Turkey's economic star is rising

ISTANBUL - For decades, Turkey has been told it was not ready to join the European Union -- that it was too backward economically to qualify for membership in the now 27-nation club.

That argument may no longer hold.

Today, Turkey is a fast-rising economic power, with a core of internationally competitive companies that are turning the youthful nation into an entrepreneurial hub, tapping cash-rich export markets in Russia and the Middle East while attracting billions of investment dollars in return.

For many in aging and debt-weary Europe, which will be lucky to eke out a little more than 1 percent growth this year, Turkey's economic renaissance -- last week it reported a stunning 11.4 percent expansion for the first quarter, second only to China -- poses a completely new question: Who needs the other one more -- Europe or Turkey?

"The old powers are losing power, both economically and intellectually," said Vural Ak, 42, the founder and chief executive of Intercity, the largest car leasing company in Turkey. "And Turkey is now strong enough to stand by itself."

It is an astonishing transformation for an economy that just 10 years ago had a budget deficit of 16 percent of gross domestic product and inflation of 72 percent. It is one that lies at the root of the rise to power of Prime Minister Recep Tayyip Erdogan, who has combined social conservatism with fiscally cautious economic policies to make his Justice and Development Party, or AKP, the most dominant political movement in Turkey since the early days of the republic.

Indeed, so complete has this evolution been, that Turkey is now closer to fulfilling the criteria for adopting the euro -- if it ever does get into the European Union -- than most of the troubled economies already in the eurozone. It is well under the 60 percent ceiling on government debt, at 49 percent of GDP, and could well get its annual budget deficit below the 3 percent benchmark next year. That leaves reducing inflation, now running at 8 percent, as the only remaining major policy goal.

Having sold at the top to Greece, Ozyegin is now putting his money to work in the east. His new bank, Eurocredit, gets 35 percent of its profit from its Russian operations. Ozyegin represents the old guard of Turkey's business elite that has embraced the Erdogan government for its economic successes. Less well known but just as important to Turkey's future development has been the rapid rise of a core of socially conservative business leaders who, under the AKP, have seen their businesses thrive by tapping Turkey's flourishing consumer and export markets.

Ak, the car leasing executive, exemplifies this new business elite of entrepreneurs. He drives a Ferrari to work but is also a practicing Muslim who does not drink and has no qualms in talking about his faith. He is not bound to the 20th-century secular consensus among the business, military and judicial elite that fought to keep Islam removed from public life.

In June, Turkish exports grew by 13 percent compared with the previous year, with much of the demand coming from cash-rich countries on Turkey's border or close to it like Iraq, Iran and Russia.

In Iran, Turkish companies are building fertilizer plants and making diapers and female sanitary products. In Iraq, the Acarsan Group, based in the southeastern town of Gaziantep, just won a tender to build five hospitals. And Turkish construction companies boast a collective order book of more than $30 billion, second only to China.

No one here disputes that these trends give Erdogan the legitimacy -- both at home and abroad -- to lash out at Israel and to cut deals with Iran over its nuclear energy, moves that have strained ties with its chief ally and longtime supporter, the United States. (Turkey has exported $1.6 billion worth of goods to Iran and Syria this year, $200 million more than to the United States.)

"The foreign policy of Turkey is good if it brings self-pride," said Ferda Yildiz, the chairman of Basari Holding, an electronics conglomerate that itself is in negotiations with the Syrian government to set up a factory in Syria that would make electricity meters. Even so, he warns that it would be a mistake to become too caught up in an eastward expansion if it comes at the expense of the country's long-standing inclination to look to the West for innovation and inspiration.