This decline of capital inflow is largely related to the increase in political economic and geopolitical risks. Along with these local risks the rate increase agenda of the U.S. Fed makes the foreign investor mobile making them adopt a come-and-go stance. However at the end of the day the notable decline in foreign capital inflow in 2015 brought an unprecedented hike in the dollar exchange rate. The dollar was above 3 Turkish Liras before October and the annual change reached 36 percent nominally and 27 percent net of inflation. In October with the effect of a relaxation by the Fed the dollar/lira exchange rate also relaxed; however this is temporary and depending on the Fed a re-exit of foreign capital and following it a climb in the dollar/lira rate is expected. The renewed government is aiming to minimize the visible risks to re-enable the foreign capital inflow it absolutely needs. The renewed single-party government is considered the most important attraction. However economic burdens especially the foreign debt burden makes Turkey look highly fragile. Foreign capital for growth
The 3 percent growth which was obtained in 2015 by scratching the bottom of the domestic market is not satisfactory for Turkey. The Medium Term Program (OVP) forecasts 4 percent growth for 2016. Compared to previous years this is a modest target. Because of intense capital inflows from 2002 to 2007 the drop in the dollar exchange rate was more than 12 percent annually. In this time which was also the rise of the AKP average annual capital inflow reached $25 billion and not only was the $19 billion annual current account deficit paid reserves strengthened also. A similar climate was experienced in most of the “emerging” countries fromBrazilto India South Africa and many Asian countries. The abundance of liquidity looking for a place to go as well as the suitability of domestic dynamics was influential in capital inflows and high growth. In the second phase which was between 2009 and 2015 when the global crisis hit the dollar exchange rate lost an average of 5 percent annually. The years 2009 and 2015 pushed this average upward. In 2009 the loss against the dollar net of inflation was 19 percent; in 2015 it was 27 percent. In 2009 the dollar exchange rate was 1.55 liras; it went up to 2.85 liras in 2015. This nominal increase when freed from inflation is 5 percent annually. Nevertheless even though this devaluation concentrated on two years and affected growth negatively it was nevertheless spread in time. During the 2009-2015 period the average annual general growth dropped to 3.5 percent which corresponds to a decline of 3 points compared to the growth of the 2002-2008 period. The decline in growth to 2 or 3 percent in recent years would not satisfy the population in Turkey which is going through an official unemployment of 10 percent and in reality 17 percent. The required average growth rate per year is minimum 5 percent but for this the continuity of foreign capital inflow is necessary. This tough issue re-attracting foreign capital in this changing world climate and under the circumstances of Turkey’s increasing risks is for the new government to solve.