Turkey: Economy guided by the geopolitical turbulence and political instability – ABN AMRO

According to analysts at ABN AMRO, for the Turkish markets, aside from the central bank policy issues, geopolitical turbulence and domestic political instability continues.

Key Quotes

“Below we summarize relevant risks to the Turkish market:

• Since 2017, Turkish S-400 missile system acquisition has worried the United States and other NATO members (see Turkey watch – It is all about reforms, oh, and geopolitics). The Trump administration’s hard-line stance against acquisition threatens to sanction Turkey (under CATSAA legislation) and end its participation in the F-35 fighter jet program, if Ankara proceeds with the purchase.
• Two bills recently introduced to the U.S. Senate will further test relations. The first bill proposes sanctions against Turkish officials involved in the detention of U.S. citizens; the second bill envisions the creation of an Eastern Mediterranean Security and Energy Partnership between the U.S., Israel, Greece and Republic of Cyprus (RoC).
• On the domestic front, political stability remains particularly tenuous with the AKP successfully appealing the electoral board (YSK) to nullify its high-profile loss in Istanbul; an effort resulting in protests and small-scale scuffles in the past month. The nullification is indicative of further erosion of Turkey’s democratic politics, in particular, its credible elections. Re-runs are scheduled for 23 June.
• Within the AKP, the nullification has reportedly caused a split between Erdogan loyalists and those concerned over its political-motivation, believing it should have never been pursued in the first place.
• Furthermore, a spat is rumoured between Erdogan and Minister of Finance Albayrak over proposed changes to FX reserve calculations; a replacement is indicative of increased AKP-rule over fiscal and monetary policy, triggering further negative responses in Turkish markets.”