Scents of 1990s Turkey return as economic slump deepens
President Recep Tayyip Erdoğan is reviving memories of the Turkey of the 1990s with his handling of the country’s economy and degradation of democracy.
With inflation at the highest levels since his party won power on the back of a financial crisis in 2002 and the economy contracting, the signs are that Erdoğan is resorting to some of the misguided steps of his predecessors.
Two decades ago, Turkey was stumbling from one financial crisis to another. Populist politicians did the country a great disservice in a merry-go-round chase for power. None were seemingly willing or able to take the painful measures needed to right the country’s economic ills, rather they commonly took short-term populist steps to boost economic growth that quickly backfired. As a result, the era was characterised by a succession of weak coalition governments, run-away inflation and high interest rates.
Those that ruled the country politicised almost every public institution, employing their often-under-qualified loyalists in important positions. They divvied out financial favours to their base, largely made up of shady public contractors, real estate firms and media moguls. Corruption was rife and so was economic instability and insecurity. The pie was forever shrinking, but financial pickings, for the few, were rich despite a series of failed IMF austerity plans.
Meanwhile, democracy amounted to little more than a succession of elections as governments fell in quick succession only to be replaced by equally weak and corrupt coalitions. Torture in the country’s police stations and prisons was rife. Human rights violations against Kurds were the norm. In the aftermath of an earthquake in 1999 that killed 17,000 people and left a half million homeless in northwest Turkey, Prime Minister Bülent Ecevit merely shrugged his shoulders as voters demanded recompense for the deaths of their loved ones buried beneath cement mixed with sand and shells from the sea.
Teleporting to today’s Turkey, much has changed, but so much threatens to be the same again.
Erdoğan, a political Islamist, has unshackled himself from a military that ultimately ruled and fed the old Turkey from behind the scenes. In recent years, he has gone one step further co-opting and controlling an institution that once stood ruthlessly against his brand of religious populism.
As well as the generals - one of them, Hulusi Akar, is now Erdoğan’s defence minister - the coalition the president now runs includes the far-right Nationalist Movement Party (MHP). The nationalists are renowned for their support of crackdowns on Kurds and leftists in the 1980s and 1990s, their full embrace of nepotism and love of authoritarianism.
Authoritarianism was famously defined by Yale University Sociologist Juan Lins in the 1960s as a system possessing limited political pluralism, a legitimacy based on emotion, the suppression of “anti-regime activity” and leadership characterised by informally defined executive powers that are vague and shifting.
Erdoğan’s brand of authoritarianism successfully includes all of the above, plus another major characteristic of such governments - political patronage. That patronage includes the appointment of loyal followers and family members to positions of power within the state apparatus, sometimes with little regard for qualifications, including, within public institutions that run the economy and handing out much-prized state contracts.
In a controversial move following June’s general elections, which heralded the introduction of a full presidential system of government and subordination of parliament, Erdoğan seized direct, personal control of all of Turkey’s largest state enterprises, via presidential decree. The businesses, wrested from parliamentary oversight in August 2016 and placed under the auspices of a hastily formed sovereign wealth fund, include state banks, the national carrier Turkish Airlines and several other high-profile companies.
In the 1990s, state concerns such as Ziraat Bank, Turkey’s largest lender, were used as cost-centres for the country’s politicians, where money was borrowed then distributed to their supporters. Ministers and senior politicians were rumoured to have their own unofficial offices on the banks’ executive floors where deals would be done.
Turkey’s state-run banks facilitated the building of infrastructure and real estate, most famously in the case of Emlak Bank, which funded mass housing projects built by a carefully chosen group of construction firms often at great financial cost to the taxpayer. It was liquidated during the financial crisis of 2001 and its shares were bought by Ziraat and another public bank, Halkbank.
In September, in the aftermath of Turkey’s currency crisis that had wiped almost 50 percent off the value of the lira in eight months, the government announced the revival of Emlak Bank. The revamped institution, it said, would be used to jump-start Turkey’s construction industry, a driver of economic growth under Erdoğan now saddled with expensive foreign currency debt and a huge stock of empty housing. The economy contracted a quarterly 1.1 percent in the three months to September.
State-run Ziraat, Halkbank and Vakıfbank this month slashed interest rated on mortgages to a loss-making 1 percent per month. Inflation in Turkey currently stands at 21.6 percent. The main condition of the lending is that borrowers spend the money on newly built or off-plan apartments constructed by three bank’s clients, which would then use some of the proceeds to repay overdue loan instalments and the rest to fund operations. In effect, state-owned money is now being used to buy up the property of these cash-strapped companies and take on the risk of borrowers failing to repay. It is not clear which firms will benefit from the financial aid and under what specific requirements.
In July, Erdoğan appointed his son-in-low, Berat Albayrak, to run the economy. Albayrak replaced ex-Merill Lynch economist Mehmet Şimşek, a respected figure among foreign investors. Albayrak is now in charge of the Treasury and the Finance Ministry, merged into a single institution via another decree this summer. Erdoğan also awarded Albayrak the position of deputy head of the wealth fund, giving him a wide remit to operate its assets.
The June election also marked a brief stage appearance by an infamous political figure from the 1990’s - economist and former Prime Minister Tansu Çiller. Many analysts blame her unconventional economic policies for a financial cost that erupted in 1994, fuelled by questionable management of Treasury borrowing.
Later, links emerged between her government and organised crime gangs contracted to carry out political killings. This reputation did not seem to bother Erdoğan as he invited her to take the stage as a mass rally in Istanbul that marked the pinnacle of his campaign for re-election.
Albayrak’s management of Treasury borrowing over the past few weeks has prompted some commentators to warn him that he is repeating the mistakes of Çiller. Just like the ex-premier, Albayrak started cancelling some debt auctions and reducing the size of others in an unconventional attempt to drive down interest rates. Durmuş Yılmaz is an opposition party adviser who as a former central bank chief oversaw monetary policy that drove inflation down to 4 percent, a 40-year low, in 2011. He has warned Albayrak that his policies risk driving interest rates and inflation still higher.