The terrorist bombing today in the center of Istanbul’s tourist district — coming three months after twin suicide bombings at a peace rally in the capital of Ankara — is the new normal for Turkey. Just as Saudi Arabia, Pakistan, and Syria experienced after they had sponsored and supported Islamist extremists conducting terrorism abroad, Turkey now is facing years of blowback. The question policymakers and investors must ask is what a sustained terror campaign will do to Turkey’s economy and, indeed, whether Turkey can afford it.
Initially, while it looked like Turkish leader Recep Tayyip Erdoğan’s Justice and Development Party (AKP) had reformed and strengthened Turkey’s economy — and no doubt to some extent it did— many diplomats and Turks exaggerated its health. In reality, Erdoğan utilized a slush fund provided by Qatar and perhaps Saudi Arabia in order to project an image of success. He also benefited from a demographic dividend.
A police officer secures the area after an explosion near the Ottoman-era Sultanahmet mosque, known as the Blue mosque in Istanbul, Turkey January 12, 2016. REUTERS/Kamal Aslan.
And, while Turkey’s debt-to-GDP ratio appears healthy (if Turkish statistics are to be believed), personal indebtedness has skyrocketed more than 3,000 percent, putting banks on ground made even shakier by political interference. War in Syria and the renewal of ethnic conflict inside Turkey only puts more drain on the economy.
While Turkey is not an energy producer, it is a transit hub and so the free fall in oil prices will reverberate throughout the system. Turkey is also extraordinarily sensitive to rising interest rates in the United States, especially since Erdoğan has incurred more debt than all of his predecessors combined. The Turkish currency has lost half of its value over the last couple years.
Turkey’s tourism sector was already on the ropes due to Erdoğan’s hostility toward Israel and declining Russian patronage. Indeed, Erdoğan delayed the beginning of the school year in order to encourage Turks to make up for the shortfall. The Russian boycott of Turkey after Turkey shot down a Russian jet which it said had violated Turkish airspace wasn’t a knockout punch, but a sustained terror campaign might well be.
Terrorism in Turkey is not going away. Erdoğan’s policies have opened a Pandora’s box that might not be closed for years, and might not be possible to close so long as Erdoğan, with his ideological blinders and ambitions, remains in power. In the meantime, it’s time to start planning for a significant slowdown or recession in Turkey that might have regional ramifications on questions such as whether Turkey can afford to keep fighting its Kurds and project its power abroad.
Conversely, it’s time to consider what a populist and ideologue like Erdoğan might do to distract Turkish nationalists and Islamic extremists from the failings of his own tenure. Russia deflected attention by invading first Georgia and then the Ukraine. Saudi Arabia deflected attention from its austerity drive by executing Sheikh Nimr al-Nimr. North Korea rattled its nuclear sabre. The late Hugo Chavez increased his bluster in inverse proportion to the health of Venezuela’s economy. With regard to Erdoğan, it’s anybody’s guess. The only certainty is that the result will neither be good for the West nor for regional stability.
from AEI » Latest Content http://ift.tt/1P7YAJV
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