Junking Turkey

Everyone agrees that if the coup attempt on July 15 had succeeded, Turkey's economy would have gone into a tailspin. The steps taken by the government under its "emergency rule," however, also appear to be achieving the same result. 

Here are some headlines taken from yesterday after Moody's cut Turkey's sovereign credit rating to "junk": 
"Moody's Cut Spurs Worst Rout for Turkey Assets since Failed Coup." Bloomberg.

"Turkey Eurobonds tumble after Moody's cut to 'junk.' Reuters. 

"Turkish Lira weakens to 2.99 against dollar after Turkey cut to junk." Business Recorder.

The government continues, nevertheless, to be in denial. It only sees yet another international conspiracy aimed at undermining Turkey. Despite such headlines, which should make it concerned, it is not willing to give the slightest thought to the possibility that domestic factors may be behind the Moody's rating downgrade. 

Prime Minister Binali Yıldırım believes that the Moody's decision, which follows a similar decision by Standard and Poor's after the failed coup attempt, is not based solely on economic factors. What he is implying is that this is a politically motivated decision. 

It is, however, stating the obvious to say there are political factors behind Moody's decision. Political uncertainty in Turkey is on the rise, and it is not just rating agencies and investors who are worried, but anyone who has any stake in the country.

We can also turn Yıldırım's explanation around and apply it to President Recep Tayyip Erdoğan's approach to economics. It is clear to many analysts that Erdoğan's approach is not based on economic realities, but on political considerations.

Erdoğan is demanding that the Central Bank reduce...