News / Economy

Turkey's Political Conflict Takes a Toll on Economy

Protesters are sprayed with water canon during clashes with riot police in Istanbul, Turkey, June 22, 2013
Protesters are sprayed with water canon during clashes with riot police in Istanbul, Turkey, June 22, 2013
Dorian Jones
Weeks of anti-government protests in Turkey have put the country's financial markets under pressure. Analysts warn that Turkey's decade of unprecedented economic growth could now be at risk, with the world economy facing uncertainty and questions being raised over the sincerity of the Turkish government's pro-market stance.
In the face of unprecedented anti-government protests, Turkey’s financial markets have taken a pounding, with the stock market dropping sharply and the Turkish lira hovering at record lows against the U.S. dollar.

According to economist Cengiz Aktar of Istanbul’s Bahcesehir University, the drop in the Turkish stock market and currency was so severe because it coincided with a wider sell-off on emerging markets after the U.S. Federal Reserve signaled that its policy of providing virtually interest free money would eventually end.

"The volatility in the financial markets was due mainly to the decision by the American Federal Reserve" he said. "Unfortunately, it was amplified by what was happening in Turkey, and that is bad news. Of course, all emerging economies have been hard hit by the decision of the Fed. But the Turkish economy, together with the South African economy, were the worst hit."

Turkey has one of the lowest saving rates in the world, and it relies heavily on foreign investment and money borrowed from abroad to sustain its growing economy. Analysts say the ruling AK Party has followed business-friendly policies for the past decade and has been rewarded with record foreign investment. That has fueled stellar economic growth, with the economy tripling in a decade.

But Inan Demir, chief economist at the Istanbul-based Finansbank, says Prime Minister Erdogan’s claim that international financial institutions were behind the anti-government protests as part of a conspiracy against Turkey raises a troubling question mark for foreign investors over future government policy.
"Perhaps they are going to choose to forget these as words [said] in the heat of the moment," Demir said. "Or they are going to remember as it as a significant departure from the market-friendly policies of the current government that they have been accustomed to. But there is no question - these are much more different than what they’ve become accustomed to."
According to Atilla Yesilada of the Istanbul-based research firm Global Source Partners, global investor sentiment towards Turkey has already changed.
"A month ago Turkey was the most attractive country in the emerging markets world," said Yesilada. "When we discussed Turkey with our investors, we discussed opportunity. Now Turkey is closely watched because of its risks."
International risk sentiment is important to Turkey, which depends on the world’s financial markets to borrow money in order to finance its current account deficit, one of highest in the world.

Economist Demir says the amount of interest Turkey will have to pay could have far reaching consequences.
"Turkey is facing external needs in excess of $200 billion in the next 12 months -- that corresponds to more than 25 percent of Turkish GDP, and this is a large external financing need from whichever angle you look at it," he said.

Demir added, "If Turkey is to show a picture of continuing unrest at home, then the external financing will be more challenging, particularly so in an environment of broader risk aversion, and that could [have] significant downside risks for the GDP growth over the coming quarters."
Even before the social unrest, the Turkish economy had significantly slowed to around three percent, sluggish compared to previous years of eight percent growth.

Economist Aktar warns that there could be far-reaching consequences for the ruling AK Party if the country gets into economic difficulties.

"This government made its success thanks to the economic performance," said Aktar. "So voters may very easily turn their back to the AK, if the economic performance that they have known and seen the last six, seven years is not there anymore."

That will be of concern to the prime minister, observers warn, with the country facing a series of critical elections in the coming two years, ending with a general election in 2015.

You May Like

Germany Celebrates 25 Years of Unity

October 3 is a public holiday, marking the day in 1990 when East Germany and West Germany reunited More

Analysts: Russia's Syria Strikes Shake Regional Powers

If Moscow bolsters Assad, Saudi Arabia, other Gulf countries may feel obliged to step in More

Video Innovative Nano-Tech Water Filter Prevents Disease

It can absorb contaminants like copper, bacteria, viruses and pesticides, says Askwar Hilonga, who has been successfully trying out his product in Arusha More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs

World Currencies


Rates may not be current.