Strength of Turkey's economy should outweigh political crisis


Lawrence White
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Turkey’s latest political crisis was triggered on April 24 by prime minister Recep Erdogan’s nomination of foreign minister Abdullah Gul as the ruling AK party’s candidate for president. Many had hoped that he would opt for a candidate from outside the party in order to assuage the fears of the fiercely secularist sections of the population, who demonstrated with an almost million-strong march on April 29 that they are genuinely afraid that Turkey might become an Islamic state.

No crisis of faith

The resulting protest from the opposition Republican People’s party led ultimately to the constitutional court declaring the first round of the election invalid and a new set of requirements that almost guarantee that the AK party will need help from another group to secure victory for its candidate. Meanwhile, the army continued its tradition of pro-secularist intervention in political affairs by indirectly threatening a coup on its website should Gul, whose wife wears a headscarf and who is regarded as a less moderate Islamist, win the election.

The election is scheduled for July 22, and although investors have so far seemed unfazed by the turmoil, all market participants will be monitoring the results closely.

"We have been saying since last year that there could be tension," says Jon Harrison, EEMEA strategist at Dresdner Kleinwort, "and we’re now looking at three likely post-election scenarios. The first possibility, if they’re unable to decide on a president, is deadlock and further uncertainty. The second is that a coalition government compromises on a candidate; and the third, which would be most troubling from the market’s perspective, is that the AK party is successful, in which case we can expect further confrontation between them and the army – who are granted some powers of intervention by the constitution."

Ultimately, Harrison says, the underlying strength of the economy might prove too attractive for investors to ignore. "The lira is within a few percent of its previous strongest levels, when that figure should perhaps be closer to 5% to 10%. Although there have been some delays in planned deals in Turkey," he says, "this is still a large, cheap economy on Europe’s doorstep and it makes sense that people are buying now."