Like a moist fire cracker, the attempted coup in Turkey stuttered, limped and fizzled out; failing even before it got started. On the night of 15th July, army tanks streamed into major cities including Istanbul. After a suspenseful night of gunfight, explosions and protests, President Erdogan regained control. The coup had failed.
A tantalizing tale lies in analysing the economic impact of the (failed) coup. Even before the coup, Turkey faced immense economic problems. The influx of over a million refugees from the Middle East had led to an additional expenditure of almost 1% of GDP. Its current account deficit (essentially the difference between exports and imports) had widened to 4.5% of GDP. Its currency, Lira was depreciating continuously, making imports expensive. The inflation rate, touched almost 8.8% in July, and is expected to rise further. Moreover, revenues from tourism, an important contributor to Turkish GDP, are expected to decline sharply this year due to security concerns. It contributed to around 12% to GDP in 2014, according to World Travel and Tourism Council.
At such a delicate precipice, a successful coup could have sent tumults of panic across the world. In an environment of anaemic global growth, tepid commodity prices and uncertain investor sentiments following Brexit, the rise of protectionist populists like Donald Trump and Bernie Sanders; a successfulTurkey would have destabilized the global economy immensely. Under President Erdogan, Turkey has grown closer to the EU, and its economy has become more ‘market oriented’. Further, for a country that has endured 4 coups, between 1960 and 1997 – the last 2 decades had instilled a sense of political stability, which coupled with a relatively pro-market government made for positive investor sentiment. Indeed, it is because of the investor inflows – that Turkey manages to finance its burgeoning current account deficits.
If the coup was successful, the average Turk would be the hardest hit. Rising import costs due to a run on the Lira* would have caused inflation to sky rocket, pinching the common man’s pocket considerably. With a government unable to finance their current account, there could have been serious balance of payment problems. That could in turn lead to restrictions on imports causing acute shortage of bare necessities like fuel and medicines. Panicked Turks could even possibly spark off runs on banks, due to the extremely uncertain future. In short, it is that native Turk, who would be worse hit than anyone else. It is important that in the myopia of concentrating on the “bigger global picture”, we do not forget this.
The good news is that the worst of the economic aftershocks of the failed coup have subsided. The bad news is that, nobody knows if this calm will last for long.
While Mr. Erdogan, seems to have firmly stamped his control once again, he has done so in a crude authoritarian manner by purging thousands of government officials. To the cold, hard nosed investors, this might have instilled a sense of political stability.
But how long can this façade of ‘stability’ last? The more Mr. Erdogan stifles opinions, arrests dissenters and curbs the media – the greater is the risk of a public backlash. During the attempted coup, it was the public that came out in support of their President.
It is time Mr. Erdogan repay this faith, by giving his citizens greater political and social freedom.
The consequences of reneging on these ideals can be dire. Bashar Al Assad, the President of Syria tried to stifle a series of protests in Syria with a heavy handed response, the result has been years of unending civil war and turmoil. Egypt, and Libya are other examples of nations where leaders used their might to supress their subjects, only to see their political fortunes (and along with it their economy) dwindle into a death spiral.
Alas, if this happens – the Turkish economy would be reduced to shambles, and simultaneously cause the global economy too to lurch violently. The hardnosed investor cheering Mr. Erdogan’s victory must beware. Public resentment in Turkey is like malfunctioning firecracker that awaits to be lit. If it does, it could blow everything in its sight.
*Run on Lira – a run on the Lira means, that all investors holding the Lira suddenly start selling it off – because they feel that the value of their Lira investments is going to crash. In the process of selling of the Lira, they in fact cause the Lira to depreciate more, leading to a vicious cycle that culminates in a ‘run’ on the Lira.