This curious happenstance — where both fear that the profusion of glass towers and shopping malls now overwhelming the classic Istanbul skyline is not only ugly but unsustainable — underlies the convulsive uprising in Taksim Square.
The once soaring Turkish stock market has fallen about 9 percent in the past week, interest rates are on the rise and, crucially, after a period of strength, the currency, the lira, has lost 8 percent in recent months and 1 percent just since the protests began.
For more than two years, a very small subset of investors and economists has warned that, as with other economic booms built on a mountain of debt — like the property spikes in Japan in the 1980s and more recently in the United States, Spain, Ireland and other European countries — the one in Turkey would reach a painful end.
Until recently, their warnings were ignored.
In contrast to a Europe stagnating throughout most of the past decade, Turkey has grown at a 5 percent annual rate while keeping its public finances in check.
In fact, with a budget deficit that is below 2 percent of gross domestic product and overall public-sector debt of less than half its economic output, Turkey challenges powerhouse Germany for best-in-class status when it comes to these critical benchmarks of broad economic health.
For Prime Minister Recep Tayyip Erdogan, the political crisis he is facing seems manageable precisely because of Turkey’s economic success, which has buoyed a pious entrepreneurial class that forms the core of his constituency. As the protest movement has unfurled, few analysts have suggested Mr. Erdogan’s hold on power is in jeopardy, arguing that he maintains the support of the religious masses that propelled him to power.
But that dynamic could change quickly should the economy falter, as a growing number of analysts now say is possible.
Hundreds of billions of dollars of short-term loans have been flowing into the country from investors in search of higher yielding assets, financing the very malls and skyscrapers that have so dismayed the small but growing coalition of secular intellectuals, left-of-center political activists and a smattering of the professional classes.
What worries financial experts is that this so-called hot money can leave the country just as quickly as it arrived, touching off a currency crisis and, eventually, a collapse in the property markets that could threaten the nation’s banks.
“This is a classic credit boom, with money being thrown at Turkey, especially the banks,” said Tim Lee, an independent economist at Pi Economics in Greenwich, Conn., who has warned for years of a Turkish financial bubble. “At some point, though, you reach a moment when the music stops.”
It is perhaps too soon to say if that moment has come, but the financial jitters that have followed the protests have been noticeable, especially with regard to the wobbly lira.
Mr. Lee and other skeptics point to the currency as the ultimate barometer of how foreign investors see Turkey. The country’s two previous financial implosions, in 1993 and 2001, were largely currency disasters, set off by a stampede of fleeing investors and lenders.
Two points in particular concern them.
This year, for example, Turkey’s private sector will require $221 billion in outside financing alone, with most of it coming in short-term loans.
By normal standards, that is a heady sum, about 25 percent of Turkey’s G.D.P., and it is about the size of the economy of Greece, Turkey’s longtime rival.
Moreover, in preparation for the 100th anniversary of the founding of the Turkish republic in 1923, Mr. Erdogan’s government has unveiled a $400 billion public works program, which is more than half the size of the $770 billion Turkish economy.
Many of these grand projects will have a visible aesthetic effect on Istanbul, which is what infuriates the protesters.
Planners envision a third bridge spanning the Bosporus at a cost of $3 billion, for which ground has already been broken; $10 billion to be spent on a third airport, which would be the world’s largest; and a $2 billion outlay to create a financial center in Istanbul to compete with Dubai and London. On top of a slew of equally large projects in high-speed rail, subways, ports and other amenities, Istanbul is also seen as a leading contender to secure the 2020 Olympic Games.
The decision on the Games will be announced in September, and if Turkey wins, the building and borrowing will only speed up.
Article source: http://www.nytimes.com/2013/06/06/world/europe/financial-fears-as-street-unrest-shakes-turkey.html?partner=rss&emc=rss