Turks Worry Leader's Response To Protests Hurt Economy

By Peter Kenyon

Published June 9, 2013 at 8:00 AM EDT

Pedestrians pass a barricade outside a hotel at Taksim Square, Istanbul. Business people say they are nervous that protests are cutting deep into tourism.

Turkey's protests come at a sensitive moment for the country's economy, long considered a regional bright spot.

If there is a jewel in the crown of Prime Minister Recep Tayyip Erdogan's decade in power, it's the enviable record of growth that has tripled the average Turk's per capita income and brought in a flood of foreign investment.

But with protesters clogging downtown Istanbul, business owners say Erdogan's failure to quickly calm things down has them nervous. A major tour operator says 50 percent of reservations have been cancelled, and business conferences are being moved elsewhere.

Muberra Eresin with the Turkish Hotel Association says tourist neighborhoods adjacent to the demonstrations in Taksim Square are feeling it, too.

"All the people were a bit frightened," Eresin said, "and we received at the first week, last week, many, many cancellations of course. It's like 25 percent, 30 percent of our reservations."

On the other hand, she says, bookings for the rest of the summer are strong. In Taksim Square, the occasional tour guide can be seen herding a wide-eyed knot of visitors past the overturned cars and protester's tents – an impromptu taste of adventure tourism.

A visitor from Shanghai, China, says she and her husband weren't expecting the protests when they booked their holiday.

"During the day we are safe, so we are not so worried," she says.

"Don't be too close," her husband says, referring to shattered storefronts and other unexpected sights.

At a café overlooking the Bosphorus Strait, Marmara University economist Hayri Kozanoglu says Turkey is right to be proud of its robust economy. But a closer look reveals a dangerous dependence on what economists call "hot money" – short-term investments that can be pulled quickly if need be.

"Recently, the proportion of hot money, especially short-term deposit, increased," Kozanoglu says. "Which means they don't believe in the Turkish economy."

Turkey's dependence on foreign capital isn't likely to diminish soon, with a bevy of mega-projects and a bid to host the 2020 Olympics in the works.

Economic columnist Emre Deliveli says Erdogan's hard rhetorical line makes him wonder if the prime minister's economic adviser has warned him of the economic implications.

"Hasn't he spoken to Erdogan?" Deliveli says. "Hasn't he explained how dangerous the situation is? You know, from an economic and financial point of view, Erdogan is playing with fire."

Erdogan has presided over Turkey's rise into the top 20 world economies, and wants to see it crack the top 10 by 2023, the centennial of the Turkish republic. Whether he can quell the protests – and how he does so – may have a significant impact on where Turkey's economy heads next.