Last updated: 19:16 / Monday, 25 July 2016
According to Eaton Vance

Will Erdogan Overplay his Hand in Turkey?

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Will Erdogan Overplay his Hand in Turkey?

The dramatic events of the failed coup in Turkey and its aftermath has weighed heavily on all of the country’s asset sectors – equity, debt and currency. For the Eaton Vance Global Income Team this is not an unreasonable reaction, given many uncertainties of the political landscape. A member of the Global Income team is visiting Ankara now to assess the situation.

Turkish President Recep Erdogan announced a three-month extension of the state of emergency, following days of rounding up thousands of perceived political adversaries in the military, police and universities. As the situation evolves, Eaton Vance's team will be focusing on two broad issues:

  1. The U.S./Turkey relationship. It was strained before the coup, and is under even more stress now. Planes involved in the coup flew from the NATO airbase in which the U.S. military operates, and Turkey subsequently cut the power to the facility. Turkey is also seeking extradition from the U.S. of Fethullah Gulen, an Islamic cleric accused by Erdogan of being behind the coup.
  2. Possible fissures in Turkish society. The relevant factions in Turkish society can be broadly divided into Erdogan and his ruling AKP party; the opposition, dominated by secular Turks; and Gulenists – followers of the exiled cleric. Erdogan’s opposition came out against the coup, despite the misgivings many have about his authoritarian style of rule.

"Most believe the purge is the right course of action for now, and believe the Gulenists are the problem – society is not fractured on this issue. On the other hand, we hear estimates that some 50,000 people are affected by the purges, so the impact is widespread – a scenario in which Erdogan goes too far would be worrisome." The team explains.

For the team, the bottom line is: Turkey’s reputation as a democracy capable of reasonable growth and holding to tight budgets is obviously overshadowed by the latest developments. "We believe the U.S./Turkey relationship will survive this episode because it continues to serve the interests of both countries. We are watching very carefully to see if Erdogan overplays his hand and threatens the cohesiveness in Turkish society that currently works in his favor."

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