October 10, 2019 / 4:00 PM / a month ago

Breakingviews - Syria assault has cruel economic logic for Turkey

A family sits on a truck with their belongings in north-east Afrin, Syria March 13, 2018. REUTERS/Khalil Ashawi

LONDON (Reuters Breakingviews) - Turkey’s President Tayyip Erdogan is finally catching a break. After a currency crisis, a recession and shock local election losses, invading Syria is bringing him closer to returning at least one million Syrian refugees home. An ensuing construction drive could boost an economy that is likely to barely grow this year.  

Around 3.6 million Syrian refugees have become a scapegoat for Turkey’s economic problems. Through a military incursion, Erdogan plans to create a thin strip of Ankara-controlled land in northern Syria and initially return a third of them. That would play well politically in Istanbul and Ankara where his AK Party recently lost elections and antipathy towards Syrians is on the rise. Turks often make the well-rehearsed argument that Syrians are taking their jobs.

That’s debatable, but less so is that these returnees will need somewhere to live. Ankara plans to build dozens of new settlements in north-east Syria. That will cost $27 billion according to state broadcaster TRT, 3.5% of 2018 GDP. It’s a much-needed shot in the arm for the construction sector, which represented 7% of GDP in 2018 and had been booming thanks to easy credit and government spending. Turkey’s economic woes saw the sector’s output shrink 13% year-on-year in the second quarter. There’s also a political upside: developers are Erdogan’s allies from his time enabling a building frenzy as Istanbul mayor in the nineties. Hence even if the financial help he is canvassing from international organisations does not materialise, he could just fund his own fiscal stimulus.

The Turkish leader may still have a problem. U.S. senators from both main parties are aghast at President Donald Trump withdrawing troops from Syria and abandoning the Kurdish militias who fought Islamic State. The sanctions tabled against Turkey include targeting Erdogan’s U.S. assets and imposing visa restrictions. But they lack any real economic bite, and Washington’s track record in enacting sanctions against Turkey is poor – penalties under the Countering America’s Adversaries Through Sanctions Act for its North Atlantic Treaty Organization ally buying Russian missiles are yet to materialise months after the weapons were delivered. If Erdogan can avoid a severe humanitarian fallout from his military gambit, his wider strategy makes a brutal sort of economic sense.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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