In the current era marked by critical steps in an effort to solve the decades-old Kurdish issue and put an end to the bloodshed, it is beyond comprehension how Turkey is moving towards another trap of polarization.

Unfortunately, the polarization in Turkey has lately deepened concerning not only democracy and freedoms but also the economy.

When you check the annual per capita growth figures in terms of the average of preceding five year since 1955 one period immediately catches the eye with an outstandingly poor performance. Predictably it is between the late 1970s and early 1980s: average growth rate between 1978 and 1982 was minus 1.1 percent. The second period of negative growth was the between 1998 and 2002 with minus 0.1 percent. Evidently polarization is not the only determinant of economic performance; but it is highly relevant in both of the cases here.

The first negative effect of polarization on the economy is about long-term growth performance. For starters, polarization impedes the reform process. Contrary to the popular belief the income gap between rich countries and Turkey has not closed down during the last decade. Closing the gap should be one of the main economic objectives and this can be achieved only via structural reforms.

In addition, uncertainties affect investment processes negatively. Concerning private sector investments, the confidence in the economy is more important that the level of interest rates or the credit volume. The rise in uncertainties implies a fall in the confidence, which affects both domestic and foreign investments adversely.

Threat to stability

The second economic consequence of the sharpening of polarization is that it might disturb macroeconomic stability. Risks grow alongside uncertainties, pushing interest rates and exchange rates up. Given high level of FX debt to FX assets, any rise in exchange rate beyond a certain level is evidently bad for Turkey, particularly when the corporate sector is considered. A rise in exchange rate also triggers inflation. Besides, interest hikes resulting from economic risks evidently bode ill for the economy. It increases the borrowing costs for the Treasury, for instance. In such a climate, growth performance becomes more volatile.

In the current era marked by critical steps in an effort to solve the decades-old Kurdish issue and put an end to the bloodshed, it is beyond comprehension how Turkey is moving towards another trap of polarization. The government has to take action to keep clear of the trap. For that it has to extend freedoms and democracy, rather than the use of pepper sprays, water cannons, fiery rhetoric and detentions.

This commentary was published in Radikal daily on 18.06.2013