Turkey's economic woes see a return to the politics of the 1950s

On September 2, a respondent on the website Quora responded to the question “What can save the Turkish economy from the imminent collapse?”, saying:

“We have gone through [a] balance of payment crisis in the past and we all know how bad it will end. The likelihood that Turkey will resort in [the] near future to IMF loan and capital controls is increasing with every minute that passes.”

There is something about the current inability of the Turkish government to manage its economic situation which reminded me of the economic crisis Turkey experienced in the 1950s under the Democratic Party (DP) government of Adnan Menderes, Turkey’s first democratically elected Prime Minister. The DP were “financially and fiscally unsound, creating huge deficits, debts, inflation and a black market”, according to Anthony Zurcher’s Turkey, A Modern History. 

The DP borrowed from the central bank instead of increasing taxes on the landowners who had brought them to power, and inflation went from 3 percent in 1950 to 20 percent in 1957. The lira’s value plummeted, but “instead of recognizing the economic realities, the government revived the National Defence Law of 1940 to enforce price controls.”

The DP lost the support of many of the wealthier groups who originally brought it to power, and Menderes became increasingly authoritarian. The DP’s broad coalition started to fall apart, and the DP tried to redirect economic discontent into nationalist feeling on the ongoing issue of Cyprus, the future of which was the subject of negotiations between Great Britain, Greece and Turkey. 

Nationalism is a dangerous pressure valve to use to redirect political and economic worries. The Turkish government, however, clearly sees its demands for equitable access to Mediterranean gas deposits in this light. By making the issue into a culture war, with Turkey playing a classic underdog role and the Western powers cast in the role of Imperialists determined to keep Turkey weak, Turkish President Recep Tayyip Erdoğan gets to re-fight the Turkish War of Independence, forcing his domestic political opponents to stand by the government in support. 

Again and again, as Turkey’s economic position deteriorates, Erdoğan is able to find nationalist wedge issues like the reconversion of the Hagia Sophia which can be fitted into a narrative of underdog Turkey against the Western Christian Imperialists. Filling the political discourse and the news with the impression of a Turkish state under attack means that it becomes very hard for the opposition in Turkey to criticise the state without risking being seen as unpatriotic.

Elections for the Turkish parliament in 1957 led to a reduced majority for Menderes’ Democratic Party. They responded by appealing to religious sentiments, “describing the Republicans as communists and unbelievers, and boasting about the number of mosques and religious schools opened under the Democrats”, according to Zurcher. Religion is a tool that Erdoğan has used right from the beginning, with the AKP frequently advertising how many mosques have been built since it came to power, and the Hagia Sophia debate should be seen within this context of an appeal to a core domestic vote of the AKP.

Turkey paid off the last of its previous IMF debt in 2008, and in 2007 Erdoğan promised that there would be “no IMF in Turkey’s future”. Yet it is increasingly looking like Turkey may be forced to return to structuring its debt with an IMF loan, just as the Menderes government was forced to do in 1958. A 2018 Daily Sabah article warning against IMF ‘domination’ suggests that the IMF conspired against the Menderes government because Menderes initially rejected IMF assistance in 1954.

Turkey’s economy exists as part of a globalised capitalist system, in which debt is often forced on developing countries, making interference and restructuring by the IMF almost inevitable. Much of the capital inflows to Turkey after 2008 were created by ‘quantitative easing’, the printing of money by Western central banks. Now that investment is leaving Turkey (as well as Brazil and other BRICs nations), their currencies are falling in value, leading to inflation and falling living standards.

Nevertheless, the economic controls implemented as part of the 1958 IMF loan to Turkey were successful at reducing inflation. Erdoğan does not in fact need the pressure of the IMF to reduce inflation in Turkey at the moment. He simply needs to make the central bank independent of government control, and free to set a higher interest rate. However, the AKP seems ideologically unwilling to take such a move.

Erdoğan is not in as dangerous a situation as Menderes was in the late 1950s. Menderes lost the support of many Republican power networks, most importantly the army, leading to his overthrow and execution in 1960. Erdoğan doesn’t have this problem, having already subordinated the independent power structure of the army through the Ergenekon trials and the purges that followed the failed 2016 coup d’etat.

The problem for Erdoğan will be that if no economic stabilisation measures are taken, inflation will continue to eat into the living standards of his core groups of supporters, which will be reflected at the ballot box while it is inevitably getting harder to attract Foreign Direct Investment in light of sharp downgrading of the Turkish economy. The question is what kind of political or economic pressure will it take for the AKP to change course on the economy. 

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