Political unrest in the streets of Turkey poses a threat to the country’s long-standing reputation as a financial bulwark in the otherwise chaotic Middle East, financial analysts say.
Clashes between police and anti-government protesters continued late Tuesday, as thousands gathered behind barriers in Istanbul’s main Taksim Square, despite government attempts to defuse the crisis with conciliatory comments, including an apology for a bloody crackdown Friday.
Last week’s violence sent at least 1,300 to hospitals and forced dozens of businesses to close, some ruined beyond repair.
The daily clashes are taking a toll on investor confidence in what had been one of the Middle East’s most stable economies.
“Turkey is a country that others look to as a good example of a growing Islamic democracy,” said Caroline Freund, a senior fellow at the Peterson Institute for International Economics, based in Washington. “Whether this will affect that image is another consideration. I think it would if the protests continue. Then it doesn’t look like the stable economy that it did before.”
On Monday, Turkey’s main stock index, the Borsa Istanbul 100, tumbled more than 10 percent, as investors reacted to the political unrest and economic uncertainty throughout the country.
The drop was Turkey’s largest single-day stock market decline since March 2003.
Stocks rebounded on Tuesday, closing up nearly 5 percent at 80,733.25. But analysts say the market will remain volatile as long as the protests continue.
The Turkish lira fell to 1.88 against the dollar, the currency’s lowest point compared to the dollar in 16 months.
“Whether this will have a bigger impact on the economy will depend on how quickly it’s resolved,” Ms. Freund said.
For decades, Turkey has been one of the more attractive places to invest in the Middle East. According to the United Nations’ Conference on Trade and Development World Investment Prospects Survey, it is one of the top 15 places in the world to invest. With a population of nearly 80 million people and a $960 billion economy, it is a natural choice for companies looking to gain a foothold in the Middle East.
Direct foreign investment there recently hit a total of $138 billion, according to a new study by Ernst & Young — including $12.4 billion that came in during 2012.
Another study by Istanbul’s International Investors’ Association of Turkey forecasts that foreign investment will jump this year to between $15 billion and $20 billion, and the country’s GDP is projected to grow at least 6.7 percent each year between 2011 and 2017.
But that may all be changing in the blink of an eye.
“Investors really don’t like uncertainty,” Ms. Freund said. “If the protests were to escalate, it would be very damaging for investment there.”