Ankara must work to restore investors’ faith

The recent failed coup attempt was the last thing expected by the Turkish government, which is grappling with a lot of odds that cast shadow over tourism in particular and economy in general. The turmoil will take economic toll on a country where tourism is an essential source of foreign currency to finance current-account deficit. The sector employs 8 percent of the nation’s workforce.
Attacks by IS followers that killed hundreds in Ankara and Istanbul — including a suicide bombing at its main international airport, Turkish insurgence, strained relations with Russia and now the failed coup, have all battered tourism.
While the economy has been among the biggest beneficiaries of the global clamour for yield as central banks pump cash into economies, Friday’s coup bid may scare investors.
Sadly, the abortive plot to topple President Recep Tayyip Erdogan could leave in doubt Turkey’s image as a stable country that can attract enough investment to finance one of the highest current-account deficits among G-20 economies.
“It’s not going to be business as usual,” said Brian Jacobsen, chief portfolio strategist with Wells Fargo Funds Management LLC, which oversees
$242 billion.
Yet, some investors will wait and see how Erdogan bolsters his authority and reassures them.
To address this uncertainty, the Turkish authorities have stepped in to act timely. Turkish Deputy Prime Minister Mehmet Simsek told investors not to worry, saying on Twitter on Sunday the government was in charge and had decided on “all necessary measures” after consulting with the central bank and treasury.
On Sunday, the central bank said it would provide unlimited liquidity to banks and take necessary action to ensure financial stability.
For Ankara, the foiled coup was actually a spoiler. Before the coup, Erdogan’s move to repair ties with Russia and Israel created some optimism. The lira had rebounded more than 6 percent from a record reached in September. The benchmark stock index rose 0.3 percent at the close on Friday, extending this year’s gain to 15 percent.
Yet, that confidence was suddenly eclipsed by the coup, with the currency plunging almost 6 percent against the dollar. The global stocks retreated and an exchange-traded fund tied to Turkish shares fell 2.5 percent.
There are fears capital flight would damage Erdogan’s pledge to turn Turkey into one of the world’s biggest 10 economies by 2023, a century after Mustafa Kemal Ataturk founded the republic.
Even as global economic growth struggles, Turkey’s gross domestic product had beaten estimates since the fourth quarter of 2014, thanks to rising household spending driven in part by millions of Syrian refugees. The economy grew 4.8 percent in the first three months this year.
Of $15.8 billion foreigners who poured into the country in the first five months this year, only $2.3 billion were in net direct investments, down 50 percent from the same period a year earlier.
It is important that Erdogan takes measures that can help in regaining the lost trust of investors. To remain a hot investment hub, Ankara has to restore its traditional status.