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An informative note on the state of emergency and its impact on the Turkish economy 

On the evening of July 15, a faction of the Turkish Armed Forces attempted to stage a coup in various cities of Turkey, particularly in Ankara and Istanbul. From the very beginning, people of the country stood up against the attempt and on the side of democratically elected leader, President Recep Tayyip Erdoğan. Both the police and public prosecutors immediately took necessary measures to reinstate civil law and order in the country. 


As a consequence of the failed attempt, a series of policy measures were taken by the government on July 20. Following the meetings of the National Security Council and the Cabinet, a three-month state of emergency was declared by President Recep Tayyip Erdoğan. Meanwhile, commenting on the declaration, Deputy PM Mehmet Şimşek stated that this measure is aimed at holding coup-plotters accountable and ensuring that those involved are identified and brought to justice swiftly. The state of emergency in Turkey will not include any restrictions on movement, gatherings, free press, etc. The life of ordinary people and businesses will not be impacted, Şimşek assured.


Concerns that the recent failed coup attempt will affect the rising momentum in Turkey’s financial system are not reasonable. A series of policy measures, such as easing liquidity conditions, was taken by the Central Bank of the Republic of Turkey to encourage financial markets and to prevent the banking system from being exposed to the negative effects. Moreover, the banking system in Turkey recovered quickly in the aftermath of the 2001 and 2008 crises and has proven resilient during temporary shocks such as terror attacks and geopolitical risks over the past two years. The likely short-term effects of this attempt will not be accompanied by any deterioration in major economic indicators.


On July 20, Standard & Poor’s lowered the foreign currency rating of Turkey to BB, one notch below BB+, and revised its outlook to negative. Despite the short-term negative pricing of this disapproved and baseless rating decision, it is expected that financial markets will overcome the uncertainty and stabilize in the next few days. Turkish banks have higher capital adequacy and lower non-performing loans ratios when compared to their peers. Furthermore, the Turkish government’s new structural reforms in the pipeline, the low probability of early elections, and strong domestic consumption, will altogether stimulate growth and accelerate confidence in Turkey.

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