Ayla Göl
Aug 15 2018

Turkey 2.0 is on track to follow the path of Venezuela

Turkey under the rule of the Justice and Development Party (AKP) was a beacon of hope for many Muslim countries and emerging markets. The Turkish economy grew rapidly over the past five years, following the examples of Brazil, China and India.

But this trend was turned upside down less than two months after Recep Tayyip Erdoğan was re-elected president. Erdoğan’s Turkey has now stumbled into new financial and diplomatic crises. When the presidential and parliamentary elections took place on June 24, Erdoğan’s new Turkey - Turkey 2.0 - emerged from the Kemalist Republic: old Turkey – 1.0 – was upgraded from a parliamentary to an executive presidential system.

With a 52.5-percent majority of the vote, the path was legitimately cleared for Erdoğan’s one-man rule. Initially the Turkish lira surged against the U.S. dollar in a positive market response to stability in domestic politics. On Friday last week, Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law, unveiled the country’s new economic model, which includes the principle “to provide full independence in monetary policies”.

However, the very same day, President Donald Trump announced on Twitter that he had authorised the doubling of steel and aluminium tariffs against Turkey. By Monday, the lira had reached its lowest rate ever against the dollar, while inflation is rising at an annual rate of more than 15 percent. The classic signs of an overheating economy and a construction boom with a large foreign-currency trade deficit raised concerns about the stability of Turkey’s government and what impact the Turkish crisis might have on global markets.

On Tuesday, the first shockwave reached India when the rupee dropped to an all-time low against the dollar. The Turkish government’s responses to the current financial crisis show that Ankara has not learned useful lessons from the recent crises experienced in other emerging markets, such as Venezuela.

Of course there are stark differences between Turkey and Venezuela: firstly, Turkey’s economy is not heavily based on oil and, secondly, it is not a socialist government. At the same time, however, there are striking similarities between two countries’ most recent financial crises and strained relations with the United States.

Understanding what went wrong in Venezuela is useful in forecasting the political outcome of the crisis in Turkey. Venezuela is on the brink of collapse, and has gone from being the richest country in South America in the 1970s to a failed state.

Venezuela’s future is in the hands of God and its economy is being held together with duct tape. The elected socialist President Hugo Chavez ruled Venezuela between 1999 and 2013. Chavez’s populist policies to end poverty and inequality kept him in power until he died of cancer. Nicolas Maduro, who was handpicked by Chavez, won presidential elections in 2013 and carried on Chavez’s policies. In July 2017, the bad governance culminated in a new assembly that gave Maduro dictator-like powers.

In response to the lack of free and fair elections, the United States announced economic sanctions on the Maduro administration. Widespread allegations of corruption have discouraged potential foreign investors. Venezuela suffers from hyperinflation and U.S. sanctions are taking their toll on society.

Similarly, Turkey’s financial and diplomatic crises with the United States have plunged the country into an unprecedented series of shocks. In domestic politics, the last elections were free, but unfair and confirmed Turkey’s illiberal democracy.

Following the failed putsch of July 2016, Erdoğan and his government increased their powers after declaring a state of emergency. Democratic norms and the rule of law have been suspended. More than 50,000 people were put in pre-trial detention on charges of terrorism and/or membership of the Gülenist movement that was linked to the failed coup. The peace process with the Kurds has been suspended and the former leader of the main Kurdish opposition Peoples’ Democratic Party (HDP), Selahattin Demirtaş, campaigned from jail and is still imprisoned.

In foreign affairs, modern Turkey has never been further away from its European path than it is now by risking Ankara’s prospects for EU candidature and its NATO membership. The war of words between Erdoğan and Trump is leading to a serious diplomatic crisis. Tensions between Ankara and Washington began over the extradition of Fethullah Gülen from Pennsylvania, the man Erdoğan says was the mastermind behind the coup attempt.

The U.S.-Turkey diplomatic row intensified over the detention of American pastor Andrew Brunson for nearly two years. Turkey says that Brunson has ties to both the Kurdistan Workers’ Party (PKK) and the Gülenist movement. The changing threat perceptions of the Erdoğan administration has brought Turkey 2.0 closer to Putin’s Russia, which aims to keep President Bashar Assad in power in Syria and control the Kurdish issue in the region.

Ankara’s internal and external affairs are based on short-term solutions. Turkish foreign policy has become irrational under Erdoğan’s authoritarian rule. His response to the financial crisis was to declare a national struggle against the U.S. currency and ask his voters to do their patriotic duty by exchanging their dollars into lira.

Erdoğan seems to have lost touch with reality. It was a financial crisis in 2001 that brought him to power, it was economic success that kept him in power and it is a crisis in the economy again that will determine his future.

If Erdoğan’s miscalculations lead to the total collapse of the lira and hyperinflation, Turkey 2.0 will follow in the footsteps of Venezuela. Based on his responses so far to the crisis, it is unlikely that a rescue package supported by the United States and the IMF would save Turkey. Even Erdoğan’s magic formula of strong Turkish nationalism combined with Islam and neo-Ottoman rhetoric might be unable to save the country from this crisis. Turkey 2.0 is already on the path of Venezuela and is running out of time to escape from becoming a fragile economy and a failed state.