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  • Sep, 2018
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  • International

Short-term fixes don't address the economy's long-term fragility, which is rooted in the personalistic autocracy that Erdogan has erected.

Turkey's political model has long lost its luster, but a growing diplomatic crisis with the equally erratic administration of US President Donald Trump has now pushed the country's economy into a full-fledged currency crisis. The Turkish lira has lost nearly half of its value over the last year. And, because Turkish banks and firms have borrowed heavily in foreign currency, the lira's freefall threatens to bring much of the private sector down with it.

President Recep Tayyip Erdogan, having won the first election since Turkey's formal change from a parliamentary to a presidential system in June, now governs the country autocratically. He relies on government ministers selected more for their loyalty (and family ties) than for their competence.

For more than a decade, financial markets gave Erdogan, who was Prime Minister until 2014, the benefit of the doubt and supplied the Turkish economy with easy credit. Economic growth became dependent on a steady flow of foreign capital to finance domestic consumption and flashy investments in housing, roads, bridges, and airports. This kind of economic expansion rarely ends well. The only real question was when it would.

The immediate trigger was the Trump administration's decision to use sanctions (and the threat of more) to press Turkey to release Andrew Brunson, an Izmir-based American evangelical pastor arrested during the purges that followed the failed coup against Erdogan in July 2016. The crackdown has involved 80,000 arrests, the closure of 3,000 schools, dormitories, and universities, and the dismissal of 4,400 judges and prosecutors.

These draconian measures were taken under emergency rule, generally under orders from Erdogan's circle. Resistance to the suspension of basic liberties has been minimal, as media are heavily controlled and civil society has been emasculated through repression and the consequent climate of fear.

Like every financial crisis enabled by unsustainable economic policies, finding a way out requires both immediate and medium-term remedies.

In the short run, the economy needs confidence-boosting measures to stabilise financial markets. Turkey's central bank may need to raise interest rates, despite Erdogan's deep aversion to such a move. A concrete and credible programme of tightening fiscal discipline and restructuring private-sector debt is essential.

But these short-term fixes don't address the economy's long-term fragility, which is rooted in the personalistic autocracy that Erdogan has erected.

With the June election, says Erdogan, "Old Turkey" has given way to "New Turkey." In the new order established under this Second Turkish Republic, any challenge to his authority is liable to be viewed as treason.

The system Erdogan has instituted leaves no place for competent politicians or bureaucrats at the helm of the economy. They have been pushed out because their goals transcend the leader's self-interest. Fear prevents honest debate of issues. Businessmen, academics, and journalists at the top of their fields have fallen mute in the interest of self-preservation. His circle is packed with yes-men (and some token yes-women), who strive to satisfy his sense of omniscience and magnificence.

Even opposition leaders in the now-toothless parliament become cheerleaders whenever he signals that lack of support would be treated as aiding the enemy.

Sooner or later, economic pressures will force Turkey to adopt fixes that will stabilise its currency and financial markets. But that will not revive long-term private investment, bring back talent that is leaving the country in droves, or foster a climate of freedom that will allow Turkey to thrive. As China and other Asian countries have shown, some autocracies can prosper when their leaders prioritise sensible economic policies. But when economics becomes merely another tool for enhancing the president's personal power, the economy, as we now see, necessarily pays the price.

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