{"id":41996,"date":"2018-09-12T14:30:02","date_gmt":"2018-09-12T04:30:02","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=41996"},"modified":"2019-07-12T11:53:11","modified_gmt":"2019-07-12T01:53:11","slug":"turkeys-financial-crisis-erdogan-needs-to-make-new-friends","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/turkeys-financial-crisis-erdogan-needs-to-make-new-friends\/","title":{"rendered":"Turkey\u2019s financial crisis: Erdogan needs to make new friends"},"content":{"rendered":"
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One of the drawbacks of amassing untrammelled power, Turkish President Recep Tayyip Erdogan might ruefully reflect, is that he\u2019s saddled with every decision and blamed for every crisis. After finally ascending to one-man rule<\/a> in elections at the end of June, it was a matter of weeks before Erdogan was hurled into a currency crisis<\/a>\u2014which threatens to turn into a full-blown financial crisis that may weaken his iron grip on the country.<\/p>\n

But Erdogan doesn\u2019t usually do reflection. His primary tactic is to polarise, loudly, in barnstorming tours of Turkey and in daily tirades on television channels that hang on his every outburst. These are methods that have served him well. With June\u2019s dual general and presidential elections, he has clocked up 14 victories in more than 15 years in power, first as prime minister and then as president.<\/p>\n

But running an economy isn\u2019t the same thing as running for office. And for Erdogan, economics has only ever been an accoutrement\u2014to be artfully draped around the election calendar. His ruling Justice and Development Party (AKP) came to power in 2002 just as Turkey emerged from its worst financial crisis since 1945. He hasn\u2019t really had to make hard economic choices. He does now.<\/p>\n

Turkey is facing an economic emergency, the essentials of which were already in place before Erdogan fell out spectacularly last month with US President Donald Trump, hitherto such an admirer of the Turkish strongman that he fist-bumped him at July\u2019s NATO summit<\/a>.<\/p>\n

Turkey\u2019s economy faces many of the problems afflicting emerging markets, from Argentina to South Africa, especially as the cost of foreign borrowing, kept artificially low as the world recovered from the 2008 financial crisis, has been rising. But Erdogan\u2019s construction-and-consumption economic model, tailored to almost yearly votes, relied for much longer on cheap foreign credit that has kept the economy vulnerably overheated.<\/p>\n

Turkey is suffering from high inflation (currently running at 18%); a plummeting currency (down 25% last month alone, and more than 40% for the year) that means leading businesses and banks that owe US$295 billion in foreign loans, half of which mature in the 12 months to next July, risk defaulting; and a gaping current-account deficit, running at an annualised 7% of GDP, that raises the spectre of a balance-of-payments crisis.<\/p>\n

Trump is now adding to Turkey\u2019s pain. The cauldron of grievances between Ankara and Washington was already overflowing<\/a>. Turkey is livid at America\u2019s backing, in the air and on the ground, of Syrian Kurd fighters linked to the Kurdistan Workers\u2019 Party (PKK) insurgency inside Turkey, and its refusal to extradite Fethullah G\u00fclen, the Pennsylvania-based imam and former Erdogan ally whose shadowy network Ankara blames for the abortive coup<\/a> in 2016.<\/p>\n

The US, long before Trump, was fed up with its NATO ally Turkey\u2019s dalliance with Russia and its breaking of sanctions against Iran. Congress is readying sanctions to dissuade Ankara from buying the S-400 air defence system from Moscow, including withholding the new generation of F-35 fighter jets, of which Turkey has ordered more than 100. The sanctions-busting issue has so far seen a government-linked bank executive, Mehmet Atilla, sentenced<\/a> to 32 months in prison by a New York court, with what promises to be a huge fine on state-owned Halkbank still to come.<\/p>\n

The final straw for the US is the continuing detention of Andrew Brunson, an evangelical Protestant pastor Ankara is holding on fanciful allegations of collusion with G\u00fclenist coup plotters and<\/em> the PKK (even though G\u00fclen first fell out with Erdogan over the then prime minister\u2019s peace feelers to the Kurds). Erdogan also maintains that the Halkbank\/Atilla case in the US is a fabrication by the G\u00fclenists.<\/p>\n

He would be on stronger ground emphasising that Trump\u2014and his evangelical vice-president, Mike Pence\u2014are particularly exercised by the Brunson case ahead of November\u2019s mid-term elections, given that Trump won more than 80% of the white evangelical vote<\/a> in 2016.<\/p>\n

At any rate, Trump\u2019s intervention accelerated the freefall of the lira, and enabled Erdogan to sell the currency crisis as a foreign plot. After years of denouncing the \u2018interest rate lobby\u2019, the AKP chorus\u2014which now amounts to almost all the Turkish media after the right-wing coup<\/a> at the independent Cumhuriyet<\/em> newspaper last week\u2014is now vilifying the \u2018currency conspiracy\u2019.<\/p>\n

This is a successful tactic, at least in the short term. Trump\u2019s decision to sanction Turkish ministers close to Erdogan and to double tariffs on US imports of Turkish steel and aluminium lends credence to the government\u2019s charges that it is the victim of an \u2018economic war\u2019. The US president\u2019s belligerence has all but obliged Turkey\u2019s opposition to line up behind its own president. But there are difficulties with this approach in the longer term.<\/p>\n

The crisis is largely home-grown and needs to be fixed internally. Yet pulling the obvious levers would mean a loss of face for Erdogan. A salutary rise in interest rates\u2014which Erdogan has called \u2018the mother and father of all evil\u2019\u2014might brake the lira\u2019s slide. Erdogan affects to believe that high interest rates cause inflation. More germane is that they would endanger his credit-fuelled growth-at-any-cost strategy ahead of municipal elections next March in which he fears the loss of Turkey\u2019s big cities.<\/p>\n

Erdogan, moreover, ruling in solitary splendour from his neo-Ottoman kitsch palace in Ankara, has cut himself off from every reservoir of expertise and knowledge. Liberals and left-wingers who backed him to neuter the army and steer the country towards Europe have long since abandoned him. He has cast all his AKP co-founders into political limbo. The vast purges against G\u00fclenists infiltrated in the state amount to a lobotomy of the cadres the government hitherto relied on. And now that Erdogan has centralised all power\u2014including substituting the top echelons of the civil service with political appointees\u2014he has traded institutional wisdom for courtiers and sycophants. Instead of Mehmet Simsek, his former economy chief who had credibility in the markets, Berat Albayrak, his untested son-in-law, is now economy tsar.<\/p>\n

A paradox facing the president is that his very success in selling the crisis as a foreign plot translates into votes for his ultra-nationalist allies rather than the AKP\u2014and makes it all but impossible for him to approach the International Monetary Fund for help.<\/p>\n

He talks instead of how his \u2018new friends and allies\u2019 will help Turkey, as part of a global anti-Trump alliance. But Russia\u2019s priority is to climb free of Ukraine-related sanctions. China wants to end Trump\u2019s trade war, and in any case mostly does project finance rather than debt relief. The EU, reliant on Turkey to curb Syrian refugee flows, can help a bit\u2014but is constrained by Erdogan\u2019s autocratic behaviour. Qatar, Turkey\u2019s one surviving Arab ally, has its hands full with a Saudi-led blockade, yet has pledged US$15 billion. But that\u2019s a fraction of the sums Turkey will eventually need.<\/p>\n

To relieve pressure on the lira and perhaps unlock an eventual deal with the IMF\u2014the only body that can mobilise such sums\u2014Erdogan will have to find a face-saving way to release Brunson and damp down Trumpian ire. He has the entire media at his disposal to spin this volte-face.<\/p>\n","protected":false},"excerpt":{"rendered":"

One of the drawbacks of amassing untrammelled power, Turkish President Recep Tayyip Erdogan might ruefully reflect, is that he\u2019s saddled with every decision and blamed for every crisis. After finally ascending to one-man rule in …<\/p>\n","protected":false},"author":436,"featured_media":41998,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[294,2110,83,1766],"class_list":["post-41996","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-diplomacy","tag-economic-policy","tag-elections","tag-erdogan"],"acf":[],"yoast_head":"\nTurkey\u2019s financial crisis: Erdogan needs to make new friends | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/turkeys-financial-crisis-erdogan-needs-to-make-new-friends\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Turkey\u2019s financial crisis: Erdogan needs to make new friends | The Strategist\" \/>\n<meta property=\"og:description\" content=\"One of the drawbacks of amassing untrammelled power, Turkish President Recep Tayyip Erdogan might ruefully reflect, is that he\u2019s saddled with every decision and blamed for every crisis. 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