Beyond The Bernangezi Effect

Although recent social unrest tends to be winding down and at this point does not seem to foreshadow a Turkish Spring, it does sound a warning signal. The combination of local social discontent and the volatility of international financial markets since early May has raised fears of a “financial squall”. For the moment, however, nothing indicates that Turkey is being stigmatised more than the other emerging markets. Our central scenario does not call for a severe macroeconomic adjustment in the short term, but given the country’s external vulnerability and new signs of overheating (credit boom), Turkey remains one of the most highly exposed emerging countries to a sudden stop in financial flows.

No Turkish Spring this time, but be warned
Turkish society has been very agitated since 31 May, date of the first protests against the project to destroy the Gezi Park in Istanbul, but these events must be kept in perspective. They provide a good reason to review the Erdogan administration’s track record after a decade in power. In a political regime considered to be democratic, the hegemony of the Justice and Development Party (AKP), in power since 2002, can be attributed to the charismatic personality of Prime Minister Recep Tayyip Erdogan, and to the patent weakness of the political opposition. The government’s policy line can be described as economically liberal and socially conservative, fluctuating between pragmatism and intransigence.

The Erdogan administration’s economic record is undeniably positive. Turkey, the world’s 17th largest economy (in terms of nominal GDP in $), has grown at an average annual rate of more than 5% in real terms over the past decade (up from 3% in the previous decade). Expressed in purchasing power parity (PPP), per capita income has virtually doubled and poverty and inequalities have declined. These performances were achieved through far reaching structural reforms launched in the aftermath of the 2000-01 crisis, notably in terms of economic policy (public finances were cleaned up; monetary policy tools and the conceptual framework were reinforced) and banking sector restructuring. At the same time, political stability and a relatively favourable business climate helped rebuild investor confidence.

In recent years, in contrast, we have also seen growing cleavages in Turkish society over moral and societal issues. Recent protests were largely apolitical (90%) and unorganised, but although they seem to be winding down, they should not be considered to be an epiphenomenon. Sounding a warning signal, these protests reflect the exasperation of a certain fringe of the Turkish population (rather young, urban, secular, educated and not low income) concerning the subject of civil liberties. With the approach of a busy electoral calendar (municipal and presidential elections in 2014, legislative elections scheduled for 2015, although they could be moved forward a year, and a possible constitutional referendum), the government is still supported by a large part of the population.

BY Sylvain BELLEFONTAINE

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