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."
Tourism could also take a hit.
"Tourism is usually one of the first things affected," she said.
But Ms. Freund also said that if the protests end soon, the economy should escape disaster.
The protests escalated Friday when police swooped into the square and started beating demonstrators conducting a peaceful sit-in to oppose plans from Turkish Prime Minister Recep Tayyip Erdogan to tear down a nearby spot of trees.
After police used water cannons and tear gas to control the crowds, sending thousands of protesters to the hospital, anti-government rallies have sprung up daily all around the country.
Organizers say they are committed to peaceful resistance.
"We are opposed to violence," said Ecenur Bayindir, a student who joined in the original tree protests in Istanbul. "We just want peace, peace and happiness. We're unarmed. We will continue to be unarmed. This is a civil resistance."
Deputy Prime Minister Bulent Arinc apologized Tuesday for the aggressive police tactics.
"The excessive violence that was used in the first instance against those who were behaving with respect for the environment is wrong and unfair," Mr. Arinc said, according to Reuters. "I apologize to those citizens."
"But I don't think we owe an apology to those who have caused damage in the streets and tried to prevent people's freedom," he added.
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