Turkey’s Erdoğan in two double-binds

President Recep Tayyip Erdoğan seems to have consolidated his position as the strongmen of Turkey. There is little to doubt here. Winning a snap election on June 24, with 51 percent of the vote, he became the president of Turkey with near-complete control of the three branches of the government. Some commentators liken his position to that of the founder of the republic, Mustafa Kemal Atatürk. Selahattin Demirtaş, the imprisoned presidential candidate of pro-Kurdish opposition Peoples’ Democratic Party (HDP), rather presciently named this regime, as it was in-the-making in 2015, a “constitutional dictatorship”.

Erdoğan does not even need a state of emergency anymore; he has the capacity to govern the country solely with presidential decrees. Even though Erdoğan’s Justice and Development Party (AKP) and his far-right junior coalition partners combined do not have the parliamentary majority necessary for constitutional changes, the opposition has neither the numbers required to strike down the president’s decrees, nor the coherence to come together on a platform that can organise the widespread discontent over the slow-motion economic meltdown.

Furthermore, Erdoğan also seems to be steering his regime, with as minimum damage as possible, out of the latest chapter in Turkey’s entropic decline into anomie. Yes, the Turkish lira tanked against the U.S. dollar and the euro, and the private sector is a couple of steps closer to a systemic debt crisis. Yet, Erdoğan was able to explain away this currency crisis to his domestic audiences as an effect of an economic war waged by the imperialist powers against Turkey and successfully used this narrative to silence the opposition and subordinate its various factions (with the exception of the HDP) to his agenda.

The bellicose pronouncements of U.S. President Donald Trump and his national security advisor John T. Bolton function quite well as props in Erdoğan’s speeches and in the pronouncements of his lackeys and loyal pundits. Moreover, in a widely read op-ed in the New York Times, Erdoğan formulated for the first time to an international audience in explicit terms that unless the United States respects Turkey’s independence and foreign policy priorities in the Middle East, Turkey will seek out new allies.

On the European front, as if to spite the United States and the Trump administration, Erdoğan’s government began to explore possible avenues of rapprochement. The exposure of European banks - in particular, French, Spanish and Italian banks - to the impending debt crisis in Turkey compelled German Chancellor Angela Merkel to step up, once more giving Erdoğan a degree of freedom to manoeuvre along the two major and tectonic geopolitical axes that traverse the Atlantic on the one hand, and the Silk Road on the other.

Turkey’s sudden release of the two Greek soldiers and the honorary president of Amnesty International Turkey did not only function as a payment to Europe in return for its support against U.S. pressures, but also put the continued detention (albeit under house arrest) of American evangelical pastor Andrew Brunson into a broader context of a hostage economy - a topic that I plan to explore in a different essay.

But despite these wily manoeuvring and conjunctural gains, Erdoğan seems to be caught in two entangled double-binds: the economy and Syria. On the economic front, the Erdoğan government and its particular brand of debt-financed, construction-based extractionist regime of accumulation has come to an end. Given the U.S. Federal Reserve’s decision to tighten monetary policy in response to low unemployment rates in the United States, access to global liquidity has become increasingly expensive for all emerging economies. Yet, due to a number of factors, Turkey seems to be on the very edge of this global default risk frontier.

The cause of this precariousness is where Erdoğan’s first double-bind lies. The most recent currency crisis, on the surface, appears to be precipitated by the Branson stalemate with the Trump administration. But, we also know that an earlier chapter of this crisis took place before the general elections in June, when Erdoğan went to London and explained on a number of platforms that, after he became president, he would personally take control of all the levers and institutions of economic policy, including the central bank.

This may have been an important turning point as these enunciations by Erdoğan clearly signalled that there would be no central bank independence under the new presidential system. But all these concerns gained traction only as the slowly brewing decline of the Turkish lira dramatically increased the debt default risk of the highly leveraged corporate sector (which also happens to be highly dependent on imported energy and intermediary goods).

My sense is that the driving factor of the most recent currency crisis was neither the decay of the rule of law, nor the risks involved with political instability. While these may have been contributing factors, the underlying problem appears to be the increased exposure of Turkish banking sector to a corporate debt default risk.

This is difficult to comprehend and process for Erdoğan and his advisors as they seem to sincerely believe that Turkey continues to be a viable destination for financial investment. They do so because they have a sense that in the eyes of finance capital what really matters is not the rule of law but rather the political guarantee of a strong and agile pro-business state that functions like a corporation. (This may even be an accurate assessment if it were not for the debt default risk exacerbated by the currency crisis.) And they believe that if they can sell the idea that Turkey is “a good investment”, they can re-ignite the economy and grow their way out of this crisis.

The case for such a strategy includes marketing a stock market that has hit rock bottom, an industrial policy that supports defence, telecommunications, energy and infrastructure sectors, a pro-corporate government that keeps labour militancy under control, an undervalued currency that gives Turkey a competitive edge in export markets, a young demographic, and a household sector that can be financialized further. (Even though household indebtedness has increased dramatically during the AKP years, with 17% of the GDP, it remains well below, for instance, the OECD average.) In short, for the Erdoğan regime, the exit from crisis entails deepening of the financialisation process, increasing the rate of exploitation, and developing his very own military-energy-construction complex.

To successfully pursue this strategy, the Erdoğan government needs to gain access to liquidity: both to roll the existing debt and to finance new investments. Here he does not have much choice. He will either go to Western capitals, to the BRICS, or the Gulf states. If he goes to the former, they would require him to either go to the IMF or voluntarily implement an IMF-sanctioned austerity programme.

This would mean not only that he would relinquish control over the economy, but also undermine his political viability as such an austerity programme would entail fiscal discipline, a tight monetary policy and the reinstitution of the independence of regulatory institutions - all elements of reforms introduced after Turkey’s 2001 financial crisis that Erdoğan has since dismantled - and the disruption of the redistributionary mechanisms the AKP has been operationalising for the last 16 years to maintain its popular base.

Needless to say, Erdoğan prefers not to do this. For this reason, he has turned to Russia, the Gulf States (in particular, Qatar) and China, but he has not been able to get much traction there either. The Fed’s decisions have global impacts that affect all emerging markets. In any case, Russia poses a particular problem as Erdoğan hits his second impasse, the Syrian front. As the Syrian Civil War is slowly coming to a close, the President Bashar Assad’s government wants to concentrate all its efforts on Turkish-controlled Idlib province where the remaining Syrian rebels and jihadist groups are gathered.

Russia, while a protector of the Assad regime, would like to limit the scale of the war, if only to keep its control of Turkey as a rogue element within NATO. Turkey, on the other, would like to prevent a mass movement of people, including the radical jihadist elements, across the border and would like to co-opt the opposition, or at least as many of them as possible, into negotiations with the Assad regime. If Turkey were to have it its way, it would not only save the day for its clients in Syria (the anti-Assad insurgents and moderate Islamists), but would also secure a place for its highly leveraged construction companies in the post-conflict reconstruction of the Syria. All's well that ends well.

But the harsh truth is that, it is only a matter of time before the Assad regime, with the support of Russia and Iran, makes its move on Idlib and secures an agreement with the Syrian Kurdish-led led Syrian Democratic Forces to the east of the River Euphrates. The realisation of both of these developments would bring Turkey’s entanglement in Syrian civil war to a close that would be difficult for Ankara to come to terms with, especially given its irredentist imperial aspirations.

The parallel between the debt crisis and the Idlib crisis is rather striking. In both cases, the Erdoğan government seems to have hit a limit. And in both cases, rather than confronting the limit the administration wants to defer its encounter with the moment of truth.

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