Turkey’s main stock exchange dropped sharply on Monday following four days of anti-government protests. The Borsa Istanbul 100 Index was down 10.5 percent, its biggest one-day loss in a decade as investors worried about the destabilizing effect of demonstrations on the economy. Thousands have joined the rallies - the biggest Turkey has seen in years - to voice discontent with the rule of Prime Minister Recep Tayyip Erdogan.
Istanbul stock market plunged 10.5% as riots spread to 67 cities
Amid the riot, Turkish president and the prime minister have staked competing positions on the unrest. Prime Minister Erdogan rejected protesters’ demands that he resign and dismissed the demonstrations as insignificant and extremist-motivated. President Abdullah Gul, on the other hand, praised the mostly peaceful protesters as expressing their democratic rights. The two men could face off next year in Turkey’s presidential election.
Appearing defensive and angry on the fourth day of disturbances, Erdogan lashed out at reporters who asked whether the government had understood “the message” from protesters who say police used excessive force to quell a peaceful protest over urban development. “What is the message? I want to hear it from you,” Erdogan retorted. “What can a softened tone be like? Can you tell me?” he said.
Turkey has been hit by demonstrations since Friday that grew out of anger over police brutality against protesters holding a sit-in at Istanbul’s main Taksim Square. The demonstrations have since spiraled into Turkey’s biggest anti-government disturbances in years, challenging Erdogan’s power. Clashes continued late into Monday night in both Istanbul and Ankara. Erdogan has called the protesters “a bunch of looters.”
Will the unrest bring down the Muslim world’s second largest economy?
The Turkish Prime Minister described some of the protesters as “naive, decent and participating by following information on social media”, but claimed the protests were being organized by Turkey’s opposition party and extremist groups. He also blamed the protest on “internal and external” groups bent on harming Turkey, and said the country’s intelligence service was working on identifying them and threatened to hit back at them.
“We shall be discussing these with them and will be following up, in fact we will also settle accounts with them,” he said. As for the market turmoil, Erdogan played down its significance, saying: “It’s the stock market, it goes down and it goes up. It can’t always be stable.” He rejected any comparison to the Arab Spring uprisings. “We already have a spring in Turkey, but there are those who want to turn this spring into winter.”
The protests are seen as a display of frustration with Erdogan, whom critics say has become increasingly authoritarian. Many accuse him of forcing his conservative, religious Islamic outlook on the lives of secular Turks. Erdogan rejects the accusations, insisting he respects all sections of Turkish society and has no desire to infringe on different lifestyles. He has also rejected accusations of being authoritarian, saying: “I am not a master but a servant” of the people.
Prime Minister Erdogan angrily rejected comparison to the Arab Spring
Erdogan, in power since 2003 after winning three elections, will hit his term limit as prime minister and could run against President Gul next year. He has advocated a new system that would give the head of state increased powers, leading to criticism that he may be trying to monopolize power. An opinion poll last year indicated that Turks would vote for Gul, rather than Erdogan, in the elections.
“The prime minister should apologize to protesters. We hope that once he does that the incident will be over completely,” said Kemal Kilicdaroglu, leader the Republican People’s Party, the country’s main opposition party. Erdogan’s adviser, Yalcin Akdogan, however suggested the protests were an attempt to harm his image. “Erdogan is a leader who appears once every 100 years. He is a leader who has transformed Turkey,” Akdogan said. “We won’t allow him to be harmed.”
Apart from the stock markets, the Turkish Lira also took a tumble on Monday, losing more than 1 percent of its value and falling to a one and half year low against the US dollar. Some analysts said Turkish assets will remain under pressure and the central bank may act further to defend the lira. The bank’s chief, Erdem Basci, made that clear on Friday, when he said the bank was considering further measures to support the currency.
The Turkish Lira fell to one and half year low against the US dollar
Turkey has second largest economy in the Muslim world, only after Indonesia. It is a leading producer of agricultural products; textiles; motor vehicles, ships and other transportation equipment; construction materials; consumer electronics and home appliances. Earlier this year, CNBC reported that Turkey could become the “China of Europe” given its rapidly-expanding manufacturing capabilities. Indeed, while most of Europe struggles to achieve 1 percent growth, Turkey is expected to have 3.5 percent growth in 2013, the IMF said in recent forecasts.
Turkey’s Vestel for instance, is the largest TV producer in Europe. Vestel and its Turkish rival Beko accounted for more than half of all TV sets manufactured in Europe. Another Turkish electronics brand, Profilo-Telra, was Europe’s third largest TV producer. The country is also the fourth largest shipbuilder behind China, South Korea and Japan.
After a round of fiscal reforms triggered by the 2001 financial crisis, Turkey managed to kick-start a growth phase that averaged 6 percent annual growth until 2008, and the country’s economy proved resilient during the global financial crisis. In 2010, Turkey’s GDP growth exceeded 9 percent. In 2012, the country saw its debt upgraded to investment-grade as its public sector debt-to-GDP ratio dropped to about 40 percent, according to CIA data.
But now the fate of the world’s 17th largest economy - once considered a potential powerhouse for growth - is on the crossroad. Turkey’s economy will crumble if the protests in Istanbul and Ankara continue through the summer, one of the country’s leading economic commentators said.
“It all depends on if this is going to be temporary or if these protests are going to continue all through the summer,” Emre Deliveli, an economist and columnist for Istanbul’s Hurriyet Daily News, told the International Business Times. “And that depends on how the ruling party is going to respond.” He said a summer of protests would indubitably bruise the economy in two major departments: foreign direct investment and tourism.
“The Turkish economy depends a lot on external finance and capital flow,” Deliveli said. “If the hedge funds get spooked and they get out of Turkey, the economy is going to crash.” Plus, summer is Turkeys peak tourism season. The industry is growing so fast it even prompted the government to announce the construction of a new airport in Istanbul earlier this year.
Turkey remains the fastest-growing economy in Europe, with per-capita income tripled to more than $10,000 - on par with Malaysia - during the ten-year rule of Prime Minister Erdogan. That growth trend is set to continue, according to some commentators, if the protests are not long-lasting. As of now more than 200 demonstrations have been held in 67 cities across Turkey, according to a government official quoted by the Hurriyet newspaper.
“These demonstrations seem to be fairly natural in other contexts, such as Spain and Greece. I don’t think they will have any impact on the economy,” said John Sfakianakis, the chief investment strategist of Masic, a Saudi Arabian family investment company. Sfakianakis said the fundamentals of the market are solid, with a strong appetite for investment in Turkey.
“I’m very bullish about Turkey in general. The numbers are very optimistic, in the property sector in particular,” he said. “The foreign-direct investment appetite is there. Turkey has managed to grow at phenomenal rates.” The key issue is at what stage this all stop. “If this goes for weeks and months, then we may have a problem. If it goes on, then you don’t need a massive insight to see this may have an impact on business. When investors around the world turn on CNN, then it’s going to be a cause for concern. It’s a cliche, but business and markets hate any instability.”
Istanbul, Turkey - currently plagued by civil unrest
The Turkish treasury made a final payment of $422.1 million to the IMF earlier this month, clearing all its debts with the international organization. Turkey took its first loan from the IMF in 1961, and when Erdogan’s government came to power in 2002, it owed the IMF $23.5 billion, according to the state-run Anatolia news agency.