Istanbul: Turkey was once hailed as an economic success story, clambering out of a financial abyss with reforms over the past decade to near double-digit growth, a construction boom and improved prosperity.
But today the picture is bleak, overshadowed by an escalating political crisis that threatens Prime Minister Recep Tayyip Erdogan’s own future and the country’s hard-won economic gains.
The turmoil has seen stocks plunge and sent the lira tumbling to record lows, casting doubt on government goals of reining in inflation and sparking warnings of stagnation in the emerging economy.
Analysts say the lira could yet fall further, with Turkey also at risk of a credit crunch as its yawning current account deficit makes it vulnerable to outside forces, particularly the US tapering of its massive monetary stimulus.
“Combine this with political risk: corruption scandals, accusations of a potential coup and fears that the government is trying to erode the independence of the judiciary have led to widespread protests, and the financial situation for Turkey could deteriorate fast,” said Kathleen Brooks at online trading site Forex.com
“It is no wonder that investor sentiment is negative on Turkey.”
The Istanbul share market has lost about 20 percent of its value over the past year, the lira has sunk to historic lows of 3.0 to the euro and 2.2 to the dollar and 10-year bond rates are above 10 percent — higher even than in troubled Greece.
The government, a model of stability for most of Erdogan’s 11 years in power, has been rocked by a corruption scandal targeting key members of the premier’s inner circle just six months after massive nationwide protests against his rule.
The probe is looking into allegations of corruption by a state-owned bank and bribery in construction projects -- one of the booming sectors under Erdogan.
Erdogan — seen as increasingly autocratic by opponents — has retaliated by conducting mass purges in the police, moving to curb the powers of the judiciary and axing rivals from state institutions.
The combative premier has lashed out at what he describes as a coup plot by followers of ally-turned-nemesis Fethullah Gulen, an exiled cleric who retains influence in key state apparatus.
“That organisation and its allies in the media are trying to deal a heavy blow to economy, hike interest rates, scare foreign investors, saboutage energy policies, and taint Turkey’s image abroad,” Erdogan thundered this week.
AFP
