Analysis: Economic unrest will not deter Erdogan

Aware of the discord among his opponents, Erdogan has thus far stood his ground and rebuked demands for his resignation.

June 9, 2013 05:14
Turkey's Prime Minister Tayyip Erdogan.

Tayyip Erdogan with flags 370. (photo credit: REUTERS/Umit Bektas )

As the anti-government protests in Turkey enter their 13th day, the mood in Taksim Square – the ground zero of the protests – is rather festive, with demonstrators occupying the square in numbers varying from from ten to two hundred thousand around the clock.

Yet, it is becoming ever more clear that these protests cannot produce a unified political opposition that can topple Erdogan’s government in the ballot box, as his Justice and Development Party is still favored by about half of the population.

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United only in their demand for more democratic rights and a disapproval of the current policies, the protesters comprise the secular conservatives who are the backbone of the main opposition party CHP, the liberal democrats – including many in the business community and the intelligentsia – some right-wing nationalists – who oppose the reconciliation process with the Kurdish insurgency – all mainstream workers’ unions and a host of small far-left groups.

Aware of the discord among his opponents, Erdogan has thus rebuked demands for his resignation.

Since the police withdrew from Taksim Square a week ago, the crackdown on protests has continued in other neighborhoods, as well as other cities, and now includes arresting certain individuals for the content of their tweets during the protests.

Erdogan responded to criticism by saying that “[the government] won’t accept the domination of a minority over the majority” and the construction of a replica of the historic army barracks in the Gezi Park is to continue as planned.

However, coming on the heels of an increasingly vocal debate about Turkey’s large current account deficit, the government response to protests was met with pessimism from the markets.

Within minutes of Erdogan making his first public remarks about the protests on Monday, June 3, the Istanbul Stock Exchange – which had already opened lower on the news of violent clashes over the weekend – took a nosedive, posting its worst performance in a decade. The benchmark index fell 10.5% (11.4% in US dollar terms), which translated into roughly 63 billion Turkish lira ($33.5 billion) evaporating from the total market capitalization.

When Erdogan spoke again on the issue on the morning of June 6, the index plunged again – having previously recovered some of its earlier losses – and closed the day down 4.7%, translating into another 27 billion lira ($14.4 billion) loss in market value.

The hardest hit in the stand-off between the government and protesters has been the tourism industry. Turkey earns over two thirds of its tourism revenues during the five months between June and October, according to Emre Deliveli, a Turkish economist, consultant and blogger.

He argues that the strong reactions of the market have as much to do with the current protests as the ongoing political tensions that result in regulatory instability.

“[Even] if the last weekend had not happened, any potential investor would still think twice after learning what Diageo went through,” Deliveli said, referring to the recent acquisition of Mey Icki by the liquor giant for $2.1 billion. Diageo issued a strongly worded statement following the passing of a May 24 law, which will restrict the sale of alcoholic beverages to specific hours and locations.

Restaurants and places of entertainment are also affected. With many would-be customers joining the protests, the Istanbul entertainment scene saw a drop between 30% and 90%, according to a report compiled by the Turkish Daily Hurriyet.

The loss in consumption was compounded by the loss in productivity when two unions, together representing over 600,000 workers, called a two-day strike to support protests.

While the prime minister downplayed the significance of the bearish stock market, he singled out the hike in interest rates as a major concern.

On June 6, the yields on Turkish lira denominated financial assets jumped 0.71% in response to his remarks; and the yield on Turkey’s 10-year government debt ranked the third-highest among 23 major emerging market countries, according to data from Bloomberg.

During his speech at the Ataturk airport later that day, Erdogan declared the “interest lobby” the main culprit. In a rehearsed speech he alleged that a group of investors disgruntled with the recent drop in interest rates, would like to see them climb as a result of political turmoil.

“The interest rates lobby right now thinks it’s threatening Turkey with speculation in the markets,” Erdogan said, “[but] no power can stop Turkey’s rise except Allah.”

In a series of polarizing statements, Erdogan stood his ground. On June 3, he said that for every 100,000 protesters he would mobilize a million.

Three days later at his “interest lobby” speech, he faced thousands of cheering AKP supporters, whose slogans included “the hands against the police should be broken” and “open the way and we will crush Taksim.”

In response, he told them “to go home in dignity” and stay away from violence, after quoting conservative Turkish poet Mehmet Akif Ersoy, “if anyone attacks my ancestry, I would strangle him.”

The tone of this speech angered many, including Nazan Ustundag, assistant professor of Sociology at Istanbul’s Bosphorus University, who said, “We are inviting the world to closely follow all news from Turkey and be prepared to take immediate civil action... the prime minister [has] made one of the most provocative speeches in history.”

Overall, Erdogan’s divisive stance works for him. He wants to ensure the political unity of his support base for when the disturbing images of the clashes are finally spreading through the national media.

The strength of the Turkish economy, poised to become one of the 10 largest economies in the world by 2023 – according to the prime minister – has been at the core of AKP’s popularity over the past 11 years.

Yet now it has shown significant vulnerability to the continuation of the influx of foreign capital, which is sensitive to political turmoil.

Therefore, if the AKP refuses to negotiate a solution with the demonstrators it is likely that we will witness a long summer of discontent, whose corrosive effects on the economy can tarnish the party’s long-standing popularity.

The writer is a business development executive and a freelance journalist. His blog can viewed at

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