The political uncertainty put an additional financial burden of 20 billion YTL ($16.2 billion) on the Treasury and this could lead to an economic slowdown in the second quarter of the year, Turkish Economy Minister Mehmet Simsek said on Monday.
"Today bond yields rose to 22.5 percent levels, which is a very serious jump. So that the yields rose as much as 5.5 percentage points since the closure case was filed. The Turkish Treasury's borrowing costs went up due to this political uncertainty.
"A rise of one percentage point in the yields bring an additional burden of 3.5-4 billion YTL, so political uncertainty, together with an upsurge in risk premium and interest rates, bring 20 billion YTL of additional burden for the Treasury," Simsek told the Anatolian Agency.
Turkey's political risks have heightened since the closure case against the AKP filed in March. The political uncertainty, together with the deteriorating global environment and fading risk appetite had caused sell-off in Turkish financial markets. The high global liquidity was the main driver of the Turkish markets strong performance in recent years.
Simsek, however, claimed the impact of political uncertainty was greater than global developments. "What we and all national and foreign experts think is that if there had been no political uncertainty in Turkey, it would have been among the countries which were less affected by the global crisis. Because our economy was in a normalization period," he added.
Economists say it is impossible to gauge the impacts of such factors on the market, however many agree that the sell-off may not be that strong if the global conditions remained positive.
Simsek also said the value of companies listed on the Istanbul Stock Exchange fell $80 billion and that there is a serious outflow of foreign capital in the bond market as the political uncertainty also caused slowdown in the construction industry, investments and spending.
Simsek also said economic growth could slow in the second quarter after a strong performance in the first three months of the year due to the political uncertainty and global factors. The government makes all the necessary reforms to ensure that the economy will have a sustainable growth in the mid and long term, he added.
Turkey's gross domestic product (GDP) grew 6.6 percent year-on-year in the first quarter of 2008. The Turkish government had set a growth target of 5.5 percent for 2008, although government officials have since revised its estimates to around 4.5 percent.
"Turkey does not deserve this crisis with this budget performance," Simsek added.
Turkey recorded 2.3 billion YTL ($1.84 billion) budget surplus for May 2007, increased by 66.4 percent for the same month in 2008. Turkey's budget deficit fell by 38.4 percent to 2.06 billion YTL ($1.64 billion) in January-May compared to the same period last year.