The country to watch in 2017 is Turkey

Quick post here.

If I could name three countries that will be particularly difficult for the US to deal with geopolitically, I would pick Russia, China and Turkey. The first two are obvious choices but the third is going to be equally tricky because of the increasingly heavy-handed way Turkish President Erdogan is cracking down on alleged Gulenists in the aftermath of last summer’s attempted Coup d’etat. It is Turkey’s unique relationship to the West via NATO and the increasingly authoritarian rule which will make the relationship tricky in 2017.

During 2017, Turkey’s currency has been in freefall. As of this morning, it was down 8.7% breaking through the 4 to1 US dollar barrier for the first time and making it the worst performer of the year. People are openly talking about a currency crisis that recalls painful memories from the 1990s and the early 2000s.

The central bank had intervened on Tuesday. But to no avail. It has already raised rates despite the sluggish post-coup crisis, lifting the benchmark rate 50 basis points in November. And so the government is turning to conspiracy theories to explain the continued fall in the lira.  For example, on Monday, Moody’s released a report on Turkey that warned that Turkish bank profits could crater in 2017 because of losses from non-performing loans. Moody’s also warned of a “general worsening” in the investment climate in Turkey. This is an assessment based on facts that are obvious. But Deutsche Welle reported Deputy Prime Minister Nurettin Canikli as saying the report “doesn’t have a rational foundation. If it’s not rational, then it’s subjective; in fact, it was an attack.” Get that — a politically motivated attack on the country, from an organization based in the US?

So here’s a country with its currency in freefall, investment drying up, its banking system about to be wracked by big credit writedowns and the government sees an attack by foreigners to hurt the country. I think this speaks volumes about the deterioration of relations with the West.

As a member of the North Atlantic Treaty Alliance, Turkey is a key strategic ally of the United States, with military bases that have been vital for operations in both Syria and Iraq. And because it is a secular state on the border between Asia and Europe, and where the vast majority of citizens are Muslim, it is the ultimate crossover country, bridging central Asia to Europe and the Middle East. It is of tremendous strategic importance.

But the Syrian refugee crisis has brought Turkey into conflict with the EU and the coup d’etat has brought Turkey into conflict with the US. After all, the day after the coup, Turkey’s Prime Minister put the US on notice by saying that any country that supports Fethullah Gulen — who is presently based in the US — is at war with Turkey. Moreover, Turkey is a government now with significant domestic human rights abuses and civil liberties violations that is completely out of step with the developed world.

The result has been Turkish detente with Russia – because Russia is not asking the same kinds of questions about civil liberties and democratic values. Even the assassination of the Russian ambassador to Turkey has not put off the rapprochement of the two countries. So while everyone in the US is concerned with Russia and China as adversaries, I would be more concerned about Turkey as a friend. This is a friend in big trouble economically and politically. And it is turning to Vladimir Putin to help solve its problems.

People need to pay a lot more attention to Turkey. I think it’s the country to watch in 2017.