Analysis: Investors question Turkey’s political stability

Turkey’s government is in disarray, comments Walter Kurtz, in an analysis for BusinessInsider:

It is quite common for governments, particularly in countries with an authoritarian leadership (and Turkey’s leadership has been acting in that fashion), to blame whatever the mess the country is facing on corruption (see example). And the more the Turkish Prime Minister Erdogan loses grip on power, the more he will blame “corruption” for his predicament. With Erdogan’s cabinet reshuffled (see story from NBC), as ministers resign (some of whom are calling for his resignation), Turkey’s near-term political stability has been called into question.

The central bank has been desperately trying to defend the lira as the current account deficit can no longer be financed with foreign capital inflows. But selling foreign reserves has been ineffective and a hike in short-term rates may be the next step. However, rising rates may further damage the nation’s economy that has been weakened by capital outflows in recent months (see post).

Investors are not taking any chances, with the lira, the stock market, and the country’s government bonds all taking a severe beating. The chart below shows the dollar appreciation against the lira as the currency hits record lows. What worries many investors is that renewed weakness in the nation’s currency could accelerate inflation, causing further social unrest.

 

 

Turkish 10-year bond yield has breached 10%, as the selloff that started a couple of months ago accelerated.

 

With investors already jittery about emerging markets in the face of tighter monetary conditions and higher rates in the US, the situation in Turkey has become precarious. While the media has not focused on this angle, the situation also presents a significant geopolitical risk, given the regional importance of Turkey, a member of NATO, for the US and the EU.

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About yavuzbaydar

Yavuz Baydar has been an award-winning Turkish journalist, whose professional activity spans nearly four decades. In December 2013, Baydar co-founded the independent media platform, P24, Punto24, to monitor the media sector of Turkey, as well as organizing surveys, and training workshops. Baydar wrote opinion columns, in Turkish, liberal daily Ozgur Dusunce and news site Haberdar, and in English, daily Today's Zaman, on domestic and foreign policy issues related to Turkey, and media matters, until all had to cease publications due to growing political oppression. Currently, he writes regular chronicles for Die Süddeutsche Zeitung, and opinion columns for the Arab Weekly, as well as analysis for Index on Censorship. Baydar blogs with the Huffington Post, sharing his his analysis and views on Turkish politics, the Middle East, Balkans, Europe, U.S-Turkish relations, human rights, free speech, press freedom, history, etc. His opinion articles appeared at the New York Times, the Guardian, El Pais, Svenska Dagbladet, and Al Jazeera English online. Turkey’s first news ombudsman, beginning at Milliyet daily in 1999, Baydar worked in the same role as reader representative until 2014. His work included reader complaints with content, and commentary on media ethics. Working in a tough professional climate had its costs: he was twice forced to leave his job, after his self-critical columns on journalistic flaws and fabricated news stories. Baydar worked as producer and news presenter in Swedish Radio &TV Corp. (SR) Stockholm, Sweden between 1979-1991; as correspondent for Scandinavia and Baltics for Turkish daily Cumhuriyet between 1980-1992, and the BBC World Service, in early 1990's. Returning to Turkey in 1994, he worked as reporter and ediytor for various outlets in print, as well as hosting debate porogrammes in public and private TV channels. Baydar studied informatics, cybernetics and, later, had his journalism ediucatiob in the University of Stockholm. Baydar served as president of the U.S. based International Organizaton of News Ombudsmen (ONO) in 2003. He was a Knight-Wallace Fellow at University of Michigan in 2004. Baydar was given the Special Award of the European Press Prize (EPP), for 'excellence in journalism', along with the Guardian and Der Spiegel in 2014. He won the Umbria Journalism Award in March 2014 and Caravella/Mare Nostrum Prize in 2015; both in Italy. Baydar completed an extensive research on self-censorship, corruption in media, and growing threats over journalism in Turkey as a Shorenstein Fellow at the Kennedy School of Government at Harvard.
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