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    Possible economic consequences of the Gezi Park resistance (2)

    Fatih Özatay, PhD08 June 2013 - Okunma Sayısı: 1331

    Political risk perception concerning Turkey will increase; with ups and downs but always here with us.

    Last Thursday I tried to discuss the possible long-term consequences of the Gezi resistance for Turkey’s economy. The resistance might help freedoms blossom and change the way of doing politics in Turkey. In other words, the resistance has the chance to trigger the shift from an imperfect to a mature and libertarian democracy. In that case, there is hope for a higher level of welfare, a more equitable income distribution and a cleaner environment. I hope things will evolve in this direction.

    Yet, it is harder to comment on the short-term consequences since there is a wide array of uncertainties. We have heard conflicting statements from public officials and people around them. Some of these suggest that the dynamics underlying the protests, which are obvious to many observers, were not acknowledged, intentionally or not, by public officials and people around them. We are seeing a tendency to resorting to conspiracy theories and looking for foreign or domestic coup plots. If they gain dominance, these ideas might push Turkey into a turmoil.

    I am not talking about a permanent turmoil, of course. Assume that the events simmered down one way or another. Evidently, with such massive resistance, this implies the rulers shut their eyes to the demands underlying the resistance and refrained from taking necessary steps. In that case can we say the quiet-down will be sustainable? Did anyone think of the possibility of such resistance before it broke? No. But now we have a case at hand, meaning that resistance is probable and there is grounds for resistance. The probability of a new resistance will be on the radar until the underlying problems are solved.

    Political risk perception

    Taking departure from this analysis, here are the implications for the markets: political risk perception concerning Turkey will increase; with ups and downs but always here with us. This implies higher interest rates and higher exchange rate compared to the period before the uncertainties (before the resistance). More importantly, with the confidence in the economy decreasing, domestic investments are expected to slow down. Similarly, the quality of the foreign capital inflows would be affected and FDIs would decrease. The magnitude depends on changes in risk perception. In short, volatilities would rise. Please note that there are two other risk factors facing Turkey. First is about Syria: what is the possibility of another attack similar to the bombing in Reyhanlı? The second is one that is for not only Turkey but all emerging market economies: will the Federal Reserve tighten liquidity and raise interests before the anticipated time?

    If the reasons and demands underlying the resistance are read correctly and tried to be met, not only stability will be protected but also the positive long-term outcomes can be enjoyed. Obviously a win-win situation. So, what are we waiting for?

    This commentary was published in Radikal daily on 08.06.2013