A Failed Coup Shakes Turkey to Its Core: What to Expect Next?

• Some elements of the Turkish military failed in their attempt to overthrow the Turkish Government and President Recep Tayyip Erdogan, demonstrating, at least, that the country is unified in support of elective government and rule of law.
  
• The majority of Turkey’s secularists and liberals did not want to exchange civilian rule for military authoritarianism; their opposition to the coup reflects their belief in democratic politics, rather than supporting the Erdogan regime.
  
• Yet the destabilizing events will have risky implications for Turkey’s political system, economy, and security. How the events will unfold in the coming months will heavily rely on Erdogan and his priorities.
  
• President Erdogan is likely to use the coup attempt as an excuse to consolidate power and crack down on the opposition.
  
• The situation will have negative effects on the value of the lira and the current account deficit. Market movements early Monday morning shall be monitored closely.
  
• SGA believes that US-Turkey bilateral relationship could face a bumpy road as Turkey demands the extradition of a US-based cleric whose followers are accused of being behind the coup.

On July 15, a sizable group within the Turkish General Staff (TGS) launched a military coup attempt to topple their country’s elected government. Their declared mission was to “restore constitutional order, human rights and freedoms, rule of law and public order” and to this end, they asserted, “Turkish armed forces have taken complete control of the country”.

Yet the attempt was a failure, leading to over 250 deaths, thousands of wounded, and more than 6,000 arrested over the weekend. All political parties, media groups and civil society took a clear stance against the coup attempt since the early hours. The international community, too, voiced its support for Turkey’s elected president and government.

The failure was obvious since its early hours. Yet the rebels put up a stubborn fight until into the morning, taking control of key installations in Istanbul and Ankara, and eventually not hesitating to bomb the Turkish Grand National Assembly, the Presidential Palace and the police headquarters and opened fire on civilians.

The hotel where President Recep Tayyip Erdogan was staying was raided shortly after the president left. Through an efficient communication strategy, President Erdogan and the government seized back full control within the first 12 hours of the attempt and avoided a potential civil war after many supporters of the ruling Justice and Development Party (AKP) took to the streets.

The big questions are: Who is behind the coup and why did they launch such a poorly planned attempt? Initial reports point to the main planners as a faction within the army that is loyal to the US-based Turkish cult leader Fethullah Gulen. While Gulen and his supporters strongly deny any involvement, it has emerged that some of the rebel leaders close to Gulen were on the brink of being arrested even before the coup attempt due to alleged links to the group.

Our take is that some Gulen symphatizers hastily organized the coup plot after receiving intelligence that the following morning they would face systematic arrest. Unfortunately for the plotters, they trusted that other anti-Erdogan figures in the upper echelons of the army would join them. It should be noted a significant number of hardcore secularists participated the plot as well.

Beyond that, other questions remain unanswered: First, why did the rest of the army not act to stop the coup, instead leaving the police to deal alone with the armed opposition? Second, how could Turkish intelligence have failed to act on time to stop it? The intelligence failure has, for one thing, fostered conspiracy theories that Erdogan could be behind this plot, seeking to unite the country in time of crisis so he can consolidate his power.

It was certainly a tragic night for Turkish democracy and the Republic of Turkey. Maybe the only positive aspect is the full determination of all the political parties, media groups, and civil society to unite and defend the elected government. The majority of Turkey’s secularists and liberals did not want to exchange civilian authoritarianism for military authoritarianism; their opposition to the coup reflects their belief in democratic politics, rather than supporting the Erdogan regime.

Still, if Turkey does not now take steps to normalize, there will be significant risks for the country’s politics, economy, and national security. The current mix of frequent terror attacks, political crises, and economic shocks is not sustainable.

The political implications are fully dependent on how President Erdogan chooses to act from this point on. For the past three years especially, Turkey has been a deeply divided society. The unity in opposition to the coup could have the potential to bring the country together. However, early signs show that Erdogan and the regime are likely to instead use this opportunity to bolster one-man rule through a crackdown on the wider spectrum of opposition, not only Gulenists.

SGA believes the country will be further polarized if President Erdogan and the ruling party seek to capitalize on the crisis by again pushing for the executive presidentialism that a significant portion of the public opposes. Further polarization would be a disaster for the stability of the country. Turkey’s leaders would do better to remember the value and importance of democracy after the dark night of Friday and embrace the rule of law even more.

Heightened political tension would also harm the country’s economy. Mehmet Simsek, Turkey’s deputy prime minister in charge of the economy, held a conference call over the weekend with investors and tried to assure global financial institutions that there was “no need to worry.” Yet there are, in fact, a lot of factors to worry about.

The Turkish economy is heavily reliant on short-term borrowing to finance its huge and persistent current account gap. The currency plummeted more than 5 percent immediately after the coup attempt. One of the chronic problems of Turkey’s macroeconomic outlook is the current account deficit, and surely it will be impacted through a sharp fall in tourism revenues.

Depending on the developments this week, it is likely that rating agencies could downgrade Turkey’s credit rating to junk status (Moody’s and Fitch currently have the country’s rating one notch above the subinvestment level).

The increased risks to political stability would have a direct impact on the Turkish private sector, where many corporations struggle with significant levels of corporate debt. The Turkish government must reassure investors not only that its macroeconomic and monetary policies are sound, but also that it can keep the country stable.

The security situation is another key risk for various reasons. First of all, Turkey is already very fragile to attacks by three terrorist organizations: the Islamic State (ISIS), the Kurdistan Workers’ Party (PKK), and the Kurdistan Freedom Eagles (TAK). Just in the past six months, more than 300 people fell victim to terror attacks across the country. With every terrorist attack, Turkey becomes a symbol of political failure and the general chaos enveloping the Middle East.The domestic opposition has blamed the government for bad foreign policy decisions and lack of strong intelligence, but the risk is much higher at this point.

Turkey lies at a geography with a high security risk due to its proximity to conflict zones in the Middle East. Without a doubt, Friday’s event weakened the Turkish military, as many of its high-level officers have now been arrested. Meanwhile, ISIS remains a major threat, and as its territorial hold weakens in Iraq and Syria, it will transform into an organization dedicated to carrying out suicide bombings and mass shootings. Turkey is an easy target. The government, security institutions, and intelligence establishment must focus on external threats to assure the safety and security of citizens.

Foreign policy is another area where Turkey has already been facing major problems. In recent weeks, the government had taken some important steps to normalize its relationship with Russia and Israel, and it signaled some sort of normalization in its foreign policy after Erdogan’s dismissal of Prime Minister Ahmet Davutoglu. There have even been some statements that the policy towards Syria may change.

Without a doubt, President Erdogan increased his personal profile after standing strong against the coup threat. However, risks lie ahead, particularly to Turkey’s relationship with Washington. A senior leader of the ruling party blamed the US orchestrating the attempt. Turkey shut down the Incirlik Base and the US cancelled all flights from and to Turkey. Ankara has demanded the extradition of Gulen from the US, but the US side has rightfully asked for a legal complaint and strong evidence to be produced before that can happen. Turkey’s failure to produce those could create a bilateral problem between the US and Turkey. Erdogan could decide to respond by ramping up anti-US rhetoric, knowing that President Obama is set to leave office soon.

SGA believes that the coup attempt in essence came down to a battle between military authoritarianism and civil authoritarianism. Having a very disastrous experience with the former, Turkish public opinion rightfully chose the latter. Hopefully, Friday night taught everyone one more time the value of the rule of law.

Just a few years ago, Turkey was a rising star among emerging markets. It is now almost a textbook case study of how bad politics and leadership can derail an economy in the 21st century. President Erdogan should be focusing on boosting security, stablizing the economy, and promoting an open political environment—not on consolidating his own political power. How the events will unfold in the coming months will heavily rely on Erdogan and his priorities. SGA will keep advising its clients on changes on the political risk, economic climate and security situation.