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

Uganda Court Annuls Anti-Gay Law

Court says law was passed in parliament without enough members present for a full quorum More

Multimedia Thailand Makes Efforts to Improve Conditions for Migrant Laborers

In Thailand, its not uncommon for parents to bring their children to work; one company, in-collaboration with other organizations, address safety concerns More

In Indonesia, Jihad Video Raises Concern

Video calls on Indonesians to join Islamic State of Iraq and the Levant, ISIL More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
In Thailand, Some Efforts to Improve Conditions For Migrant Laborersi
X
Steve Herman
August 01, 2014 6:22 PM
Thailand has been facing increasing international scrutiny as a hub of human trafficking and slave labor. Some of the kingdom’s companies are striving to improve working conditions, especially for the millions of migrant laborers from surrounding countries. VOA Correspondent Steve Herman in Bangkok takes a look at one initiative for children at construction sites
Video

Video In Thailand, Some Efforts to Improve Conditions For Migrant Laborers

Thailand has been facing increasing international scrutiny as a hub of human trafficking and slave labor. Some of the kingdom’s companies are striving to improve working conditions, especially for the millions of migrant laborers from surrounding countries. VOA Correspondent Steve Herman in Bangkok takes a look at one initiative for children at construction sites
Video

Video Public Raises its Voice on Power Plant Pollution

In the United States, proposed rules to cut pollution from the nation’s 600 coal-fired power plants are generating a heated debate. The U.S. Environmental Protection Agency, charged with writing and implementing the plan, has already received 300,000 written comments. As VOA’s Rosanne Skirble reports, another 1,600 people are lining up this week at EPA headquarters and at satellite offices around the country to give their testimony in person.
Video

Video Information War Rages Alongside Real One in Ukraine

The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict in Gaza, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities. Probably the most important destination is the local bakery. VOA’s Scott Bobb reports from Gaza City.
Video

Video China Investigates Powerful Former Security Chief

The public in China is welcoming the Communist Party's decision to investigate one of the country's once most powerful politicians, former domestic security chief Zhou Yongkang. Analysts say the move by President Xi Jinping is not only an effort to win more support for the party, but an essential step to furthering much needed economic reforms and removing those who would stand in the way of change. VOA's Bill Ide has more from Beijing.
Video

Video US-Funded Program Offers Honduran Children Alternative to Illegal Immigration

President Obama and Central American leaders recently agreed to come up with a plan to address poverty and crime in the region that is fueling the surge of young migrants trying to illegally enter the United States. VOA’s Brian Padden looks at one such program in Honduras - funded in part by the United States - which gives street kids not only food and safety but a chance for a better life without, crossing the border.
Video

Video 'Fab Lab' Igniting Revolution in Kenya

The University of Nairobi’s Science and Technology Park is banking on 3-D prototyping to spark a manufacturing revolution in the country. Lenny Ruvaga has more for from Nairobi's so-called “FabLab” for VOA.
Video

Video Immigrant Influx on Texas Border Heats Up Political Debate

Immigrants from Central America continue to cross the U.S.-Mexico border in south Texas, seeking asylum in the United States, as officials grapple with ways to deal with the problem and provide shelter for thousands of minors among the illegal border crossers. As VOA's Greg Flakus reports from Houston, the issue is complicated by internal U.S. politics and U.S. relations with the troubled nations that immigrants are fleeing.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.