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A member of the police special forces stands guard in front of the Air Force Academy in Istanbul, Turkey, July 18, 2016.HUSEYIN ALDEMIR/Reuters

Turkey on Monday seemed to be transforming itself from high-growth developing country – a regional consumer and industrial powerhouse in the making – to a political and economic basket case in the wake of the attempted coup d'état.

But investors shouldn't necessarily expect the worst. Turkish President Recep Tayyip Erdogan will no doubt use the chaos to consolidate his presidential powers and snuff out any opposition to his regime. In time, Turkey might become more stable after the coup attempt than it was before, at the expense of civil rights.

While Turkish markets suffered on Monday, three days after rebel factions in the military launched their coup attempt, investors did not get slaughtered; had the rebel generals and colonels captured Mr. Erdogan, they would have been. Luckily for them, the generals' takeover attempt was an amateur show.

The Borsa Istanbul 100 Index fell more than 6 per cent on Monday (the coup attempt started after the markets closed on Friday). Some companies fared worse, among them Turkish Airlines, which fell 10 per cent. The Turkish lira fell 4.6 per cent on Friday but managed to claw back about a third of its losses.

Turkish bonds were the big casualties. The 10-year lira bond plunged, pushing the yield up 63 basis points to 9.52 per cent (100 basis points equals 1 percentage point). The yield spike was the biggest one-day rise since mid-2013 and the second biggest of the decade.

Turkey's markets, in other words, are more or less intact though few economists were brave enough on Monday to say the country could avoid a steady grind down. In a note, Piotr Matys, an emerging markets and foreign exchange strategist at Rabobank, said "The worst case scenario has been avoided as a successful coup would have triggered a full-scale sell-off. The damage, however, has been done. Turkish bonds and stocks face a turbulent period due to heightened political risk."

The coup attempt began Friday evening and, at one point, appeared on the verge of succeeding. But civilians, the media and the bulk of the Turkish army quickly supported Mr. Erdogan and the military rebels folded even though the President's plane had been spotted as it attempted to reach Istanbul and could have been shot down by nearby rebel F-16 fighter jets. Since then, the government has detained or fired thousands of judges, prosecutors and police officers allegedly linked to the coup attempt.

The high number of arrests and firings has inevitably raised suspicions that Mr. Erdogan's clampdown has gone too far. Conspiracy theories said that he may have known the coup attempt was coming and had drawn up purge lists in anticipation of cleansing the government, military, judiciary and bureaucracy of anyone whose loyalty to him was in question.

Mr. Erdogan and his ministers have spoken about reinstating the death penalty to punish the generals and colonels who had plotted his downfall. About 200 people died before the coup attempt fizzled out, though the precise number of casualties was still unknown by Monday afternoon.

The violence, which came three weeks after suicide bombers killed 41 people at Istanbul's Ataturk airport, is seeing tourists abandon Turkey in droves. In May, even before the attacks, Thomas Cook, one of Europe's biggest tour operators, said summer holiday bookings to Turkey were in rapid decline. Last year, Turkish visits accounted for 23 per cent of Thomas Cook's business. The figure before the coup attempt was 5 per cent.

Tourism is one of Turkey's biggest industries and employs about 8 per cent of the country's workforce. Turkey relies heavily on foreign tourists to help fund its current-account deficit.

Turkey's 4.5 per cent growth target now appears unachievable. Even before the weekend violence, economists were trimming their gross domestic product growth forecasts for the Turkish economy.

HSBC said "We see downside risk to our growth forecast of 2.9 per cent for this year, as a prolonged period of political uncertainty could take a toll on confidence and private spending. We also belief that if there is a sustained increase in Turkey's political risk premium, the country's large external financing requirement could once again become an area of concern."

The Erdogan government will come under enormous pressure to prove that it can provide economic stability if it hopes to lure back foreign investors and make good on its old pledge to turn Turkey into one of the world's top economies by the next decade. The Turkish central bank swung into action on Sunday by pledging to provide unlimited liquidity to the commercial banks.

There is a good chance that stability will come if Mr. Erdogan attempts to create a form of Vladimir Putin-style executive presidency, a democracy more in name than in practice. "Paradoxically, Turkey may be a more politically stable country after the coup," Mr. Matys noted.

If so, the relatively high yields offered by Turkish bonds might prove alluring to investors and foreign investment and tourism might rebound. The tragedy is that political and economic peace might come at the expense of civil liberties. The irony is that the people took to the streets in Istanbul, Ankara and other Turkish cities during the coup attempt to defend democracy, incidentally preserving Mr. Erdogan's government. That good deed may get punished.

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