ECONOMY

Turkish markets hope security is not given priority over reform

ISTANBUL (Reuters) – Istanbul’s carpet sellers are already in despair over the collapse of tourist custom after the city’s wave of suicide bombings. But bigger market players say the impact on the wider Turkish economy depends on one question: Will it happen again? «I don’t think the fundamentals have changed and that’s what the market believes as well,» said Yarkin Cebeci, economist at JP Morgan in Istanbul, noting that the lira and debt markets had held their nerves on Friday after the second wave of bombings. «The critical thing is if bombs continue in future.» A religious holiday marking the end of Ramadan means the stock market will remain closed next week and lira and debt will trade only on Monday morning. «It’s very fortunate for markets that we have a long holiday. After people come back, I think people will be more forgetful and the impact will be temporary,» Cebeci said. But he added: «If there are more similar activities, the negative impact will increase exponentially.» Groups apparently linked to Osama bin Laden’s Al Qaeda network have claimed responsibility for synagogue attacks on November 15 that killed 25 people and Thursday’s bombings against British targets, which killed 30. Worries are high that another attack could come at any time. It is low season for tourists in Turkey but the New Year period is normally profitable for Ilhan Yuksel, a carpet seller in Istanbul’s main tourist area around the Blue Mosque. «I would be happy if 20 percent of the expected tourists come next month,» said Yuksel. «Things were just getting better and then four bombs back to back. It’s going to ruin us. Most people just think of Muslims when they think of Turkey. Now they think we’re barbarians.» Tourism Helped by International Monetary Fund loans and sweeping reforms, Turkey’s economy has picked up since a 2001 crisis. Year-end targets for inflation (20 percent CPI) and growth (5 percent GNP) are expected to be met and the lira has stabilized. Turkey is aiming for $8.7 billion of tourism revenues this year, despite a bad first half because of the war in neighboring Iraq. Many thousands of people work in the sector. «The official figure is something like 4.5 percent of GDP, but the sector is very important for the gray economy so the impact is much more than that,» Cebeci said. Sevdil Yildirim, executive vice president of Yapi Kredi Securities in Istanbul, said the attacks could deter foreigners from investing in the Turkish tourism industry. In other sectors too, Turkey, which is recovering from the deep financial crisis in 2001 with the help of a $16 billion IMF loan package, is in serious need of foreign direct investment (FDI). The government is planning major privatizations in telecoms, energy, banking and the state alcohol and cigarette maker. «They’re all FDI type of privatizations rather than public offerings, so the long-term commitment of foreign capital will be critical,» Yildirim said. One of the targets of Thursday’s bombings was London-based banking giant HSBC, which became one of the most prominent foreign investors in Turkey in 2001 when it bought what was then Turkey’s fifth largest private bank, Demirbank, in for $350 million. At best, Turkey may raise less money from privatization than it had hoped before the bombings, analysts say, and even that assumes somebody will want to buy. Demand will depend on the level on confidence in long-term economic stability, which in turn depends on progress in economic reforms and in Turkey’s bid to join the European Union. EU leaders are due to decide in December 2004 whether Turkey has implemented enough reforms to begin accession talks. «One risk is if the terrorist campaign is sustained, then security becomes a relatively higher priority over reforms,» said a London-based emerging markets economist at a major bank. «The risk is the priorities could change and the EU accession reforms and overall economic reforms could be ignored as they get preoccupied with what’s happening elsewhere.»