Analysis: Turkish economic crisis recalls Erdogan's 2002 rise — but don't expect replay

An economic crisis in 2001 paved the way for the political ascent of President Recep Tayyip Erdogan, but that doesn't mean the current crisis will now lead to his downfall, given the momentous changes that Turkey has undergone under his rule.

al-monitor Turkish President Recep Tayyip Erdogan gives a joint press conference with the Hungarian prime minister (not pictured) following official talks in Budapest, Hungary, Oct. 8, 2018. Photo by ATTILA KISBENEDEK/AFP/Getty Images.

Oct 16, 2018

“The one who comes by way of crisis goes away by way of crisis” is a mantra that one often hears in Turkey’s opposition quarters. It's about President Recep Tayyip Erdogan, who was propelled to power by a crisis that erupted in 2001, then the worst Turkey had ever seen. In early elections in 2002, voters held the ruling coalition responsible for the joblessness and abrupt impoverishment the crisis had caused. All three coalition parties were ousted from parliament, and Erdogan’s Justice and Development Party (AKP) won a mandate to govern the country alone.

After 16 years of AKP rule, Turkey is again facing an economic crisis, fueled by the meltdown of the Turkish lira. The first omen came when the lira began to slide ahead of the 2017 constitutional referendum that Erdogan called to pave the way for an executive presidential system. The currency crisis worsened abruptly in early August, following Erdogan’s victory in the June 24 presidential polls. The lira lost 23.3% of its value in a single day on Aug. 10. US President Donald Trump’s decision to raise tariffs on steel and aluminum imports from Turkey played a triggering role, but the central problem was Turkey’s increased economic fragility under the growing weight of bulky foreign debts.

The lira’s depreciation has led to a sharp surge in inflation, an economic slowdown and more jobless people. So the one projected to “go away by way of crisis” is, of course, Erdogan. But is it that easy?

Anticipation of his demise appears to be sprouting among some foreign observers. Take, for instance, the Sept. 25 report by the Washington Post.

The report is about Turkey’s building spree now “crashing to a halt.” Referring to the Turkish Central Bank’s mid-September rate hike, it reads, “The belated rate increase virtually guarantees a recession with unpredictable political fallout, economists say. In the months ahead, the president will face more tough decisions, including over a potential IMF bailout, that will test his ability to balance crowd-pleasing rhetoric and the economy’s need for bitter medicine. The danger is that Erdogan’s slow-motion pragmatism may not move fast enough to prevent a Turkish meltdown. ‘Authoritarian regimes run into trouble when the economy runs into trouble,’ said Harvard University government professor Jeffry Frieden, author of ‘Global Capitalism.’”

The scholar sees Turkey as an “authoritarian” regime, a description that has gained general acceptance in the Western hemisphere in recent years. One could also speak of a general consensus that economic growth requires intolerance of corruption, merit-based decision-making, sound legal guarantees for private property and business contracts and a properly functioning judicial system.

In Turkey, those prerequisites have become increasingly elusive since the failed 2016 coup attempt that led to a state of emergency that virtually suspended the rule of law, and the ensuing transition to a presidential regime under which this situation has continued largely unchanged. In a country that lacks those prerequisites, one can speak only of misgovernment or the lack of the ability to govern. It was no coincidence that the first signs of Turkey’s currency crisis emerged ahead of last year’s constitutional referendum, which marked the prelude to an authoritarian presidential regime.

In comments to Al-Monitor, Ersin Kalaycioglu, a political science professor at Istanbul’s Sabanci University, described the most crucial element that Ankara needs to steer the country out of crisis.

“We are within a framework that accepts capitalism as the means of growth. It has various forms such as the liberal market economy in the United States, the social market economy in Germany and Scandinavian countries and the state capitalism in China. What we have in Turkey is crony capitalism. The state is fond of certain companies, to which it makes favors and, ultimately, harms income distribution. It is a volatile performance, with ups and down,” Kalaycioglu explained.

“What Turkey needs today is a structure that will give confidence to domestic and foreign markets, comply with free market norms, ensure the supremacy of law and generate predictability. It may need also a belt-tightening program, which should focus on one prerequisite: injecting confidence,” he said.

In past crises, Turkey restored confidence by bringing in and granting authority to an external actor, Kalaycioglu explained, recalling the role Turgut Ozal played in handling the crisis in the 1970s and the 1980s, and more recently, Kemal Dervis’ transfer from the vice presidency of the World Bank to the economy portfolio of the Turkish cabinet in the 2001 crisis. “Turkey has to find an economy czar,” Kalaycioglu stressed.

A “czar” empowered to manage the economy requires power sharing, which is extremely difficult for an inflexible, stern and confrontational regime that has concentrated power in the hands of a single person. As long as Turkey fails to spread this authority out, it stands no chance of obtaining cheap loans.

A recent deal with US consultancy company McKinsey to work on public savings and revenue-generating measures also aimed to inject confidence in the markets. But only nine days after its announcement by Treasury and Finance Minister Berat Albayrak, who is also Erdogan’s son-in-law, the president publicly axed the deal, asserting that Ankara can manage things by itself.

Erdogan’s move, ostensibly a nod to anti-American reactions from his own base, could be seen as an early answer to those who wonder whether he could strike a balance between populist rhetoric and the bitter pills the economy needs. Many are now convinced that an Erdogan who cannot acquiesce even to McKinsey will never go to the IMF, an argument that is impossible to counter at present.

Then what is Erdogan going to do? Since he is incapable of tackling crisis-scale economic strains, will he go away in the next elections like his predecessors? There are four main reasons this outlook is too optimistic.

First, the political system that brought Erdogan to power in 2002 was not a majoritarian, authoritarian regime. Political change was possible in a way that it is not under the current regime.

Second, there are certain prerequisites for an election to produce change, including a free and independent press, impartial public broadcasting, freedom of expression and an impartial judiciary. None of these exist in Turkey today.

Third, although the regime is fragile because it lacks flexibility, there is a large conservative populace in Turkey that is loyal to Erdogan and identifies with him, calling him “reis” (“the chief”). It receives a large share from public resources thanks to rampant favoritism. Erdogan has largely managed to convince those people that the crisis is a foreign conspiracy. Moreover, they believe that thanks to their “chief,” they will weather the crisis better than others.

Lastly, the Turkish opposition’s access to the media is almost completely blocked. And even if it weren’t, the existing players in the opposition camp would need to significantly increase their popular support to unseat the government, not an easy task.

While rejecting conventional methods to address the crisis, Erdogan appears hopeful that his woes might have a silver lining. Addressing an AKP gathering Oct. 6, he said, “We should always keep in mind that every crisis brings about a lot of opportunities.” Before making a prognosis about Erdogan’s political future, one would be well advised to wait and see what he will do to turn the crisis into an opportunity.

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