Financial Times assessment of Turkey: 'No trust in the rule of law'

Financial Times, in an analysis titled "How Turkey's struggling economy is challenging Erdoğan," stated that high living costs and rising social unrest are threatening the political future of President Recep Tayyip Erdoğan.

The article, written by Istanbul correspondent John Paul Rathbone, emphasized that both small businesses and large industrial enterprises in Turkey are facing an economic bottleneck. However, the newspaper noted that the primary concern of investors is not economic, but related to political and legal guarantees.

CONCERNS OVER THE RULE OF LAW HINDER INVESTMENT

A businessperson who wished to remain anonymous told the Financial Times, "We can learn to live with high inflation. But if the rule of law is not functioning, it becomes impossible for us to invest. If you are not in harmony with the government, you can be targeted."

The newspaper cited the detention of TÜSİAD executives as an example of this concern and stated that political pressures have created a deep sense of distrust in the business world.

U-TURN IN ECONOMIC POLICIES

The analysis stated that the orthodox economic policies that began with the appointment of Treasury and Finance Minister Mehmet Şimşek were initially welcomed. The decline of inflation from 75% to 40% and the recovery of Central Bank reserves were cited as the first successes of this policy.

However, the arrest of Istanbul Metropolitan Municipality Mayor Ekrem İmamoğlu on March 19 led to both domestic protests and a sense of panic in the markets. It was noted that the Central Bank spent approximately 50 billion dollars in reserves during this period to balance pressure on the exchange rate.

GROWTH MODEL BASED ON CREDIT IS NO LONGER SUSTAINABLE

The article stated that Turkey's past economic model of low interest rates, credit expansion, and construction-focused growth has come to an end. Economists speaking to the FT stated that this model is exhausted and unsustainable.

Furthermore, Turkey was defined as a "high-risk country" in the eyes of investors, ranking 117th out of 142 countries in the rule of law index.

FREQUENT CHANGES IN THE CENTRAL BANK AND TREASURY CREATE DISTRUST

Financial Times stated that the change of four Central Bank governors and three Treasury Ministers in the last five years has seriously damaged institutional stability. The newspaper wrote that if such changes continue, a new collapse in the Turkish Lira could be inevitable.

In June, foreign interest in Turkey-focused exchange-traded funds (ETFs) showed an increase again. According to Bloomberg, there was an inflow of 21.4 million dollars into the MSCI Turkey ETF, and this figure was recorded as the highest level in the last two years.

Can Oksun from Global Securities stated that foreign investor interest is more stable, attributing this interest to factors such as expectations of interest rate cuts, the slowdown in inflation, and relative exemption from US customs restrictions.

Sebastian Kahlfeld from Frankfurt-based DWS Investment said that this investor interest is not long-term, but rather "tactical" moves. However, he added that if Turkey continues its orthodox policies with determination, stocks could see higher valuations.

News Source: 12punto