Wednesday, 19 February 2014

The invisible hand in Gezi Park protests? *

In his decade long rule of the country, Mr Erdogan has presided over decreasing inflation and increasing economic growth rates. One of the positive effects of these have been the decreasing interest rates by which Turkey is able to borrow in international markets. Concomitantly, Turkey has reversed its debtor relationship with the IMF and is now planning to increase its contribution to the IMF. These improvements have been recognized by upgrades on Turkey's credit rating, the last of which happened shortly before the Gezi Park protests and reinforced Turkey's investment grade status.

Gezi Park near Taksim Square. By Yinyerale [CC BY-SA 3.0 (], via Wikimedia Commons
The Gezi Park protests started small but turned into country-wide protests after the brutal police crackdown on protester campers in Gezi Park. As protests have widened to Ankara and other cities, the PM has called protesters “chapulcu” [riff raff]. However, the protesters have shown resilience against the excessive use of tear gas, water cannons and rubber bullets. Many commentators have seen this resilience as the manifestation of pent-up anger against Mr Erdogan's increasingly dictating and polarizing voice on different matters such as abortion rules, regulation of alcohol consumption, refusal to grant place of worship status to Cemevi- Alewites' place of worship, and rebuilding Topcu Barracks as a mall at the expense of Gezi Park, one of the few remaining greenery in urban Istanbul. 

Taksim Military Barracks — in Istanbul. Demolished in 1939 (Public Domain,

The PM's rhetoric, which for many is combative and condescending, has not helped. As one commentator put it, this is a protest movement among urbanites to restore their dignity in the face of PM's actions and words. 

Protesters at Taksim Square. By Fleshstorm (Own work) [CC BY-SA 3.0 (], via Wikimedia Commons

It is in these circumstances, the PM has led the discursive counter attack on the protesters by calling them mere tools in the hands of “the interest lobby”. In Mr Erdogan's narrow usage of the phrase, the interest lobby simply refers to a group of national and international actors who strive to increase the fee on the loans given to Turkey. This phrase is not a new tool in Mr Erdogan's rhetorical arsenal. Mr Erdogan and his close circles, which include rising columnists and media tycoons, have repeatedly argued that Mr Erdogan's political and economic success has been at the expense of this lobby.

Riot Police clearing the square 15 June 2013 By Mstyslav Chernov (Self-photographed, [CC BY-SA 3.0 (], via Wikimedia Commons

Although finance capital is expected to seek higher returns, risk is the reverse side of the coin. Simply put, the interest rate by which a country borrows in international markets is determined by a plethora of risk factors such as local inflation rate, global economic prospects influencing the circulation of finance capital, and debtor country's growth prospects and political stability signalling its ability to pay back loans. One cannot rule out foul play in international markets as recent LIBOR fixing scandal has demonstrated. Nevertheless, such scandals and the underpinning opportunistic behaviour cannot explain everything in the markets.

So what has happened in the Turkish markets during the Gezi protests? The stock market went down by more than 10 per cent after the PM's stern dismissal of the protesters and their demands. The benchmark interest rate spiked by more than 2 per cent and the default insurance premiums on the Turkish debt went up by more than 60 basis points to 183. In the process, it is claimed that several billion US dollars have exited the Turkish stock and bond market. For the PM and his supporters, these were the signs that the interest lobby decided to destabilize the Turkish economy not just to earn higher interest fees but also to thwart the rise of Mr Erdogan and Turkey to global power status. Nevertheless, in the weeks preceding the protests, the developed and emerging country stock markets have been jittery because the signs that the US and Japanese central banks might reverse their monetary expansion policies have got stronger. The prospect of such a reversal has led to sellings in the stock markets including the Turkish one which have benefited from the monetary expansion policies and negative interest rates. The Gezi Park protests in Turkey and the government's reaction have exacerbated the downward momentum in the Turkish assets. Nevertheless, the stock market has recouped most of its losses and the benchmark interest rates and the default risk premium on Turkey have loosened down as the protesters and the PM have started dialogue on how to resolve the issue peacefully.
In the early days of the protests, the Turkish stock market fell by more than 10 per cent. Picture by Katrina.Tuliao ( [CC BY 2.0 (], via Wikimedia Commons
If there had been an intent on the part of the interest lobby to topple Mr Erdogan by causing social, economic and financial mayhem, it seems like the lobby has decided to stop playing their part in the financial realm without a reason. The PM and his supporters argue that it has been their uncompromising determination to stay in government and fight any international conspiracy that has scared the interest lobby. Yet, so far there has been no investigation from the Turkish financial regulators on any local or international financial actor **. On the other hand, the Turkish economy has been and will be vulnerable to change of sentiments in international markets mainly because of its low savings rate (one of the lowest across emerging markets) and its dependence on foreign capital to reach its target of becoming a high income country in the next 10 years. Such dependency on foreign capital has actually made the Turkish investors more sensitive to global economic events than domestic economic agenda. In this context, increasing the crackdown rhetoric on foreign capital would add   unnecessary strain on Turkey's ability to borrow in international markets and make things worse for Mr Erdogan's rule.

For long Mr Erdogan's rhetoric of being the victim- turned-hero who can advance Turkey beyond a military tutelage has helped his popularity among the masses. Now that Mr Erdogan seems to have harnessed most of the branches of state authority, he turns to shadowy rhetorical figures such as the interest lobby to explain the growing national discontent with his polarizing rule and reinforce his rank and file. 

*This essay was written in the beginning of June 2013 when the Gezi Park protests were raging in Istanbul and the rest of Turkey. The essay appeared in an edited book titled Reflections on Taksim – Gezi Park Protests in Turkey (Bulent Gokay and Ilia Xypolia eds September 2013, pp. 50-1) The book  is available at

** SPK- Capital Markets Board of Turkey actually started an investigation into foreign investors and their local brokers at the end of June 2013, requesting detailed documentation from the latter . According to a recent news report in Hurriyet, a national newspaper, the investigation was still on at the end of 2013 owing to the CMB's data requests from foreign capital market regulators. According to undisclosed CMB sources cited in the news report, the investigation is not expected to produce any conclusive evidence of market manipulation on the part of foreigners and their local brokers.  (In Turkish)

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