Turkish army - AP
Turkish army. Photo by AP
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With an annual budget of $12.2 billion, the Turkish army is one of the world's largest purchasers. One giant acquisition it is now about to make is for 109 helicopters worth some $4 billion, with an option for an additional 300 helicopters.

Two firms are competing for this juicy contract - the American aircraft corporation Sikorsky, which manufactures the Black Hawk helicopter, and the Italian firm Augusta Westland. Both are offering not only enticing prices but also other benefits.

Sikorsky, for example, is promising to give Turkey a contract to repair planes it has sold to Third World countries. It also agreed to buy 109 helicopters from Ankara that were manufactured in Turkey under license from Sikorsky; these will then be resold to other countries. Finally, it offered to build a regional support base for its Black Hawks in Turkey.

Will Israel, which in the past has repaired Turkish helicopters, become a client of Turkey if the Turks decide to buy the American helicopters? It would be an interesting role reversal. But Augusta Westland has also come up with a tempting proposal. It has promised to let Turkey participate in building its helicopters, so that it can become a helicopter manufacturer in its own right.

And while the Turkish army is busy mulling where to put its billions, Prime Minister Recep Tayyip Erdogan is busy clipping its wings. The defense budget is just one source of the army's income. It also has another important source: Oyak, the Armed Forces Pension Fund, which manages the military's pension funds and has become the largest commercial corporation in Turkey, with holdings of billions of dollars.

Best of both worlds

So far, Oyak has been able to enjoy the best of both worlds. As a corporation operating on the army's behalf, it enjoys special tax benefits and advantages in competing for government tenders. At the same time, it invests in civilian companies that provide goods and services completely unrelated to military or security equipment. Among others, it owns a cement company, iron manufactories and a plant that produces Renault vehicles.

The Renault Fluence cars that are sold in Israel are manufactured by Oyak Renault, so any vehicle of this kind bought in Israel puts money directly in the Turkish army's pockets. According to Turkish media reports, the company also plans to sell some 100,000 electric Fluences in Israel and Denmark over the next few years. Anyone wondering about the current state of relations between Israel and Turkey should note the volume of business that civilian companies owned by the Turkish army are doing with Israel.

Oyak owns some 60 companies of this kind, and until now, they have not been subject to oversight by the entity that supervises the activities of government offices and government companies. Thus on one hand, Oyak could say that since it runs civilian companies, it is not subject to government oversight. But on the other hand, it could demand the privileges offered to government companies.

The relationship between Turkey's army and the Turkish economy is structurally similar to that of the Revolutionary Guards in Iran: The latter also have an independent economic base comprised of manufacturing and service companies. In Turkey, this structure was established in 1961, after the military revolt.

The rationale was to supply retired soldiers and officers with a solid income in addition to their relatively small military pensions, and thus make it possible for them to enjoy a quality of life "appropriate to their social status." Career soldiers were required to contribute 10 percent of their salaries to the fund, and soldiers doing their compulsory service, who won't even receive a pension from it, had to contribute 5 percent.

But from a mere pension fund, it became an octopus with many tentacles. And now, the government has decided to rein it in.

Legislation adopted last week, which the army opposed, subjects Oyak to what is known as the oversight court. This institution is not a real court; rather, it resembles Israel's state comptroller. But its decisions cannot be appealed, and in that way, it resembles Israel's Supreme Court.

The oversight court reports to the Turkish parliament, where Erdogan's Justice and Development Party has a majority. Thus the party will now know what the pension fund is doing. In addition, all of Oyak's special privileges are being done away with, including the tax benefits and discounts on various government fees. The result is that Erdogan now has the army by its short hairs.

In effect, Erdogan adopted the conclusions of a study published by the Institute for Economic and Social Research in August 2010. The study recommended that the army be separated from its economic concerns for fear of conflicts of interests. But even more serious, according to the report's authors, is that the special benefits the fund offers its members, who are all military personnel, creates a privileged social status protected from the vicissitudes of the country's economy, and thus "constitutes an obstacle to democracy."

The report also warned that if Oyak continued to exist in its present format, it could harm Turkey's chances of joining the European Union, since it has a negative influence over the country's democratic processes. That is a good excuse for a government that in any case wants to reduce the army's influence on both society and the economy.

Despite the new law and the army's criticism of it, there is no need to feel sorry for the Turkish army's economic conglomerate. It will continue to produce cement and cars, market its products worldwide and enjoy huge profits. It will merely have slightly stiffer competition inside Turkey and be forced to pay somewhat higher corporate taxes.

And military personnel, upon retiring, will continue to benefit from a double pension - one from the government and one from Oyak, whose policy is to supply every career soldier "with an apartment and a car."