Political costs on Turkish economy become heavier

Burdens on the Turkish economy resulting from domestic political developments and rising conflicts have become heavier and heavier. Worst of all, people’s hopes about any possible improvement in domestic politics and gradually in the economy have been fading. 

While the domestic markets started the new week by eyeing on the news about the possible rate hike by the U.S. Federal Reserve (Fed), they needed to focus on the surprising news about the steep fluctuations in China’s stock exchange markets. The global markets have already signaled that the new week would be blurred and cloudy for the domestic markets, which have been fairly uneasy amid political uncertainties at home. In global side, the euro was gaining value against the dollar following a Greek bailout deal. In the early hours of the first day of the week, Turkey’s currency lost value against both euro and dollar. With the new possible terror attack news, the Turkish Lira lost further value and the rates rose over 10 percent. And the downward trend in the stock exchange continued. 

In sum, the markets have started the new week with deep sorrows and serious losses. 

In the development of this mood, the loss of hope about the formation of a coalition government between the Justice and Development Party (AKP) and the Republican People’s Party (CHP) has played a role. Unless some solid news about the formation of a coalition government appears, the markets will continue to buy negative mood about the issue. 

We should remember that such pessimistic mood has spread over all business circles. While businesspeople try to increase their pressure on the political parties to establish a coalition government, they also see the general outlook is not positive, giving no hope. They see and say days will be disastrous for their business at least until November, with their losses rising further, as next year will also run into danger, unless a coalition government is established soon.  

If you question whether such pressing moves have an impact, it can be said that the political parties have made their own calculations and they do not consider what the business circles and the economy need. Many businesspeople now believe that all moves of the AKP and President Recep Tayyip Erdoğan to form a coalition are a sort of diversion tactics, and their main aim is to run for an early election to try to be the winner. 

Domestic tension risks

They believe so because the existing government has tended to trigger the domestic tensions, even if it is quite aware of its interim status. Negotiation with the allies has already been expected in the fight against the Islamic State of Syria and the Levant (ISIL), but the launch of bombings against the Kurdistan Workers’ Party (PKK) seems to the product of various political calculations. 

Such moves will end the peace process, fueling the possibilities of harsher domestic conflicts and negatively affecting the markets. The market players have increasingly said that a snap poll scenario has been put on the table, and they addressed the danger of such nationalistic attitudes triggering domestic tensions. A representative of an international rating agency said on July 27 “the end of the peace process, which played a big role in Turkey’s rise to the investable countries’ league, may negatively affect the country’s credit rating.” Namely, rating cuts may be the case for Turkey in the future. 

In sum, the actual political stance of the government increases economic risks and costs in Turkey.