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Turkey's Standing with Europe and the Lira's Revival Faces Uncertainty

By Patrick Higgins  |  14/07/2017 06:22
The Turkish lira continues to underperform, almost a year to the day of the 15th of July coup attempt, as recent geopolitical events highlight the instability and increasingly authoritarian/anti-EU atmosphere in Turkey.
Speaking to the BBC yesterday, President Recep Tayyip Erdogan implied that repression in Turkey was minimal, and stated that Turkey would be happier to be rejected as an EU member than to join the supranational organisation, and the Turks were capable of sustaining themselves.  The interview highlighted the increasing extremity of Turkey's 180 degree turn from a European outlook to an increasingly Islamic outlook.  Since last year's coup attempt, 103,824 government employees, including judges, teachers, and police officers, have been sacked, and 33,483 suspended indefinitely.  All have been accused of supporting the coup plotters, identified as followers of Fethullah Gulen by the Turkish government, though Mr Gulen strenuously denies involvement.  President Erdogan said that Turkey's primary foreign policy focus was to facilitate peace and cooperation in the Gulf region and to prevent the killings of Muslims by Muslims.  All of this in direct contrast to Erdogan's attitude regarding Europe, such as his comments back in April when he referred to the German government behaving like, "Nazis," for refusing to allow Turkish ministers to hold rallies in Germany to support Mr Erdogan's referendum campaign for more presidential powers.
Notwithstanding the opinions of Turkey's political elites, Turkey has found itself under accumulating economic and political pressure since 2016's coup attempt set off a year of human rights abuses, terrorist attacks, and repression.  Tourism to Turkey, 12.9% of total GDP as of 2015, has fallen off the precipice.  Repeated ISIS attacks on Western tourists and prominent nightclubs, such as the 2017 New Year's attack on Reina in Istanbul, has caused many to avoid Turkey entirely.  Though terrorism has abated in recent months, the economy and lira continue to flail.   The Turkish economy, which had been one of the best-performing economies in the world as recently as 2015 (at 6%), has been massively struggling with inflation and currency devaluation.  The lira, the world's worst-performing currency at the beginning of 2017, today hovers around $3.57 at the Dollar/Lira exchange rate, only marginally improved from levels seen in January of around $3.86.  The lira has only just managed to regain similar levels against the dollar compared to last year within the last month, as the Central Bank of Turkey's (CBT) campaign of controlled price growth continues to take effect.  This tightening campaign also saw the annual inflation rate, Turkey's highest in eight years, drop from 11.72% to 10.9% in the May-June period.  Relatedly, Rabobank, a Dutch financial group which operates large-scale corporate lending schemes in Turkey, expects the lira to recover to $3.40 by the end of the year if political stability in Turkey remains constant.
Regardless of initiatives from the CBT and foreign assurances, many investors are continuing to sell off the lira at an alarming speed, due to pyretic levels of geopolitics in recent months.  One of Erdogan's most prominent foreign policy moves in the last few months has been to support Qatar publicly, currently under a complete blockade from a majority of Arab states due to its perceived support of ISIS and liaisons with Iran, by delivering food and medical supplies by air.  In response to the Saudi-led demands that Qatar close the Turkish military base on its soil in exchange for the reduction of sanctions, Turkey reacted by sending more military personnel, worsening any further attempts at reconciling regional tensions.  Additionally, the issue of crackdowns against the secular media and education has fuelled lira selloffs as well.  In his BBC interview, President Erdogan claimed that only two members of the press were in Turkish jails, disputing the number of 150 journalists.  However, during the same period of the interview, the Turkish government moved to extend the incarceration of Amnesty International's Turkish director and nine other sub-employees of the NGO.  Furthermore, 110 media organisations within the last year have been shut down or severely curtailed for links to the Gulenist movement, most famously the pro-secularism mouthpiece Cumhuriyet.  Many within Turkey’s political opposition accuse Erdogan of using the coup as an excuse to crack down on dissent, but Erdogan maintains it is to protect the nation from terrorists and revolutionaries.
Though the lira has recently begun to recover slightly due to the CBT's move to restrict price increases, obstacles against an overall value recovery continue to impede Turkish currency revival.  Continued government crackdowns, frosty relations with the EU, Russia, and the US, and threats of terrorism have ensured that the lira will not reach its previous peak of $2.90 last July (pre-coup) against the dollar for an unknown amount of time.  If faced with indefinite lower levels of purchasing power and cut off from Europe, it is unclear if Turkey will see improved societal cohesion.  Mr Erdogan's insistence that Turkey is self-sufficient may very well come back to haunt him.



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