Tur­key’s trou­bles deal new blow to stum­bling econ­omy


The end to a ceasefire with Kur­dish rebels and po­lit­i­cal un­cer­tainty af­ter in­con­clu­sive June elec­tions are com­pound­ing al­ready mount­ing prob­lems for Tur­key’s stut­ter­ing econ­omy, an­a­lysts say.

The re­sump­tion of reg­u­lar at­tacks by Kur­dis­tan Work­ers’ Party ( PKK) rebels in the south­east of the coun­try as Turk­ish jets bomb their po­si­tions in north­ern Iraq has brought back mem­o­ries of the 1990s when the coun­try was of­ten in eco­nomic, po­lit­i­cal and se­cu­rity chaos.

The de­te­ri­o­ra­tion of the se­cu­rity sit­u­a­tion is al­ready im­pact­ing Tur­key’s tourism sec­tor, which has boomed in re­cent years to be­come one of the sources of the im­proved eco­nomic pros­per­ity un­der the rule of Pres­i­dent Re­cep Tayyip Er­do­gan.

Even more dis­turb­ing for in­vestors is the specter of po­lit­i­cal un­cer­tainty, with the coun­try still with­out a gov­ern­ment af­ter in­con­clu­sive June 7 polls and snap elec­tions still a pos­si­ble sce­nario.

“The re­sump­tion of vi­o­lence with the PKK and the chance of a new elec­tion — which may not un­block the po­lit­i­cal sit­u­a­tion — will with­out doubt have an im­pact on state ex­pen­di­ture and in­ter­est rates which will have to go up,” and Inan Demir, chief economist at Fi­nans­bank in Is­tan­bul.

The loom­ing risk of early elec­tions “weighs on the in­vest­ment cli­mate,” he added.

Er­do­gan, prime min­is­ter from 2003-2014 and pres­i­dent from 2014, owes his pop­u­lar­ity to bring­ing a new eco­nomic pros­per­ity to mil­lions of or­di­nary Turks, many of them re­li­giously con­ser­va­tive small busi­ness own­ers, who form the core of his sup­port.

Many Turks credit Er­do­gan and the rul­ing Jus­tice and De­vel­op­ment Party (AKP) for res­cu­ing the coun­try from the mire of its 2000-2001 fi­nan­cial cri­sis.

Er­do­gan re­peat­edly boasts of pre­sid­ing over an eco­nomic mir­a­cle and is now pro­claim­ing a tar­get for Tur­key to be­come one of the world’s top 10 economies by 2023, the 100th an­niver­sary of the foun­da­tion of the mod­ern state.

But growth slowed to 2.4 per­cent last year while the Turk­ish lira suf­fered mas­sive de­pre­ci­a­tion and the Is­tan­bul stock mar­ket has lost 20 per­cent in value since the start of the year.

And the gov­ern­ment’s growth ob­jec­tive of 4 per­cent for 2015 is go­ing to be dif­fi­cult to reach, ac­cord­ing to Demir.

‘Per­formed dis­mally’

Tur­key’s key tourism sec­tor was hop­ing for new growth this sum­mer, par­tic­u­larly with tour op­er­a­tors ex­pected to shift tourists from Tu­nisia par­tic­u­larly af­ter the deadly at­tacks on tourists in the north African coun­try.

But re­gional in­sta­bil­ity meant tourist rev­enues slumped 9 per­cent in the first six months of 2015 from the year ear­lier. Tourism from Rus­sia has been par­tic­u­larly hit as the coun­try bat­tles its own eco­nomic cri­sis.

The neg­a­tive ten­dency was also seen in ex­ports, which fell to US$73.3 bil­lion from Jan­uary-July com­pared with US$80 bil­lion in 2014.

Wil­liam Jack­son at Cap­i­tal Eco­nom­ics in Lon­don said Tur­key’s ex­ports “have per­formed dis­mally so far this year,” down 8.0 per­cent com­pared to the first half of last year.

Even tak­ing into ac­count ex­change rate move­ments, “Turk­ish ex­ports have been strug­gling for some time” and are be­ing held back by “un­der­ly­ing com­pet­i­tive­ness prob­lems,” he said.

An­a­lysts say that prob­lems in the tourism in­dus­try and the coun­try’s large bal­ance of pay­ments deficit are the prob­lems which are go­ing to haunt Tur­key in the months to come.

“In the pe­riod to come, there is no chance of a respite on these two points,” said economist Gun­gor Uras in the Mil­liyet daily.

With an­a­lysts spec­u­lat­ing that Er­do­gan fancies his chances in early elec­tions, the fears of in­sta­bil­ity are also not likely to go away fast.

“The thing that for­eign in­vestors hate the most is po­lit­i­cal in­sta­bil­ity,” said Serkan Demir­tas, po­lit­i­cal an­a­lyst and colum­nist for the Hur­riyet Daily News.

“Tur­key owed its mir­a­cle to the ar­rival en masse of fluid as­sets. If this is no longer pos­si­ble then clearly there is a risk for the econ­omy,” he added.

Er­do­gan how­ever seems not un­duly wor­ried, de­scrib­ing the sit­u­a­tion as one of “tran­sient” na­ture.

“I don’t en­vis­age se­ri­ous eco­nomic dif­fi­cul­ties,” he said in com­ments pub­lished this week.

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