Sep 28 2018

Erdoğan facing the most serious challenges of his political life - Washington think tank

Turkish President Recep Tayyip Erdoğan is facing the most serious challenges of his political life, which is coming from external global forces that have helped him in strengthening his grip on power, Bulent Aliriza, a senior associate and director of the Turkey Project at the Center for Strategic and International Studies (CSIS) in Washington, said on Thursday.

Turkey is suffering from its worst economic downturn since the global financial crisis a decade ago, with Turkish lira dropping by 40 percent against the dollar since the beginning of the year and inflation officially reaching 17.9 percent, the highest level since 2004. 

Turkey is also trying to regain the confidence of foreign investors, who are wary of Erdoğan’s opposition to raising interest rates and political interference in the country’s central bank.

Erdoğan repeatedly blames foreign powers for trying to weaken the Turkish economy and tries to implore his supporters not to believe that Turkish economy is facing a crisis. 

Turkish central bank increased the policy rate by 625 basis points to 24 percent in early September, citing that the “inflation outlook pointing to significant risks to price stability.” The Central Bank’s decision came shortly after Erdoğan repeated his views on interest rates during a speech. 

Despite Erdoğan’s typically harsh comments, there was a general recognition that the Turkish central bank could not have moved without his consent, particularly after demonstrating his domination on economic management the previous day by taking control over the Sovereign Wealth Fund, while installing Berat Albayrak, the Minister of Treasury and Finance and his son-in-law, as his deputy, Aliriza and CSIS research assistant Zeynep Yekeler said. 

Albayrak last week unveiled a New Economic Programme (NEP), promising to ensure price and financial stability, economic balancing, budgetary discipline, and medium-term sustainable growth.

The NEP is “a more realistic program than its predecessors with respect to growth and inflation projections” and “is much less ambitious in scope than Erdogan’s grand vision and unshakeable confidence in the health of the Turkish economy would normally have warranted,” Aliriza said. 

“Although it is an important statement of intent on the part of the government to do things differently from the past, question marks persist over the extent to which it will be implemented given its previous record,” he said. 

The NEP also repeated Erdoğan’s charges against foreign powers, saying that Turkish economy was directly aimed by the U.S. administration, which has imposed sanctions on two Turkish ministers and doubled tariffs on Turkish aluminium and steel in recent months, due to a diplomatic spat between Ankara and Washington over the detention of U.S. nationals in Turkey. 

Erdoğan now seems to confront the U.S.-led global financial system, which, in his early days in power, he relied on to provide external capital during a period of favourable global financial conditions, Aliriza said. 

“It remains to be seen whether his current strategy to deal with the crisis, which includes constant reassurances to citizens that the government is capable of overcoming the externally-provoked difficulties as well as initiatives to attract foreign capital to maintain what might be accurately termed “the circle of prosperity,” which has worked so well since 2002,” Aliriza said. 

The external financial markets’ reaction to the NEP and the Turkish government’s ability to deal with shifting geopolitical dynamics will be decisive on the outcome, according to Aliriza. 

“Erdogan is clearly facing one of the most serious challenges of his political life. Ironically, it is coming not from domestic political opponents he has repeatedly trounced over the course of 16 years, during which he has been governing the country while transforming it into a full presidential system, but from external global forces without whose help he would not have been able to strengthen his grip on power,” Aliriza said. 

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