Red flag

Turkish example weighs on emerging markets

A century ago, Turkey was the sick man of Europe. A few years ago, it was considered a shining example for the Middle East. Today, the government's increasingly autocratic methods and harsh crackdown against protest show the model has malfunctioned. This is not just a problem for Turks.

Turkey is nowhere near sick. The government was elected in a fair election, GDP is growing steadily and inflation is under good control. The ruling AK Party has been able to move peacefully away from the unpopular radical secularism which had guided the republic since its foundation in 1923. Still, there is a reason why protesters gathered in Istanbul's Taksim Square.

Prime Minister Recep Tayyip Erdogan is becoming increasingly autocratic, brooking no resistance to his agenda of large building projects and Islam-friendly laws. His crude response to demonstrations - expressing wild theories of foreign influence, putting pressure on the media not to cover them and endorsing rough police handling - is all too typical. Autocracy, even when it is democratic in form, tends to breed corruption. It can also breed violence.

Worries about Turkish politics could have serious financial implications. Already, they have helped drag the Turkish stock market down 13 per cent since the protests started. The lira has fallen to its lowest level in almost two years against a dollar-euro basket. The Turkish central bank has started to spend some of its $100 billion in reserves to support the currency. In theory, it has enough money to fund about two years of the country's trade deficit, but a sustained loss of foreign confidence would wreak havoc in a still weak financial system.

Investors should also worry about the implications of the tarnishing of Turkey's once promising model. The country looked like it had found a way to combine economic growth, democratic government and respect for Islamic values. It was reasonable to hope that some variation of its model might help bring peace and prosperity to countries from Egypt to Iraq. If the model fails, it would be a bad sign for the whole region.