AKP-era foreign investments jarred by post-coup Turkey crackdown
TURKEY’S botched coup and an apparent lurch towards authoritarianism is ratting investors and threatens to throw into reverse the hundreds of billions of dollars that have flowed to this once- booming emerging market.
In the years after its 2001-2002 financial crisis, Turkey rode a wave of bullishness towards emerging markets, and while estimates vary, the Institute of International Finance reckons overseas investors poured more than 150 billion into Turkish stock and bond markets since end-2003.
The IIF, one of the most authoritative trackers of capital to and from the developing world, also calculates bricks- and-mortar direct investment ( FDI) into Turkish factories and property at US$163 billion.
Much of that success was down to game- changing reforms by President Tayyip Erdogan’s Islamist-rooted AK Party from 2003. After sweeping privatisations, fiscal discipline and banking reforms, Turkey’s old problems – military coups, soaring debt and crawling growth – seemed firmly consigned to history.
Now, suddenly, they may be back.
What’s more, many are unnerved by the ferocity of Erdogan’s response to the coup, with tens of thousands of soldiers, civil servants, judges and academics fired, arrested or suspended in the past week and a state of emergency imposed.
There is concern also about economic growth collapsing and surging inf lation, as the lira weakens against the dollar.
The political shock will complicate Turkey’s fragile balance of payments picture as its US$ 30 billion-plus annual deficit requires a steady inflow of foreign money.
“The risk of capital f light remains unless the measures adopted during the state of emergency are revealed clearly,” said Ozlem Derici, chief economist at Deniz Invest in Istanbul.
The issue is potentially serious because Turkey’s funding gap is largely plugged with portfolio capital, dubbed “hot money” due to the speed at which it can move between markets.
Derici said that Turkey’s investmentgrade credit rating, gained only in 2013, was in danger; its loss will drive capital outflows from conservative, rating- constrained funds while making it costlier for companies and banks to raise finance.
Aviva and GAM were among foreign investment funds that used Monday’s temporary bounce in the lira to cut back on Turkish holdings, while many banks, including Morgan Stanley, Societe Generale, BNP Paribas and Citi suggested reducing exposure.
Others such as Standard Life, Ashmore and Lombard Odier told Reuters they made no changes because their Turkey holdings had already been below its weight in indexes. — Reuters