Difficult times in Turkey

The big news from the weekend (barely) is of course the attempted coup in Turkey, which was swiftly suppressed and has resulted in a rapid crackdown against the coup plotters and more.  There are quite literally books that could be written about the Turkish political climate generally and this incident specifically, so it is impossible to explore the situation in complete depth in a few short paragraphs.

From a markets perspective (which is the viewpoint of your author and this blog), the failure of the coup is probably the best thing for markets in the short run, though it is less clear that this is the case over longer time frames.   Obviously it is a relief that the situation has not degenerated into civil war, which would be destabilizing not only for the country, but also the region and, by extension, the world.  That some key markets have opened with a partial retracement of their late-session swoon would suggest that this is a commonly-held view.

Of course, the political backdrop in Turkey has been troubling for some time.  While Erdogan was originally seen as a friend of democracy, the West, and markets, his slow slide into autocracy and the weakening of democratic institutions has been worrisome.  The reaction to the coup attempt, including mass arrests, calls for Gulen's extradition, and discussions of retroactively re-introducing capital punishment for the plotters, does little to dissuade the suggestion that this is a Reichstag fire-like moment for Turkey.

While the conservative rural regions no doubt appreciate the direction in which Erdogan has been taking the country (an Islamic Evolution?), the further that the country tilts from secularism and towards rule by a single strongman, the less stable it is likely to be in the future.   Given where it sits geographically and geopolitically, it has all the makings of a potential disaster; one need only look at the autocratic ruler across the border in Syria to see how bad things can get.

While it's true that the Turkish economy has outpaced many of the nation's EM counterparts over Erdogan's term of office(s), it's hard to escape the notion that things have gone off the rails recently.   Obviously, the wretched performance of the currency is one tell-tale sign, but so too is the collapse in tourism, down 34% y/y at last count.

Of course, much of that has to do with terrorist activities.   While those may not be directly linked to Turkish policy choices, as an outsider it is difficult to understand why the country exerts so much effort on fighting Kurds, who could be at the vanguard of the war against ISIS.  (Better left unsaid are the allegations that elements within the regime have assisted the Islamic state movement to various degrees.)

Perhaps markets will choose to view the extraordinary scenes from the weekend as just another footnote in Turkey's sordid history of political instability.  But it's difficult to escape the notion that the country is increasingly steering towards a fork in the political road, with each potential outcome more unpalatable than the last.  In that vein, it's hard to be anything but long-term bearish unless either the regime or the electorate decide to chart a different course.