Mark Bentley
Jan 10 2018

Erdoğan reverting to Islamist heritage on economy

President Recep Tayyip Erdoğan is increasingly borrowing from the economic policies of an Islamist movement ousted from power in 1997.

Contrary to popular opinion, Erdoğan’s off-the-wall approach to resolving Turkey’s economic problems, including the assertion that higher interest rates fuel inflation, is hardly new.

“Erdoğanomics” is, in fact, based on the policies espoused by former Prime Minister Necmettin Erbakan, a political mentor to Erdoğan until his death in April 2011.

Among Turkish Islamists, it was Erbakan, not Erdoğan, who first rejected Western and IMF-backed doctrines that saw interest rates as a critical macro-economic tool.

Erbakan, who led several religious parties in Turkey before serving as prime minister in 1996 and 1997, also called for the following economic steps before he was ousted from power by the military:

- State-run banks should support employment and production, rather than just work for profit.

- Turkey should develop its own heavy industry and defence industry, rather than rely on imports.

- The central bank must work in the country’s national interests, rather than those of the West.

- Rather than maintain close cooperation with NATO and the European Union, Turkey should instead work with other Muslim nations and movements, including Hamas, Sudan and Iran.

Two months after Erbakan’s death in April 2011, Erdoğan won a general election with 49 percent of the vote, a record for a politician in Turkey’s multiparty electoral system.

Invigorated by the margin of his victory, Erdoğan stood on the balcony of his party’s headquarters in Ankara on election night, to declare that the coming few years would be his “mastership period”. People from countries such as Palestine and Egypt, as well as Muslims across Europe, were also celebrating the victory, he said.

Two months before Erdoğan’s re-election in 2011 – his Justice and Development Party (AKP) has ruled since 2002 – Erdoğan had approved the appointment of Erdem Başçı as the central bank’s new governor. Başçı’s tenure was to herald a new era for the bank’s monetary policy, as it stepped away from inflation targeting to support the economy and Erdoğan’s growth policies.

2011 also marked the end of an era for Turkey ‘s Western-focused economic policies. To much fanfare, the government had paid off its remaining debts to the International Monetary Fund in 2008, an achievement that Erdoğan labelled as a victory for Turkey’s economic independence.

But the ensuing global financial crisis and its aftermath forced the Turkish leader to focus on stemming a recession and minimizing the impact of the global economic downturn on the country’s finances and industry.

In the run up to the elections, however, Erdoğan introduced his plan for Turkey’s 2023 centenary . He pledged to plot an independent path for Turkey, symbolised by achievements in industry. As well as a slew of plans for infrastructure spending, Turkey was to produce its own car, tank and military jet in the coming 12 years, strengthening its industrial capabilities. 

Erdoğan also began to increasingly employ the resources of Turkey’s state-run banks to finance key national projects, including highways, bridges and other infrastructure. At the same time, he used the government’s control over the lenders to alter the dynamics of financial markets – pushing them to approve loans at below market rates to support employment and businesses.

In 2016, his government transferred the banks – which included Halkbank and Ziraat Bank, Turkey’s largest lender – to the country’s newly-established sovereign wealth fund. The move allowed the companies to support the economy without the constraints of parliamentary oversight.

Finally, in another nod to Erbakan, Erdoğan intensified Turkish initiatives in the Middle East and North Africa. After several secretive meetings with Turkish officials, Erdoğan welcomed Hamas leader Khaled Mashal to the podium at a congress of his AKP in 2012. At the same time Erdoğan was giving strong support to the Muslim Brotherhood government in Egypt until it was ousted in July 2013. Angry but undeterred, Erdoğan cut off diplomatic relations with Field Marshall Abdel Fattah al-Sisi’s government and sought to strengthen relations with Iran, Qatar and Sudan.

A corruption scandal that erupted in late 2013 appeared to reveal the degree to which his government was in support of Iran’s Islamic republic. The allegations centered around the government’s involvement in a scheme to circumvent U.S. sanctions on Iran and have formed a basis for evidence in the New York trial of a senior official of Halkbank on charges of sanctions-busting and bank fraud.

Turning to Sudan, Erdoğan has made relations with President Omar al-Bashir a priority for Turkey’s foreign policy. Bashir, wanted by the International Criminal Court on charges of genocide and war crimes, welcomed Erdoğan in Khartoum last month in the first official visit by a Turkish head of state.

Erdoğan, calling Bashir “my brother”, signed 13 agreements intended to boost trade and cooperation. Three months earlier Ankara had also penned a $50 million deal for a military base in the country.

Last week, former Israeli envoy to Egypt, Zvi Mazel, claimed that Turkey was establishing a naval and intelligence infrastructure on a Red Sea island owned by Sudan. The project was part of a “ring of military cooperation” along the east coast of Africa that threatens regional security, he said.

Since the 2011 election, Erdoğan has also stepped up criticism of the West and NATO, saying the member-countries were supporting efforts to topple Turkey’s economy and oust him from government.

In a veiled reference to the West this week, Cemil Ertem, senior economic adviser to Erdoğan, said the masterminds of the coup that ousted Erbakan were now responsible for Turkey’s structural problems, which included inflation, unemployment and high interest rates.

Despite attempts to derail Turkey, it was time to reject the West’s economic doctrines and support Turkish industry, he said.