Why Turkey Matters to Traders and the Implications of the Election – Introduction
Geopolitical issues are very important for traders, investors, and policy makers around the world. This is because these stakeholders have the desire to put their money in countries that are safe and growing. Countries’ economies tend to grow in periods of peace and stability. This is part of the reason why countries like the United States, China, and others in the European Union have become more prosperous than well-endowed countries in Asia.
One of the recent stories in the past few months has been on Turkey. This is a country whose largest land mass is in Asia but also a country that likes to identify as European. Most Turkish residents are Muslims who have close ties to European countries like Greece. The country has a population of 80 million people and a GDP of more than $870 billion. Its efforts to join the European Union have failed because of its poor track record on human rights.
In 2016, when the country’s leader – Recep Tayyip Erdogan – was on a trip abroad, rebels in the military decided to overthrow him. The coup attempt lasted for a few hours, but the implications of the coup continues to linger. After the coup, the president declared a state of emergency which has existed to date. Under a state of emergency, the president does not need to pass laws through the parliament. Instead, he can make decisions on his own.
After the coup, Erdogan commissioned a referendum. This referendum gave him more powers. On the election day, the people gave him the power he needed. At the same time, he went through a crackdown where thousands of people believed to be part of the coup were locked up. These involved ordinary citizens, members of the armed forces, scholars, and even doctors.
Yesterday, the country had an important election. This was billed as the most important election in the country’s history. This is because a win by Erdogan would grant him more powers and a sign of power. At the end of the day, he won the election by the required 50%. In addition, his party won more votes in parliament. As a result, the Turkish Lira gained by more than 2% against the dollar.
The future for Turkey remains uncertain. This is mostly because of what Erdogan campaigned on. Faced with an economy that is falling, he proposed to taking more powers on monetary policy. This means that he would help decide the interest rates of the country. This is a risky move. This is because no politician will ever hike rates, even when it is the right thing to do.
In most countries, the decision on monetary policy is left to the central bank, which is usually independent from politics. The reason for this is that politics and monetary policy issues don’t mix. In the United States, we have the Fed while in the EU, we have the ECB.
The announcement by Erdogan that he would influence these policies crashed the Turkish Lira which has fallen by more than 50% against the dollar in the past few years. After the election results were announced, the Lira jumped. This jump could be short lived as Erdogan implements what he campaigned on.