When I visited Turkey last autumn as part ofthe BBC radio documentary series I was making about the so-called Mintcountries — Mexico, Indonesia, Nigeria and Turkey — my colleagues from the BBC had quite strong views that Turkey had a lot more serious challenges that perhaps I had thought.
The ever widening Turkish current account deficit and the visible signs of a property boom at least in Istanbul suggestedthat Turkey might be ripe for one of its all too familiar financial crises. Andof course, at times since last May when the Fed started its tapering, Turkishmarkets have seemed on the brink of a possible meltdown. These fears were notshared by most people I spoke with and I was interested in exploring whereTurkey might do better than many feared.
On leaving Turkey after five days, Itentatively concluded that the country was not suffering in the way manyforeign observers had believed, especially thinking there was a major slowdownin business confidence and spending coming due to the political instability. Ihave to emphasise that this was highly tentative because some of the issueswere plain to observe and, in marked contrast to the other Mint countries,Turkish policymakers were not overly eager to engage in recorded discussion. Assubsequent events unfolded into the end of 2013 and through the first quarterof 2014, in hindsight, I had witnessed some of the tensions that were andprobably still are present within Turkey.
At the time of writing, a few weeks afterthe much anticipated local elections, the predicted vote against the leadershipof prime minister Recep Tayyip Erdogan did not happen and — in addition — aftersome brief periods of pressure on the Turkish lira and the local stock market,markets have rallied notably in recent weeks.
Frankly, I am not sure what to make of itall. Obviously, on the surface, the collective view of the Turkish electorateas well as the markets appears to be that they are not as worried about some ofthe decisions adopted in recent weeks than many foreign observers areunderstandably concerned about. It mightwell be that this is a temporary reaction. If the prime minister had sufferedimplicitly in the recent polls, then there would have much been heighted fearsabout political turbulence and fresh problems on the streets.
So one way of interpreting recent events isthat, Turkish voters and markets prefer an incomplete democracy to significantpolitical uncertainty. Whatever thecorrect view, it seems to me that there are plenty of reasons why one must notget overly carried away with the market’s recovery as below the surface remainplenty of issues.
Whatever happens in the next few weeks andmonths, Turkey does continue to have a few key positives in its favour. Inaddition to its own youthful demographics, its geography and Turkish businesspeople’s ability to be good traders make the nation quite unique to prosperfrom many of the opportunities going on around it. I had been fully aware ofthe classic east-west trade route theory before my trip around the country, butI hadn’t realised at all how much this was extending beyond Europe and nearAsia to elsewhere, especially Africa. In my discussion with the CEO of TurkishAirlines, I started to appreciate how rapidly Turkish business was developingrelationships into the continent and I found myself thinking that on one levelit is a partial way of betting on the African story. It is developing othercompanies that can hold their head up globally also with the bestinternationally. It has the world’s largest washing machine company thatappears to take market share in Germany from German competitors for example.
Then of course, we thought it had thebenefit of being able to combine a strong Islamic-based faith with anacceptance of much of Western capitalism. A visit there would still suggestthis is true but what happens in the next few months between the government andits people will determine how strong this actually is.
Of course, all of this is unfolding againstthe ongoing changes in the world economy and markets, and it is important thatTurkey’s current account deficit slows further as otherwise, the economy wouldremain vulnerable to a very adverse move in overseas markets.
Turkey and its markets are not going to befor the weak hearted and if you want to sleep without any concerns, this mightnot be a place for you in the next year or so, but unless Turkish people losetheir own individual desire for a better and wealthier life, my hunch is thatsome interrupted moments in coming months might end up being worth it.
Jim O’Neill is Visiting Research Fellow toBRUEGEL and Economic Advisor to the International Finance Corporation