Political spectacles and economic realities

Following President Recep Tayyip Erdoğan’s announcement last week that Turkey would hold snap elections on June 24, the country’s politics has been dominated by speculation about possible presidential candidates, election coalitions, and other political manoeuvrings. This will be the country’s first election in which the president and the parliament will be voted on simultaneously.

One avenue of alliance for the opposition parties had been to field a joint presidential candidate to run against the incumbent Erdoğan. Abdullah Gül, who co-founded Erdoğan’s Justice and Development Party (AKP) in 2001 and served as prime minister and president before Erdoğan, was a potential unifying figure in this presidential bid.

The prospect of Gül’s candidacy has created waves in the governing coalition, which consists of the AKP and the Nationalist Action Party (MHP). MHP Chairman Devlet Bahçeli publicly criticised Gül for betraying Erdoğan by running against him, and accused Gül of being under the influence of nefarious actors, including terrorist organisations and the alleged perpetrators of the 2016 coup attempt. Bahçeli’s statements are likely an attempt by Erdoğan to prevent Gül from drawing support from the AKP base.

Gül is expected to be the presidential candidate for the Felicity Party, which shares its Islamist pedigree with the AKP, but other opposition parties are intent on offering their own candidates as well. Meral Akşener, who left the MHP last year to create her own Good Party, has announced that she has collected the 100,000 signatures necessary to submit her candidacy for president. Akşener received support from the Republican People’s Party (CHP) in Good Party’s parliamentary bid, but CHP’s parliamentary support has not dissuaded her from pursuing the presidency through her own party.

After the first round of presidential elections, if no candidate receives more than 50 percent of the votes, then the top two candidates will go head-to-head in a runoff election. At this point, opposition parties seem to be focusing on fielding their own presidential candidates while forming a wide coalition for the parliamentary elections. Within this framework, the AKP is expected to lose members to the Felicity Party and the Good Party.

In the midst of these political spectacles, the real story unfolding right now, with a more significant impact on the country after June 24, is critical changes to Turkey’s economy.

As president and AKP chairman, Erdoğan has made “native and national” the fundamental slogan of his political vision for Turkey. Now, he has begun advocating for a “native and national” monetary system as well.

Shortly after coming to power in 2003, the AKP redenominated the national currency by striking six zeros from the Turkish lira, which had been a victim of chronic inflation in the previous decade. As Erdoğan prepares for the country to transition to a presidential system, he is pushing a new currency for the new political system: a native and national currency that is pegged to the gold standard.

The Turkish economy has steadily weakened in the aftermath of the 2016 coup attempt and the ensuing crackdown, in which the government imposed a state of emergency that has continued for getting on two years, and Erdoğan has run out of options to slow the swelling interest and exchange rates. To lay the groundwork for the austerity measures he will be forced to implement if he wins the June 24 elections, he has embraced rhetoric advocating a “national-native” currency.

The national currency, immune to so-called external economic enemies and their internal collaborators, who will be unable to use the dollar, the euro, interest rates and inflation to influence Turkish politics, will be an important propaganda tool for Erdoğan at campaign rallies.

State banks such as Ziraat and Vakıfbank have been transferring gold reserves held in U.S. and European banks back to Turkey. This process is fuelled by the spectre of sanctions against Turkey that could result from the high-profile New York conviction of Turkish banker Mehmet Hakan Atilla for his part in a complex scheme to exchange gold for Iranian oil and gas and bypass sanctions on Tehran. Turkish-Iranian billionaire gold trader Reza Zarrab turned state’s witness and testified he had bribed Turkey’s economy minister and had been told Erdoğan had given the green light for the scheme.

The Turkish central bank is selling off foreign currency in exchange for gold to increase its reserves. In the past week, the Treasury sold $4.5 billion-worth of gold bonds and gold lease certificates. They have also run an advertising campaign broadcasting government-backed, tax-free, 2.4 percent interest garnering gold bonds across television channels.

Through these public campaigns and repatriated gold, reserves have reached 564.8 tons. The Central Bank has also increased these reserves by allowing banks to store 10 percent of their required reserve ratio as gold.

Nevertheless, creating a gold-standard currency and insisting that it is protected from exchange-and-interest-rate fluctuations does not solve the underlying issues of the Turkish economy. In fact, faced with the $458-billion foreign debt, the $77-billion trade deficit, and the $53-billion current account deficit, solving Turkey’s economic woes through the gold standard is impossible.

For example, if the national currency had already been pegged to the gold standard, with the trade deficit in 2017, Turkey’s $77-billion gold reserves would have already disappeared.

To look at it a different way, with the $253 billon of gold reserves and $83 billion of foreign currency reserves that the central bank announced it held the first week of this month, the central bank would have barely covered the 2017 foreign trade deficit, and its coffers would have been mostly depleted.

In a joint press conference with Azerbaijani President Ilham Aliyev, Erdoğan announced that the two countries would begin trading through their national currencies. Similar arrangements with Russia and Iran have been suggested in the past. But in the past three years, no definitive steps have been made to sign agreements with these two countries’ central banks.

Aziz Konukman, economics professor at Ankara’s Gazi University, observed: “When the Turkish economy’s overall size is taken into account, the model that Erdoğan refers to as national-native currency is in fact the nationalisation of the corrupt gold-based trading that Reza Zarrab organised. It camouflages the exchange of gold for products, petroleum, natural gas by calling it national.”

As the governing coalitions makes national-native political promises, a national currency has been added to the list of national-native automobiles, tanks, ships, pharmaceuticals, and rifles that the government wants the Turkish economy to produce. These nationalist promises have produced very little of tangible value, and those gains have not extended past government circles and benefitted the Turkish public.

Politicians are winning the contracts, and the people are watching from the sidelines.