Uncertainty can be toxic. Turkey's emerging economy is proof of that.

Even before the New Year's Eve horror at Istanbul's Reina nightclub, in which a gunman killed 39 people, many Turks looked to their leaders for economic guidance to counter concerns about recent terror attacks and a new U.S. administration.

In early December, Turkish President Recep Tayyip Erdogan offered a simple way for the average Turk to help. Speaking to a crowd at the opening of a new auto mall in the capital, Ankara, Erdogan said anyone who had foreign currency should change it to Turkish lira.

"What's the point of giving foreign currency value, eh?" he told the rapt audience. "As long as we take these steps, their game is going to be spoiled."

'There's no difference between a terrorist with a weapon or a bomb in his hand and a terrorist who has dollars, euros.' - Recep Tayyip Erdogan, Turkish president

"Their game" is a familiar refrain for Turkey's current government, a reference to the game supposedly being played by the West, the U.S. or whoever else the crowd might want to infer.

This week, Erdogan went even further, lashing out. "There's no difference between a terrorist with a weapon or a bomb in his hand and a terrorist who has dollars, euros," he screamed.

If the goal is to boost the lira, the speeches have not had the intended effect. In the last year, the lira has lost roughly 26 per cent of its value against the U.S. dollar and is currently hovering around 3.80 Turkish lira to $1 US.

Still, the dollar-swap stunt spread quickly across Turkey. Shops offered everything from free shaves to free carpets to anyone who had a receipt showing they had traded in their greenbacks.

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An attempted coup in July only strengthened feelings of nationalism in Turkey. (Aris Messinis/AFP/Getty Images)

Cumali Gundogdu, like many others across Turkey, felt compelled to bring his cash to one of the currency exchanges near Taksim Square in Istanbul. He exchanged $1,500 US for 5,265 Turkish lira and compared the president's call to a war of independence. In a war, Gundogdu said, "some people give their lives, some people are wounded. We should have an impact, too."

Ozgur Demirtas, a professor of finance at Istanbul's Sabanci University, understands the nationalist mindset but is resolute about the outcome.

"Unfortunately, it will not work," he said.

Demirtas and other observers watching Turkey's economic situation insist the focus should be on changes that will actually help merchants and the country as a whole — such as attracting foreign investment.

Years of growth, now a backslide

Although Turkey was gutted by a financial crisis in 2001, the first half of the 2000s was a time of incredible growth and optimism in the country. Led by Erdogan, the newly elected Justice and Development Party — known as the AKP — brought in reforms that boosted Turkey's economy. Manufacturing, infrastructure, foreign investment and tourism were healthy and growing.

It all put Turkey in a strong position to weather the global financial crisis of 2008. But in the last several years, the reforms stopped.

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Relatives of Busra Kose, a victim of the New Year's attack at Reina nightclub in Istanbul, react to her death. (Osman Orsal/Reuters)

The main reason is a shift in the government's focus. Riding popular support for his previous successes, Erdogan has been pushing for a presidential system in Turkey, which critics worry would give him complete control and extend his term. It is a move he hopes to bring to a referendum this spring.

But that shift in focus is only one factor in the country's economic health. Every one of the more than two dozen bomb blasts across Turkey in 2016 dealt a blow to the economy.

'That military coup was tough on Turkey. Turkey was being hit not by a foreign enemy this time — we were being hit by people who were born inside.' - Ozgur Demirtas, professor of finance, Sabanci University

Many Turks hoped that 2017 would be different. But on Thursday, less than a week after the New Year's attack, a car bomb killed two people, including a police officer, outside a courthouse in the coastal city of Izmir.

All of this while the country is still under a state of emergency after the deadly attempted coup in July.

"That military coup was tough on Turkey," Demirtas said. "Turkey was being hit not by a foreign enemy this time — we were being hit by people who were born inside, who were grown inside. That's why people are a bit sensitive."

That sensitivity helps fuel nationalist sentiment and populist tactics, such as Erdogan's dollar-swap idea, but distracts from the need for economic reforms.

And while Turkey's leaders have said they welcome the new leadership in the United States, there's concern that a Trump presidency might make things even worse.

In November, MIT's Daron Acemoglu wrote in the Financial Times that the country isn't ready to deal with the impact of the tax cuts and infrastructure spending the incoming U.S. administration is planning. Those decisions could lead to surging U.S. interest rates, which would undoubtedly affect the Turkish lira.

Tourism's dramatic drop

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Many of the stalls in Istanbul's famed Grand Bazaar have 'For Rent' signs. (CBC)

The long series of question marks punctuating life in Turkey now are quickly eroding what has long been a jewel in Turkey's economy — tourism.

According to the Investment Support and Promotion Agency of Turkey, nearly 42 million tourists visited the country in 2015 and spent $43 billion CDN. But the Association of Turkish Travel Agencies says that between January and September 2016, the number of visitors dropped roughly 35 per cent compared to the same period in 2015.

Istanbul's Grand Bazaar is a bit of a barometer of Turkey's economy as a whole. It is one of the most internationally identifiable symbols of the country and a major revenue generator for the tourism industry.

Typically, it's the glint of gold or diamonds from the windows that catches your eye here, but in the last several months, it's the dull grey shutters over some shop windows and handwritten For Rent signs that stand out.

More than 300 of the 3,600 stores are now closed, and there is worry another 150 could follow early in the new year.

"This is a stressful time for shopkeepers and for Turkey," said Hasan Firat, president of the Grand Bazaar Tradesmen Association.

There is still a constant current of people — both locals and tourists — but it is a "dry" crowd, he says. They're just passing through. They're not going to spend.

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Hasan Firat, right, is head of the Grand Bazaar's Tradesmen Association. He and his daughter, Biray, left, are third- and fourth-generation shopkeepers in the famous market. (CBC)

Firat has been working here since the mid-1980s, and has seen business survive in the aftermath of earthquakes, military rule and Turkey's financial crisis in 2001.

But this, he says, is the worst it has ever been.

A plan for change

Looking at Turkey's larger economic picture, Demirtas says the real solutions lie in what every emerging market needs: structural reforms.

One example, he says, is investing in innovation and reversing the brain drain of young talent leaving Turkey for other countries, including Canada.

Demirtas also points to transparency as a key factor in attracting foreign investment.

Those looking to pour money into Turkey need to know that the people they invest in won't suddenly be arrested or have their assets frozen as Turkish authorities continue to investigate this summer's coup attempt.

If Turkey can convey that sense of security, Demirtas says, "initial foreign investors will make money out of Turkey."

"They'll say, 'Look, the economy is stable,' and more will follow," he said. "It's always like a circle. Whether it's going to be a good circle or a vicious circle depends on the policies of Turkey."