Still Constructive on Politics
Turkey’s foray into Jarablus, Syria brings in its wake many unknowns. We treat the risks and returns from a prolonged stay of the Turkish Army in Syria in depth, concluding that it is a very risky gamble that might pay off.
Biden’s visit to Turkey was a strong signal that the U.S. is afraid of losing a valuable ally in the region. While it might not have allayed all of Ankara’s suspicions about American intensions, it might have bought enough time for Obama to hand over the messy issue of Gulen’s extradition to the next president, without causing a damaging break-up in the relationship.
At home, we find many aspects to criticize in the ongoing Gulenist purge, but it is not an anti-opposition witch-hunt, neither can we imagine an alternative way to get rid of this infectious virus. On the positive side of the ledger, three major parties are getting along very well, with AKP taking some advice in policy matters from the opposition. A partial constitutional reform could crown the new bi-partisan spirit. AKP is not faking its new moderation, because the party has lost its institutional assets in the coup and needs to get along with the opposition to survive.
While there are still too many moving parts and “unknown unknowns” in the Turkish political equation, we like what we see and assert once again that our subjective estimate of political risk is much lower than suggested by the Western press, or the few mentions in the investment banking sources who still dare to write about this subject.
On the econ side, with all eyes again on politics, we’ve tried to address some basic questions that might nowadays be in readers’ minds.
Second quarter growth will likely come in visibly weaker than in Q1, with further weakness most likely in store in H2. We are putting the chance of a Moody’s downgrade -- between now and the mid-October deadline -- at 50-50, while Fitch should take its time after its recent downgrade of the outlook from stable to negative. With growth slowing, pressures for easier monetary and fiscal policies should continue, while we interpret the recent decision to establish a Sovereign Wealth Fund as another sign of a changing “growth model” – one that is increasingly geared toward more government interventions and more discretion.
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