Economic disaster lies behind Erdoğan election defeat, NYT says

Economic disaster is as much to blame for the defeat of Turkey’s governing party in Sunday’s mayoral elections for Istanbul as any yearning for new political leadership, Peter Goodman wrote in the New York Times.

President Recep Tayyip Erdoğan is now paying the bill for fuelling Turkey’s economy through aggressive borrowing. His approach resembles an athlete who posts record-shattering numbers through the use of performance enhancing drugs, said Goodman, who is the newspaper’s economics correspondent for Europe.

Investors have been pulling their money out of Turkey over the past two years, fearful that the money they spent would erode. At the same time, financiers are concerned that the staggering amount of money borrowed by Turkish corporates may not be fully repaid, Goodman said.  

The lira slumped by 28 percent against the dollar last year, reflecting those concerns. And it has weakened almost 10 percent since then, making the debts even more difficult to repay.

Consumers and businesses are facing higher inflation – annual price increases are running at almost 19 percent – pushed up by the rising cost of imports. Unemployment has surged to about 15 percent.

Goodman said of gravest concern are the debts priced in dollars owed by construction companies who receive their revenue in liras to take advantage of a boom in infrastructure projects and the housing market. This is a lethal mismatch that threatens to bankrupt them, he said.

Turkish medium and long-term debt in foreign currency stood at $328 billion at the end of last year, with private companies owing about two-thirds of that amount, Goodman said. The debt load compared with economic output of about $766 billion.

Only Argentina is more at risk of descending into a full-fledged financial crisis, Goodman said.

While the victory of opposition candidate Ekrem Imamoğlu at the Istanbul election might be a general expression by voters of their unhappiness about Erdoğan’s recent attacks on democratic institutions, the factor that crosses political divides is economic decline, Goodman said.