Economic Impact of the Failed Coup in Turkey

In 2016, Turkey faced an attempted military coup. The coup was supposedly orchestrated by a US citizen of Turkish origin. His name is Fethullah Gulen.

Apparently, the coup did not go as planned and President Erdogan was able to come out victorious. However, this attempted coup has made him paranoid. This has led him to order a massive purge of any officials he thinks are connected with Gulen. There have been mass firings in the bureaucracy.

Police officers have been suspended in large numbers, and the same is the case with military officials. These so-called preventive steps have further worsened Erdogan’s reputation for being an authoritarian ruler.

Political events usually do have economic impacts. A political event of this magnitude is seriously affecting the economy of Turkey in a negative manner. In this article, we will understand the different outcomes that have resulted from the failed military coup.

Investor Fears

The military coup was a major scare for Erdogan. This prompted him to go on the offensive and a massive purge followed. However, many private companies got caught in the process. Some of the companies were owned by supporters of Gulen.

Hence, Erdogan has declared these companies as treasonous organizations and closed them. A lot of foreign investors had their money tied up in these firms. They have suffered some serious losses as a result of Erdogan’s purge.

Also, since the plans of Gulen and his followers were kept under wraps, there is no way that investors could have avoided these losses. Similarly, a lot of firms have been firing perceived Gulen supporters from their jobs. This is being proactively done to avoid the wrath of the President. Many companies are using this as a pretext for downsizing and laying-off employees who have nothing to do with the coup!

The above events have shaken the confidence that investors had in the economy of Turkey. They now view Turkey as a politically unstable region with unstable neighbors like Syria and Iraq. Investors are afraid that Turkey will also end up a failed state. It is for this reason that the investments from foreigners have completely dried up.

Quality of Government Services

A large number of civil servants have suddenly been fired from their jobs. Turkey does not have the manpower or the infrastructure to quickly recruit new civil servants. As a result, the quality of people filling these positions is falling rapidly. This has resulted in lower quality government services being provided. As a result, the regulation process has become a lot more tedious and time-consuming. This is negatively affecting the local businesses.

Tourism Drop

Turkey is now being viewed as a nation under the reign of an authoritarian ruler. Foreigners are wary that the country may plunge into turmoil at any given point in time. Also, Turkey has problems with its neighbors. The ISIS is at its doorstep and once again foreigners are wary that there might be violent clashes between the Turkish government and ISIS. They do not want to get caught in the crossfire. Hence, the number of people visiting Turkey has suddenly dropped. The tourism industry has been badly hit. This has a significant negative impact since tourism was a major industry in this region.

Economic Growth

President Erdogan is trying to create an illusion of economic growth. Before the coup and purge, the Turkish economy was growing at 3% per year. However, after the purge, the economy has suddenly started growing at more than 11% per year! This is astounding given the fact the country is facing a hostile economic environment. Turkey has a higher rate of economic growth in 2017 when compared to any of the G-20 nations.

However, a closer look reveals the truth behind these numbers. Most of the economic growth has been generated by increased government spending. The funds for these government spending have either been created by printing money or by borrowing more money at usurious interest rates. In his bid to create a positive image about Turkey’s economic situation, Erdogan is running the country into the ground! The inflation rate is increasing dramatically. Also, the debt to GDP ratio is increasing at an alarming rate.

Tensions with EU and US

Turkey faces another major problem. It does not seem to have any allies. Turkey has already strained its relationships with Russia and Egypt over the Syrian issue. However, after the attempted coup and the related purge, President Erdogan seems to be eager to make amends. He has backed down from his demand that Syrian President Bashar-al-Assad is removed from office.

However, Turkey still faces problems with the United States and the European Union. Turkey wants the US to extradite Gulen from Pennsylvania. However, they are not able to provide sufficient proof of his involvement in the attempted coup. As a result, bilateral relationships between the two nations are turning sour. Also, European Union is concerned that there might be many human rights violations in Turkey. As a result, they have also been continually pressurizing the Turkish government.

The bottom line is that even though the Turkish coup was a one-day event, the effects are still being felt one year later. In fact, it is likely that the economic effects will continue for several more years.