What is the Turkish Constitutional Referendum and How Can It Impact the Financial Markets?

A constitutional referendum will be held in Turkey on April 16th that could have major ramifications on the country. Experts say the vote will impact everything from the financial markets to Turkey’s future relationship with the West.

What’s at stake?

Voters will vote on 18 proposed amendments to the nation’s constitution. These amendments have been long suggested by the ruling Justice and Development Party (AKP), which is headed by Prime Minister Binali Yildirim. The amendments include overhauling the parliamentary system in favour of a presidential system, which would grant the president far-reaching powers.

Opponents of the reform suggest it is just another power grab by President Recep Tayyip Erdogan, who has come under scrutiny in the West. Critics of the reform also claim that a ‘Yes’ vote on April 16th would effectively end Turkey’s bid to enter the European Union (EU) and set the country on a path of authoritarianism.

Turkey’s diplomatic relationship with the Netherlands nearly fell apart last month after Rotterdam refused to allow Turkish politicians to campaign for the referendum on Dutch soil. President Erdogan lashed out at Dutch lawmakers, referring to them as “fascists” and “remnants of Nazis.”[1]

Turkey’s large migration will have a major hand in the outcome of the referendum. The country’s Supreme Election Board (YSK) says more than 1.2 million Turkish expats have already voted abroad. Nearly 3 million expats are eligible to vote.[2]

Impact on Financial Markets

So far, the prospect of major constitutional reform in Turkey has had a minimal impact on the financial markets. However, Ankara’s diplomatic row with the Netherlands fueled concerns of geopolitical fallout between the Middle Eastern nation and its European allies. Turkey has also threatened to pull out of a controversial migrant deal to halt the flow of refugees to Europe, a move that would have far-reaching consequences on the EU and its relationship with Ankara.

A ‘Yes’ vote on Sunday could trigger volatility in the financial markets, as investors weigh the geopolitical blowback of Turkey’s paradigm shift. This would be bad timing from a global perspective, as investors continue to monitor geopolitical spots from Syria to North Korea.

Therefore, Turkey’s referendum should probably be approached with caution regardless of whether investors are exposed to the Turkish economy. A ‘Yes’ vote will concentrate more power in the hands of Erdogan, possibly creating more disillusionment inside Turkey.

[1] Ellen Proper and Erdman Ersoy (March 11, 2017). “Erdogan calls Dutch ‘remnants of Nazis’ after Turkey foreign minister’s plane blocked from landing.” National Post.

[2] TRY World (April 10, 2017). “Over a million expats vote in Turkey’s constitutional referendum.”

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