Erdoğan’s strongman rule imperils economy - Washington Post

Turkish President Recep Tayyip Erdoğan’s authoritarian rule is imperiling the economy and his political patronage system.

Three shopping malls, located side-by-side in Istanbul’s affluent financial center of Levent, epitomise Turkey’s misguided economic policies, based on construction and consumer spending. Two of the malls – Ozdelik Park and Metro City – are now virtually empty, while a third – Kanyon – remains alive thanks to its upscale shops and cafes.

While Erdoğan has made great improvements to living standards in Turkey – the revamped health system is just one example – his unorthodox economic policies – he claims higher interest rates are inflationary -- and reliance on the construction industry for economic growth is leading to great imbalances.

Erdoğan surrounds himself with construction industry insiders and needs to keep them happy as he seeks to maintain his power base, the Washington Post reported citing a financial analyst who asked to remain anonymous for fear of a government backlash.

Emerging markets usually build new factories to expand their economies. But since the late 1990s – Erdoğan’s governing party came to power in 2002 -- the importance of manufacturing in the Turkish economy has shrunk to about 16 percent of GDP from more than 22 percent, according to government statistics. Meanwhile, construction and real estate have grown markedly and now account for about the same share of national output as manufacturing, the newspaper said.

“The political economy of the regime relies heavily on patronage and cronyism,” said Soli Ozel, an international relations professor at Kadir Has University. “To save (the contractors) is important both politically and economically. The construction industry has been the true engine of growth and employment.”

Some experts now say government economic statistics, such as data on bad loans at the nation’s banks, no longer can be trusted. “We don’t know what the real situation is,” said Durmus Yilmaz, a former central bank governor, the Washington Post said.

Turkey under Erdoğan has begun to resemble Latin America in the 1980’s, when countries under authoritarian governments experienced spurts of rapid growth followed by sharp downturns, the newspaper said.

But that doesn’t tell the whole story, said economist Uri Dadush of the Brussels-based think tank Bruegel.

“The problem is when you have authoritarianism and bad economic policy and a bad grasp of the fundamentals, especially when colored by nationalism,” Dadush said. That leaves rulers such as Erdoğan “extremely resistant” to seeking help from the institutions that can help mend their economies, such as the International Monetary Fund, he said.