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Turkey to lose more than it gains if Western loans are linked to curbs on trade with Russia: Putin

On Wednesday June 5, Russian President Vladimir Putin met in person with international journalists for the first time since Russia launched its full-scale invasion of Ukraine in February 2022. The conference was moderated by Andrey Kondrashov, director general of Russia's TASS news agency. (Photo: Kremlin)

Russian President Vladimir Putin said on Wednesday that Turkey stands to lose more than it gains if loans and investments from Western financial institutions are linked to restrictions on trade and economic relations with Russia, Russian media reported.

Putin’s remarks came during a meeting with leaders from international news agencies, moderated by Andrey Kondrashov, director-general of Russia’s TASS news agency.

In response to a question from Yusuf Özhan, chief editor at Turkey’s state-run Anadolu news agency, Putin pointed out the recent emphasis by the Turkish government on securing loans, investments and grants from Western institutions.

While acknowledging the potential benefits, he warned of the risks if these financial ties lead to restrictions on economic relations with Russia. “The losses for the Turkish economy will be greater than the gains,” he cautioned.

Putin was referring to efforts by Finance Minister Mehmet Şimşek and the central bank to attract investment from the West as well as to secure loans and grants.

In April Şimşek announced a significant financial cooperation between Turkey and the World Bank spanning fiscal years 2024-2028. The collaboration promises Turkey an additional $18 billion in funding over the first three years, bringing the World Bank’s commitment to Turkey to $35 billion. With this step, Turkey will become the third largest recipient of concessional World Bank loans in the world.

Turkey in June 2023 began to undo years of unconventional, growth-at-all-costs economic policies pushed by President Recep Tayyip Erdoğan until his re-election in May. Şimşek is leading efforts to rein in runaway inflation and put the nearly $1 trillion economy on a more sustainable path.

Turkey’s high inflation, currently running above 75 percent, and the continued loss in value of the lira, which has significantly decreased Turks’ purchasing power, have been shown by observers as being among the main reasons behind the loss of support for Erdoğan’s ruling Justice and Development Party (AKP) in the local elections held on March 31.

Accompanying the spiking inflation are historic highs in interest rates after the central bank’s decision to raise the key interest rate to 50 percent.

Meanwhile, Turkish exports to Russia slumped by a third to $2.1 billion at the start of 2024.

The reason for this is a US crackdown on trade in goods used by Moscow in its war against Ukraine, reports the Financial Times.

The drop follows a US executive order authorizing the Treasury Department to impose secondary sanctions on banks that trade with companies linked to Russia’s military-industrial complex.

The measure is aimed at preventing trade in high-priority goods such as microchips.

Despite seasonal fluctuations in agriculture, there have been significant declines in mechanical goods and vehicles.

The US and its allies have pressured countries such as Turkey to restrict this trade, affecting economic relations between Turkey and Russia.

The signs of slowing Turkish-Russian trade come amid an improvement in Ankara’s relationship with Washington this year. President Erdoğan dropped his veto on Sweden’s accession to NATO, while the US agreed to sell Turkey billions of dollars’ worth of F-16 fighter jets.

Cooperation on energy supply

Turkey’s energy minister also told FT that Ankara was keen to “diversify” its energy supply at a time when it is dependent on Russian gas and oil to fuel its $1 trillion economy. Russia is also building and will operate Turkey’s first nuclear power plant.

Putin assured that the construction of the Akkuyu nuclear power plant is progressing on schedule with no delays. He highlighted the collaboration between Turkish and Russian workers and praised the Turkish leadership for facilitating the project.

“The first unit is nearing completion, and work is progressing normally on all units,” Putin said.

Putin emphasized that the Akkuyu project is more than just a power station. “We are creating an industry. It is not just a station; it is a new sector of Turkey’s economy and energy,” he said. He commended Erdoğan for making a strategic choice to reduce dependency on hydrocarbons, calling the partnership “very reliable.”

Addressing future energy projects, Putin discussed plans for a gas hub, which Gazprom is negotiating with BOTAS and other partners. He clarified that the hub is intended as an electronic trading platform, initially for trading gas primarily to Europe. Putin underscored the security challenges faced by the existing gas routes, citing recent Ukrainian attacks on gas infrastructure.

“Recently, about seven to ten days ago, Ukrainian drones tried to attack a gas pumping station on the Black Sea coast that supplies gas to Turkey,” Putin said. He urged that these threats be communicated to President Erdoğan and highlighted the ongoing attacks on Russian ships protecting these routes from drone boats supplied by European countries.

“I want to draw your attention to the fact that Turkey cooperates with Ukraine on some fronts, but Ukraine tries to strike the gas pipelines supplying gas to Turkey,” Putin said.

“This is not a joke or an exaggeration. Two drones were suppressed by Russian army electronic warfare systems and fell near this gas pumping station on the Black Sea coast. I am not exaggerating; this is exactly what happened,” he added.

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