example, don’t have any kind of problem which looks like the banks in the US and so forth because our mortgage system is very secure.

When I passed the mortgage law, we put that 75 per cent limit for example in the law so that if a person’s going to buy a house, he or she has to put 25 per cent of the cost as cash in his pocket and then look for a loan. So the loan cannot exceed 75 per cent of the worth of the property, plus our mortgage portfolio is mostly Turkish lira and fixed-rate so the amount of payment of the people are not influenced by changes in the interest rate or changes in the foreign exchange rate, which is also very, very important because some of the difficulties in the US came up because of the increased interest rates and increased market payments. Also the 75 per cent which we put in law in Turkey, and we did this way before the crisis started internationally, and we had big debates in the parliament because my parliamentary colleagues were asking how come the US is doing this and how come we are not doing this? The US has the largest mortgage market. They have the best practices and why don’t we have similar things here? For example, we did not put any tax incentive on the mortgage loan although we had a huge pressure. Everybody’s doing it and why not us? Because the construction business was already exploding and mortgages were already in a very, very rapid increase…and it could not make any sense to give more impetus to an already growing market.

So I think all those precautions that we made are now paying off and also right now the Turkish banking sector has the highest capital adequacy ratio, among OECD countries. It’s 19 per cent. And also they are banned from having open positions, so that protects them against currency fluctuations and so forth. So also we ask them to take a cautious approach in terms of their liquidity position, in terms of their interest rate risk management, which we introduced recently. It was not there in 2003, 2004, we didn’t have an interest rate risk management concept at the banks but then we introduced it. Not just foreign exchange risks but also interest rate risks are now much better managed by our banks.

About the current account deficit, taking into consideration the fact that we had been actually over-financing it and building our reserves now for the last five years, is something which you have to keep in mind. So we did not just meet, we did not just finance 2007 but actually the finance was much more than the deficit so we were able to do that and I believe that the Turkish finance is strong enough to face tighter liquidity conditions but of course as I said, two main factors we have to take into account but I cannot talk about a very bright Turkish or global economy.

FT: How far does the government expect [the Turkish economy] to grow this year now?

AB: The official target is five and it is early to comment but even 5 per cent would be a big success.

FT: Is there anything the government can do to minimise the political tension that’s part of this problem? For instance, can you change the constitution between now and the constitutional court making the decision?

AB: It’s totally possible. It is one of the items that we are working on and when I talk about immediate transparency or a medium sized package of constitutional amendments, and if we do it, we have to do it before the constitutional court makes its decisions so that the constitutional court will have a new legal base to make judgements on. And our constitution could have some problems and the EU calls it a system error that we are faced with right now. So we have to fix the system errors at one point, the sooner the better. And if we can do it earlier, it could of course prepare a new base for the constitutional court to make its judgements, to make its decision. Of course, ultimately, the authority who’ll decide is the constitutional court and we cannot …we have to do everything according to the rules.

FT: This is not checks and balances though. It’s a judiciary which is not in the slightest bit interested in, as you put it earlier, the will of the people. It just doesn’t give a damn.

AB: No, I think probably theoretically, the judiciary, according to separation of powers principle, the judiciary is not supposed to look at the will of the people. The judiciary looks at the legal framework and makes judgments according to what the law says. It is actually the parliament but what’s happening right now is as the EU already declared many, many times, these kind of issues are not to be discussed in the court room. These have to be discussed in parliament because these are of a very political nature. This is not, at the core of the issue, a legal issue. I think it’s important to see that it’s not a legal issue. It is a political issue and that we discuss political issues under the roof of parliaments, and have to make major decisions at the ballot boxes when election time comes. But then if you take a political issue to the courts, then it will also make the job of the courts quite difficult too… On what terms are they going to make their decision and I think it’s not going to be an easy decision for the constitutional court to make. So that’s why maybe with a constitutional amendment, we are thinking we could make their job easier, defining the legal framework better so that they will be in an easier position to judge. And that’s how we look at the constitution because whatever we do in Turkey, it’s also very important to preserve the credibility of the institution. We need the institutions. The institutions have to be there. The separation of the powers is very important. The independence of the courts are very important. The credibility of the courts is very important. So we should not also distort those concepts. They have to be in place so that we can move on in a stronger way…

FT: You live in interesting times.

AB: And interesting places.

FT: And obviously there’s lots of EU countries have laws that ban certain parties. It’s not by any means unheard of but …

AB: But there are rules.

FT: But not addressed to…not applicable in any way to a mainstream party like yours. That’s the weakness.

AB: No, I think it’s not that we’re a mainstream party…What’s important is under what conditions a political party can be closed and that is defined by the Venice Commission. That’s defined by the Venice Commission and the Venice Commission is [part] of the Council of Europe. And what they say is… A party can be closed only under such circumstances, if a party advocates violence, then it can be closed or if a political party uses violence as a means to destroy the democratic constitutional system, then it can be closed. And it says other than these conditions, no political party can be closed, so actually there are criteria.

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