Capital Flight in Turkey

Turkey1

Turkey2 SultanahmetMosque

Turket3 PresidentErdogan

Turkish President Recep Tayyip Erdoğan is in the midst of a geopolitical crisis. Within the past several months, billions in foreign investment have been pulled from the Turkish economy by investors fearing increased uncertainty. The country has been involved in several conflicts, which have peaked concerns, most recently (but not limited to):

- The downing of the Russian Fighter Jets (November 24th)

- The questionable occupation in Iraq (December 4th)

- The uncertainty over the ties between Turkey and ISIS (December 8th)

The United States, the European Union, Russia, Iran, and Iraq are just five of the players placing the most pressure on Turkey to step up as a responsible regional power. As the 2nd fastest growing emerging market, the economy has tremendous potential. However, sanctions applied by Russia in response to the downing of fighter jets en route to strike ISIS have placed additional pressures on the economy. Facing a depreciated currency, sanctions, and increasing costs of capital, President Erdoğan has politicized the economy. His policies have lead to further instability in the country and investors are reacting strongly by pulling their funding. Authoritarian measures, such as decreased liberalization of the central bank, is one of the main factors of increased instability. Internal mismanagement and poor foreign policy decisions will continue to weaken the outlook for the Turkish economy.

IMPACTS & RISKS

1. Sanctions applied by Russia alone could decrease GDP estimates by .7% alone, according to a UPI Article.

2. Decreased tourism out of security concerns could also further weaken the economy.

3. Turkey is hosting a significant number of Syrian refugees, over 2 million. This costly endeavor, which is already underfunded, will face additional challenges, as the budget is squeezed consequent of sanctions.

4. There remains high uncertainty over Turkey's actions in the future, which has caused disruptions in the investment and foreign policy arena.