Syria may pose a new risk for the economy

Market experts were not uneasy when the Turkish Armed Forces (TSK) entered Syria to fight the Islamic State of Iraq and the Levant (ISIL); on the contrary, they were happy. In their estimates, Turkey had joined the West in the fight against ISIL, thus positive effects of this would be seen in the economy. At least, they thought, the downgrading of Moody’s credit rating would be prevented by this.  

However, developments experienced in Syria since the beginning of the week demonstrated that the markets were prematurely happy. The reason is that it was understood the TSK will not only fight ISIL but it will also war with the Democratic Union Party (PYD)-People’s Protection Units (YPG); the talk was that the Free Syrian Army (FSA) would be facilitated to proceed to Manbij. Also, it was also said that Turkey wanted to form an actual security belt at its border and was moving toward this. These kinds of stories may increase in the Western press.

Upon this, starting with the U.S., several objections were heard from the West. The U.S. openly wants Turkey to fight ISIL only and not war with PYD-YPG forces. The objections are becoming louder. 

Now, this situation started to annoy the markets. While they were expecting that the alliance with the West would contribute to the economy, they started seeing the damage it will cause to the economy to reach a contradictory point with the West in this matter also. 

They do not expect the clash to get any deeper and make Turkey and the U.S. confront each other. Holding on to a still optimistic view, they think the U.S. will find middle ground and prevent bigger clashes. For this reason, in current market prices there is no such risk. 

However, we have also witnessed that the market experts we talked to have started discussing this risk. They say that after surviving so many hardships, they do not think the Justice and Development Party (AKP) government will take such a risky path. They also say that while the government is declaring “peace with everybody,” to opt for the former aggressive foreign policy again would damage the country in all aspects. They assume that the AKP administration has seen its former foreign policy mistakes and would not enter this risky field which has huge consequences. 

Importance of Obama-Erdoğan talks  

When the movements in Syria were topic of fierce debate, market experts started expecting this matter would be handled and solved during the meeting between U.S. President Barack Obama and Turkish President Recep Tayyip Erdoğan scheduled at the G-20 Summit to be held in China on Sept. 4-5. However, in the meanwhile, news broke that Obama was expected to see Erdoğan before the summit. Now, this meeting to be held before the G-20 Summit is anticipated.  

The markets will monitor this meeting and its aftermath to decide whether Syria will pose a risk for the economy. 

In my opinion, the TSK’s withdrawal from Syria in a short time is a development that could be absorbed by the economy. If this period is extended, even if there are no international pressures, this may pose a risk in terms of military expenditures and fiscal discipline. If it goes beyond this and if there is a clash with the West because of Syria, then the risk for the economy grows very much.