News / Economy

Corruption Probe Pummels Turkish Economy

People hold placards reading
People hold placards reading "Shame to thieves with Boxes" during a demostration on Dec. 29, 2013, in Istanbul against corruption and the government.
Dorian Jones
Turkey's deepening political crisis between the government and judiciary over corruption allegations is impacting the country's stock market and currency. Concerns are growing about the financial and economic fall out.

The increasingly bitter struggle between the government and judiciary over a graft has pummeled Turkey's financial markets. The stock market has fallen nearly 20 percent while the Turkish lira has hit new lows.

Analyst Atilla Yesilada, of the Istanbul based political consulting firm Global Source Partners, says the full impact of the crisis will only be felt when financial markets return after the New Year's holiday period.

"In January or so, the world banking and investment community will return to their desks, trying to decide what to do with the Turkey conundrum. Unless there is a breakthrough in this crisis, I anticipate a lot of macro funds would sell," he said. "We don’t see a way out, How is it going to end? I mean nobody can speculate a decent scenario."

Turkey's graft inquiry is one of the largest judicial probes into government corruption in the country.

Turkish Prime Minister Tayyip Erdogan has said the probe is part of a conspiracy to bring down his government. Chief economist Inan Demir of the Istanbul based Finans Bank says the political crisis could not come at a worse time.

"The investors were already concerned about Turkey’s external financing situation in a world where interest rates will not be as low as before and the increased political risk actually compounded these problems," Demir said. "It appears as though one of Turkey's most important assets during the past ten years, which was the political stable market friendly government. cannot be taken for granted, to say the least."

Observers warn a change in international sentiments towards Turkey is likely to add to growing pressure on the Turkish lira, which is already at record lows. Analyst Yesilada warns that could hurt the Turkish economy as many companies have borrowed in foreign currencies.

"Their financing expenses in terms of dollars and euros is going to jump because of the devaluation of the lira," he said. "There will be a massive squeeze on cash flow some companies could go under. The economic implications are exponential. There will become more dire as this crisis goes on."

The more than decade-long rule of the AK Party has been a time of unprecedented economic growth with Turkey's gross domestic product tripling.

But economist Demir warns those days may now be over.

"The government has benefited tremendously from the strong growth performance over the past ten years," said Demir. "A slow down in growth is something that governments can ill afford, that is particularly the case in an election year. So we could see the government loosening the fiscal purse strings to some extent going forward, that could also contribute to the negative perceptions of investors."

Observers say the state of the economy could be just as decisive to the future of the government as its legal battles. March sees local elections, which the prime minister is expected to try to turn into a referendum on his government. Presidential elections are scheduled for 2014. and Erdogan is expected to run.

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by: Osman from: Turkey
December 30, 2013 4:11 PM
I really wonder what kind of goverment can both corrupte and develope its country.what happens in Turkey definitely can not be corruption of goverment.considering what the goverment has been doing in terms of developement for last decade, even If a little kid can realise this is a defamation of marginal fat cat group leaders, . There is no goverment in Turkey's history like current one.Our prime minister and his team are capable of even taking america further than the place that Obama took US up. So this can even be one of the reasons behind of all what happens today.

by: Ozlam from: Turkey
December 30, 2013 12:51 PM
Islam has corrupted Turkey to its core. we have become allies with Iran... IRAN!!! Iranians - the filthiest people on the planet. Erdogan has corrupted and killed our proud military... the guardians of our freedoms. I really begin to believe that Satan reveals himself in hatred to Israel. and Satan rules Turkey today...
In Response

by: to "Yavuz" from: Corpus C
December 30, 2013 7:59 PM
Nobody can say that Turkey belongs to Islams. That's not true! You can't ignore non-Muslim "people". YES!! They are people, too. I know most of Muslims think that non-Muslims would go to hell after they pass away.

So after stealing that much money and put in jail many innocent people he'll go to Heaven because he is Muslim??? NO WAY!
In Response

by: Yavuz from: Turkey
December 30, 2013 4:52 PM
Someone who does not like Islam can leave immediately because Turkey belongs to Muslims and it will never change.

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