Turkey's Economy Could Slump In Aftermath Of Failed Coup
Turkey’s President Recep Tayyip Erdoğan seems intent on using the failed July 15 coup as a springboard to go after his opponents, both in the country and beyond its borders. Some 6,000 people are reported to have been arrested to date and the ultimate finger of blame has been pointed at Fetullah Gülen, a preacher who these days lives in exile in the US but was once a close ally of Erdoğan (he denies any involvement).
Erdoğan has become ever more susceptible to paranoia and averse to criticism in recent years. During most of his time as prime minister, from 2003 to 2014, he oversaw an economic renaissance, but in recent years the problems, and criticisms, have been mounting even as he has accumulated more power. He has presided over grandiose building projects, locked up journalists, overseen the rekindling of the Kurdish dispute after years in which it appeared to be heading towards resolution, and struggled to find a credible approach to the war in Syria. Alongside all that, the economy has been faltering. The latest political upheaval will only make that situation worse.
A report on the Turkish banking sector in the wake of the failed coup, written by Tomasz Noetzel and Jonathan Tyce, analysts at Bloomberg Intelligence, said there was likely to be a “surge in investor risk perception and decline in demand for Turkish assets” following the attempted putsch. They point out that the Turkish lira is already down 20% against the dollar since the start of 2015 and Turkish companies’ non-lira financing costs are likely to rise further.
The prospects for the local tourism industry could be even worse. Nadejda Popova, travel project manager at research firm Euromonitor International, predicts the political turmoil will be “catastrophic” for the country’s tourism sector. The industry has already been left reeling from the suspension of relations with Russia and a series of terrorist attacks by ISIS (also known as Islamic State and Daesh) and Kurdish militants, including the attack on Ataturk airport in Istanbul on June 29 by ISIS and bombings in the capital Ankara in February and March claimed by the Kurdistan Freedom Falcons.
According to the UN’s World Tourism Organization, international arrivals to Turkey were already down 10% year-on-year in the first quarter of 2016. Major western travel agencies are believed to have seen a 35% drop in bookings to Turkey. The risk of more attacks and more political upheaval is likely to persuade many more people to seek alternative holiday destinations in the second half of the year. “One isolated attack cannot cripple the entire industry, but repetitive attacks will definitely prevent the development of the tourism industry,” says Popova.
The economic and political problems could also translate into fiscal problems for the government and higher funding costs for businesses. Major ratings agencies are weighing up the implications of the latest events and downgrades to the country’s credit rating cannot be ruled out. Standard & Poor’s says it is assessing the medium- and long-term implications on the Turkish economy, including the likely response of external investors and the impact on local banks and corporates. Meanwhile, Fitch Ratings is due to publish its next sovereign rating review on August 19 and says “the attempted coup in Turkey and the authorities’ reaction highlight political risks to the country’s sovereign credit profile.”
The full story behind the coup itself has yet to be revealed, but Reed Foster, Middle East military capabilities analyst at IHS Jane’s, says it was probably a response by a faction of the armed forces to the erosion of military power in recent years and an effort to re-establish the secular principals upon which the modern Turkish state was founded. He points out that the 6,000 reported arrests represents only a small fraction of the country’s 400,000-strong armed forces. “There is unlikely to be further coup attempts by the military in the near-term, as the military’s power and political influence will be significantly tarnished by the latest incident,” says Foster.
But while the army may become more subdued, the ongoing clampdown by Erdoğan will not solve the country’s other political problems and it still leaves the economy in a vulnerable position.
The events in Turkey fit into a wider picture of growing authoritarianism around the Middle East. In Egypt, President Abdel Fattah El Sisi has overseen a clampdown far worse than those of his predecessors who were so abruptly ejected from power during the revolutions and coups of the past half-decade. In Bahrain, the government seems intent on snuffing out any hope of reasoned interaction with opposition groups – banning the main opposition party, locking up its leaders, forcing some activists into exile and stripping others of their citizenship.
As with Turkey, these clampdowns on opposition voices will not deliver the stability these countries crave and which their politicians promise. Instead, their economic prospects are dimming in line with the democratic hopes.