Though the Turkish economy suffered what Turkish Deputy Prime Minister Mehmet Simsek termed a “knee-jerk reaction” in the immediate wake of an unsuccessful and short-lived coup attempt, investors still fear for the stability of the market. The Turkish Lira initially sunk to its lowest point ever, and remains under pressure in the aftermath.

Some predict the coup and President Erdogan’s resultant crackdown jeopardize “the       institutions and respect for the rule of law that are central to the proper-functioning of a market economy.” However, Bloomberg turns to somewhat more promising data from a 2016 paper by Assistant Professor and economist Erik Meyersson of the Stockholm Institute for Transition Economics.

The paper breaks down coups into a matrix of autocratic versus democratic governments and successful versus failed attempts from 1955 to 2001. This date range enables Meyersson to track a decade of economic fallout from government coups. When comparing all the possible combinations and outcomes, Meyersson found that a successful coup in an autocracy can have a very different effect than a coup accomplished in a democracy. While an autocratic coup may overthrow an ineffective or unpopular leader and possibly even install a better leader, a democratic coup is seen to undermine the rule of law.

This makes sense when you consider that autocracies don’t necessarily have a system in place for the turnover of power, while democracies have established and respected mechanisms for the transfer of power. Additionally, a democratic coup will often result in the induction of a military leader and the advent of adverse economic policy.

The fact that the coup in Turkey was crushed within 24 hours suggests conflicting realizations. In judging Turkey’s stability, investors have to weigh that fact that–judging by the backlash–thousands thought the takeover was possible against the fact that the uprising was quickly quashed. The latter seems to suggest Turkey’s structural integrity is intact, but these two angles could balance each other out.

From a historical standpoint, Turkey might not encounter decreased economic growth. Turkish Prime Minister Binali Yildirim downplayed the economic effect of the uprising: “Our central bank is on top of its duties. Any changes in economic indices are normal and no different from fluctuations recorded on normal days.”

According to the pertinent data surveyed by Meyersson, failed democratic coups level out economically-speaking within 10 years, despite tourists’ and foreign investors’ fears.

However, statistics and history are not exact sciences. The international market is still recovering from the effects of the unexpected Brexit vote. As The Wall Street Journal noted: “All three major rating firms issued warnings, saying the coup attempt highlighted Turkey’s political turbulence and that the government’s sweeping crackdown in its aftermath demonstrate ongoing risks to the economy.”

Paul Gamble, a senior director at ratings agency Fitch, observed, “The government was able to regain control of the situation rapidly but the political fallout could refocus attention on Turkey’s large external financing requirement if it results in significantly diminished international investor confidence.” According to U.S. News & World Report, William Jackson, senior emerging markets economist at Capital Economics, “said he’ll be monitoring whether President Erdogan tries to push ahead with long-held plans to amend the constitution in order to centralize power further for himself. ‘At this stage, the situation is still highly uncertain, but the initial response seems to be clampdown and even greater centralization of power under the presidency.’”

2017-06-19T15:02:35+00:00 August 16th, 2016|Blog, Economy|0 Comments

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