Erdoğan’s 2023 dream over as ‘Crazy Projects’ shelved in crisis

Turkish President Recep Tayyip Erdoğan’s dream of creating a $2 trillion economy for Turkey by 2023, the country’s centenary year, is over as his government shelved a series of headline investment projects designed to achieve it.

Erdoğan announced the cuts in a speech on Friday, prompted by the reluctant admission that Turkey is now facing an economic downturn spurred by a currency crisis. 

A likely recession in the NATO member has already begun to bite and could slash Turkey’s economic output to around $600 billion from about $850 billion today, said Brad Setser, a senior fellow specialising in sovereign debt, imbalances and capital flows at the Council on Foreign Relations. 

Mothballed investments are set to include Erdoğan’s self-labelled ‘Crazy Project’ – a $30 billion shipping canal designed to bypass the Bosporus waterway in Istanbul. The spending reductions come as the government is forced to make big savings in the budget and raise revenues.

It will be a painful learning curve for Erdoğan and his son-in law, Treasury and Finance Minister Berat Albayrak, as they accept Turkey’s new realities, which were preceded by dreams of superpower status through economic might and regional influence. And they must now try to correct imbalances of their own creation, brought about by a surge in domestic spending, heavy foreign currency borrowing and a range of unorthodox stimulus measures that overheated the economy. 

“If a project is close to completion, then we’ll finish it, but there will be no new ones,” Erdoğan said in the speech, as he shifted the blame to the United States, his new favourite whipping boy, for conspiring to create a financial crisis in the country. 

The lira has slumped about 40 percent against the dollar this year after investors fretted over Turkey’s economic policies and Erdoğan got embroiled in a political battle with U.S. President Donald Trump over the imprisonment of Americans including a U.S. pastor. The standoff over pastor Andrew Brunson set off economic sanctions and deepened the lira’s fall.

It was Turkey’s central bank, not Erdoğan, that moved to stop the rot on Thursday, raising interest rates by a whopping 625 basis points to 24 percent in a decision that surprised investors. 

It could have been so different for Erdoğan and his ruling Justice and Development Party (AKP).

In 2011, to much fanfare, Erdoğan set out his vision for a Turkey in 2023. The country, having just voted in democratic changes to the constitution, was to become one of the 10 largest economies in the world. Each person would be earning an average $25,000 dollars and, as the economy flourished, unemployment would sink, he said.

Erdoğan’s Islamist-rooted party had gained power in 2002 because of an economic crisis the previous year. Turks were also demanding political and social change. They were disillusioned with the secular elite after a succession of weak coalition governments, corruption and an insular foreign policy.

By 2011, the former Istanbul mayor had transformed the country – Turkey was striding forward confidently, economic growth was matching China and the military had been banished from politics. Exports, meanwhile, were heading towards a record as firms marched into new markets in Africa and the Middle East. Everybody was talking Turkey.

More recent history is well documented. Gezi Park, a corruption scandal that embroiled the government in 2013, an unsuccessful coup attempt in 2016 that preceded an erosion of democracy and a monumental shift to one-man rule completed by presidential elections on June 22 this year.

Suffice to say, the short-term outlook for the country is bleak. And Erdoğan’s vision of a booming, vibrant Turkey arriving as a top world economy 100 years after Mustafa Kemal Ataturk established the republic is dead.

In 2023, Erdoğan said, the economy would be worth $2 trillion. It was measured at $882 billion at the end of the second quarter, the world’s 19th largest. GDP in Russia, the 10th biggest nation, is about $2.3 trillion. Annual economic output in Turkey peaked at $950 billion in 2013 and, largely due to the lira’s persistent depreciation, has not recovered.

Unemployment, now stubbornly circling around double figures and set to run higher as the recession hits hard, has never reached Erdoğan’s goal of 5 percent since he came to power. Youth unemployment is also well into the teens. And, despite tweaks to economic growth data calculations in 2016, Turks are now earning little more than $10,000 per annum.

Exports, which Erdoğan said would total $500 billion by the Oct. 29, 2023 celebrations, peaked at $158 billion in 2014. Since then, partly due to conflict on Turkey’s borders, they have declined sharply.  A goal for total foreign trade of $1 trillion looks similarly out of reach. 

Trade with Germany and the United States, with whom Erdoğan has wrangled over the jailing of journalists and consular staff, has largely stagnated.

In the energy sector, three nuclear power plants remain unbuilt. Installed wind power is 6 gigawatts and various state tenders to meet Erdoğan’s 20 gigawatts target have been delayed, some by almost five years.

In health, despite the introduction of universal healthcare – one of Erdoğan’s greatest achievements -- Turkey has around 175 physicians per 100,000 people, less than fellow Turkic republics Turkmenistan, Azerbaijan and Uzbekistan, according to the CIA World Factbook. That is 20% fewer than his target of 210.

And now, rather than parading Turkey towards 2023 with fanfares of achievements, it is Erdoğan who must bring Turkey out of financial turmoil.

Economists are saying that the recession may not be over until the middle of next year, when economic growth could total just 1 percent. Instead of borrowing dollars to fund the expansion and infrastructure and energy investments – Turkish companies have amassed some $223 billion in unhedged foreign currency debt amid a construction boom and surging domestic demand -- Erdoğan must create the stability needed to help corporations and the banks that fund them meet their dues.

Otherwise, instead of a more economically modest but still vibrant Turkey come 2023, rot and instability, both financial and political, could persist well into the future.  

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.
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