Deepening Political Crisis To Weigh On Financial Markets
With the scope of the political crisis in Turkey deepening, we remain wary of all Turkish asset classes, and see potential for further steep losses as political and economic risks mount in tandem.
We do not believe the worst has passed with regards to the corruption scandal engulfing Prime Minister Recep Tayyip Erdogan of the ruling Justice and Development Party (AKP). A far-reaching graft probe has implicated some of Erdogan's closest cabinet ministers and exposed a major rift and power struggle within the AKP and judiciary that is likely to escalate ahead of local elections in March 2014 ( see 'Major Implications Of AKP Rift', December 19). A cabinet reshuffle announced on December 25 did little to ease tensions, as outgoing Urbanisation and Environment Minister Erdogan Bayrakata, himself implicated in the probe, indicated that Erdogan was complicit and should resign.
Erdogan's actions in the aftermath of the investigation have served to further tarnish his reputation and rally his opposition. The dismissal of dozens of police chiefs, as well as a head prosecutor involved in the investigation, portray Erdogan as attempting to suppress the independence of the judiciary and police, lending credence to his critics' claims of an authoritarian ruling style.
|Sovereign Risk Rising|
|Turkey - Benchmark 10-Year Government Bond Yield, %|