Political scandals and possible increased interest rates have lowered the expectations of Turkey’s economic growth for this year. The December corruption investigation that lead to the arrest of about 50 people including highly esteemed businessmen, the leader of the state-owned bank and the sons of three ministers spread rapidly in the international news market. The events have “put pressure on administration officials and the Central Bank to alter monetary policy to protect the lira and deter risk-adverse foreign investors from selling off Turkish debt. (APCO, 2014)”
Turkey’s corruption scandal was set off by a telephone conversation in December allegedly with Prime Minister Recep Tayyip Erdogan telling his son to get millions of dollars out of the house for fear of an investigation. The conversation was denied by Erdogan’s office however it lead to a series of early morning home and office raids of his acquaintances. “The crisis has damaged Turkey’s already troubled economy (Arango, 2014)”. Countries have now looked at the government as somewhat untrustworthy and not capable of continuing current businesses. In February, citizens of the country protested and chanted for the government to resign. This only left the country in more turmoil and curious of whom would be elected in the upcoming March elections. By 45% popular vote, Erdogan was the winner however it is still unclear of what could come of Turkey’s economy.
Under Erdogan, Turkey has thrived on a decade of solidity and wealth. Erdogan has promised a sound macroeconomic policy, backed originally by the International Monetary Fund and later by financial markets. He has also entertained the prospect of joining the European Union, in which membership negotiations were opened in October 2005. With him elected into office again, Turkey now has a risk of losing both.
The country has already begun to see its growth dissipate. “Investors have become warier of all emerging markets, and Turkey, with proportionately one of the biggest current-account deficits in the world, is especially vulnerable, which explains why the lira has lost a quarter of its value in 12 months (The Economist, 2014)”. The domestic contention between AK’s supporters and opponents may continue to daunt the foreign investors in which Turkey’s economy strongly depends on.
In 2013 the lira was reported to have decreased to an all-time low of 17% against the U.S. dollar. To add stress to the economy, the U.S. Federal Reserve has threatened to diminish its monetary stimulus. In addition, the European Commission’s “Winter Forecast 2014” has projected that the country would “grow 2.5 percent this year, 0.5 points below its previous forecast and 3.0 percent in 2015, trimming previous prediction by 0.8 points (Brussels, 2014)”. Turkey’s economy is anticipated to fall in consumer spending and business investments, which are both impelled by the proposed increase in interest rates. Increased interest rates could possibly relieve pressure on the decrease of the lira. On the contrary they could also “affect Turkish home buyers and affect unemployment rates (APCO, 2014)”. It