Turkey was once seen as something of an economic miracle at the dawn of the millennium. Millions of Turks were lifted into the middle class, poverty was cut down dramatically and foreign investment into Turkey kept on flowing throughout this dramatic transformation. Sitting atop this economic juggernaut was its maestro, Turkey’s President Recep Tayyip Erdogan.

Two decades into his tenure, Erdogan appears to have run out of magic. The Turkish economy is currently trapped in a vortex of high inflation, rising unemployment, mounting debt and a Turkish lira clinging to life. In the last year, the lira has seen close to 45 percent of its value erased, driving Turks into a dash for foreign currencies like the dollar to protect their savings. All the while, the COVID-19 pandemic continues to lurk in the background after dealing serious damage to Turkish businesses in 2020. 

For all the turbulence, Erdogan and his ruling Justice and Development Party (AKP) have shown no signs of changing course. In a speech after a meeting of his cabinet on December 9, Erdogan declared that his government plans to “do the right thing” and that he rejects policies “that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty.” 

This might be a difficult pitch to the many Turks, who today are already struggling to afford basic goods like food and medicine. Erdogan’s statement is not helped by the out of touch comments by his deputies, who suggested Turks simply needed to eat less until prices come back down. 

With the economy sliding, Erdogan is at perhaps his most consequential crossroads in years. His shepherding of Turkey’s economic surge following the malaise of the 1990s was what secured his power, despite his contentious, Islamist, political program and combative foreign policy actions. Erdogan will not be facing the voters until at least 2023, but any further cratering of the economy can place much of his legacy at risk if it costs him the presidency. 

The immediate cause of this situation is one entirely of the president’s own design. Erdogan has a well-known distaste for high interest rates, referring frequently to them as the “mother of all evil”. He has touted his past studies of economics (despite lingering doubts) to lend credibility to his judgment, but Erdogan’s view is in complete contradiction with those of the majority of orthodox economists who argue raising rates is the main way to combat inflation. 

Since the transformation of Turkey’s political system into an executive presidency in 2017, Erdogan has untethered himself from the forces of the market and consolidated decision making around a smaller circle of advisers. In the last two years, Erdogan has sacked three heads of the Central Bank of Turkey and has pushed out officials from the Ministry of Finance as he doubled down on his chosen path. In their place, Erdogan has installed loyalists who echo his positions on interest rates and inflation.

Undeterred by rising inflation, Erdogan declared on November 22 an “economic war of independence” that would see Turkey transform into an economy that he contends will be focused on investment, production, employment and exports. His supporters in the AKP have likened this envisaged economy to Japan’s, earning ridicule from opposition politicians. 

There is reason to believe this vision is unlikely to rescue Turkey’s economic fortunes. Timothy Ash, a senior strategist at BlueBay Asset Management in London, dismissed the competitive benefits of Erdogan’s proposals, arguing that Erdogan’s resistance to raising rates to address inflation will erase any gains from this approach while failing to bring back foreign investment. 

“Turkey is the only G20 economy that does not believe or run orthodox monetary policy,” Ash told New Europe in an email. “Why would foreign investors invest in that?. The competitiveness gains will be eaten away with inflation,” he continued. “And few foreign investors will invest in an economy where inflation is rampant and the outlook is so uncertain.”

Instead, Ash warns that Turkey may be heading for a “systemic economic crisis” unless this policy direction is reversed. This could result in a run on the banks by frightened Turks and a possible default at its worst.

“These policies are bound to fail,” said Ash. 

Thousands of Turks have already taken to the street in protest, demanding for Erdogan’s government to resign. This has not gone unnoticed by the Turkish opposition either.  Former prime minister Ahmet Davutoglu, leader of the Future Party, accused Erdogan of “treason” for his mishandling of the economic crisis. Meanwhile, Kemal Kilicdaroglu and Meral Akşener, the leaders of the opposition Nation Alliance coalition, have demanded that Erdogan call early elections to wrest control of the economy away from him.

Erdogan has refused to oblige this request. His political calculus may be attuned to the fact that polling shows his approval ratings nosediving against his likely foes. According to an August poll, Erdogan was projected to lose in a direct election matchup with at least four leading opposition candidates including Kilicdaroglu, Aksener, Istanbul mayor Ekrem Imamoglu and Ankara mayor Mansur Yavas. By November, his personal approval ratings dropped to only 38 percent. 

His AKP, and its junior partner, the far-right National Movement Party (MHP), are also suffering in the polls. In November, the independent Metropoll polling agency found the AKP still poised to secure the largest share of voters with a projected 34.3 percent in support, but the MHP would be thrown out of parliament with only an estimated 6 percent support. There was speculation that Erdogan would push to lower the election threshold from 10 percent of votes to enter down to 7 percent, but the MHP would still fail to qualify under these changes.

However, just as Erdogan has defied the laws of the market, so too may he define the laws of political gravity. Ordinarily, the level of economic turmoil Turkey is now experiencing should translate into a sweep at the poll in favour of rival parties, but Turkish society has become so polarised under Erdogan that his voters may not be ready to part ways with him just yet. 

Dr. Emre Erdogan, a Professor of Political Science at Istanbul’s Bilgi University and who is not related to the president, said that it is unclear that the state of the economy will translate into a loss of power for Erdogan. Pointing to surveys on Turks’ varied perceptions of the economy, Emre noted the sharp disagreements over the cause of its decline. Supporters of the opposition, he explained, will always place responsibility on the government whereas Erdogan’s constituents will point the finger elsewhere.

“Even if there is a slight agreement about the worsening economic conditions, different partisan bases have different views on the responsibility of the situation,” Emre explained to New Europe. “Hence, it is generally impossible to make an agreement about who is responsible for the crisis and who will pay for it.

This assessment is rife with precedents in recent Turkish economic history. In the past, Erdogan has blamed any combination of foreign powers, global banks and other unseen enemies for conspiring to destroy Turkey through manipulations of the market. In his most recent speech on the economy on December 9, Erdogan pledged to fight against the “interest rate lobby” that he says wants to guide Turkey towards stagnation. 

Beyond the economy, Erdogan has fed his conservative-nationalist base red meat to maintain their support. This has resulted in an abandonment of the Istanbul Convention on violence against women and a move to shut down the pro-Kurdish opposition People’s Democratic Party (HDP) to keep his faithful loyal. Turkey’s sharply polarized, but pro-government media ecosystem, has also helped Erdogan control the narrative by creating what Emre says is an “illusion by providing alternative facts about the economy or echoing its scapegoating rhetoric.”

This sharp polarization within the Turkish electorate may just provide Erdogan with the space he needs to hold onto his constituency, said Emre. However, if the economy sinks into a deeper depression, the success of this approach becomes more uncertain.

“The effectiveness of this rhetoric highly depends on the direction of the economy if it still goes down,” said Emre. In this scenario, he added, the “well-known capacity of the government to create alternative facts will be insufficient.”

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By: Nicholas Waller
Title: Can Erdogan survive an economic crisis of his own design?
Sourced From: www.neweurope.eu/article/can-erdogan-survive-an-economic-crisis-of-his-own-design/
Published Date: Thu, 16 Dec 2021 19:00:43 +0000

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