In a recent article for Foreign Policy, Aaron Stein wonders whether the ongoing mass protests in Turkey could exacerbate an already worrisome economic situation. According to Stein, Turkey’s unique approach to weathering the global recession, paired with a decrease in direct foreign investment, has made the country overly dependent on short-term speculative capital flows.
If the protests–and the state’s excessively heavy-handed response–continue, investors might question the stability of Turkey’s government and divert the fickle flow of speculative money elsewhere. The protests have and could continue to have an adverse effect on Turkey’s tourism industry as well. Furthermore, as Stein points out, “the combination of a slumping EU economy and the various crises in Middle East has made it harder for Turkey to export its way out of economic malaise. Ankara will therefore have to rely on domestic demand to fuel economic growth, which will inevitably increase the country’s current account deficit — in turn making it even more vulnerable to the whims of the U.S. Federal Reserve.”