Turkey’s Economic Blame Game

  • Middle East Policy

    Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.

Views from the Region

August 17, 2018

The decline in value of the Turkish currency, the lira, continues, and there are signs that the country’s banking system may be on the verge of crisis. Burdened by a growing current account deficit spurred by low interest rates and inflationary policies, Turkey’s economy received yet another hit when the U.S. government levied sanctions and tariffs against it over the case of a jailed evangelical preacher. While the underlying weakness in the economy has been visible for some time, Turkish President Recep Tayyip Erdogan has preferred to pin the blame on the bombastic U.S. president. While this strategy may be politically savvy, many regional observers believe that Mr. Erdogan’s blame game is a dead-end for Turkey and that a change of direction, both economically and politically, may be necessary to save the economy.

One of those voices that believes the crisis “is of Erdogan’s [own] making,” comes from the UAE’s flagship newspaper The National, which, in a recent editorial, excoriates the Turkish president for being responsible for bringing “Turkey to the brink. He retreated to the trenches after a failed coup in 2016 and while he has failed at a core tenet of leadership – namely managing the economy – his only response has been defiance and threats of a ‘war of independence’ with the U.S. He is in denial about the current economic crisis, branding the lira’s collapse a ‘currency plot’ instead of admitting his own failures…. But rather than acting responsibly, Mr. Erdogan – who appointed his son-in-law as finance minister – has blamed foreign powers for the plight befalling his country…. Having acquired unprecedented powers, responsibility for Turkey’s economic woes fall squarely on his shoulders.”

The Khaleej Times editorial also singles out the Turkish leader for criticism, arguing that Mr. Trump is not to blame for Turkey’s economic management, but rather Mr. Erdogan who “has used his power aggressively for his own gains rather than for the country. Sweeping changes have been made to the constitution since the attempted coup in 2016, and ever since he has managed to win the elections again, he has been appointing his family and friends to all important positions in the cabinet. At a time when the economy is in dire straits, he has appointed Berat Albayrak, Ergodan’s son-in-law, as the new head of Treasury and Finance ministry…. The world is not waging an ‘economic war’ against Turkey, but Erdogan himself who is pushing the country into chaos with his populist policies.”

Writing for the Arab News, Cornelia Meyer also gives an economic explanation for why the Turkish currency is in a tailspin, and goes on to offer possible solutions to avert further damage to the Turkish economy: “The Turkish lira has lost more than 45 percent against the dollar since the beginning of the year. Initially the reasons were manifold and interlinked: A sizeable current account deficit, the government’s undue influence over the central bank, its opposition to hiking interest rates, high inflation, geopolitical tensions and other factors…. The question for Turkey is where to go from here…. To stabilize the situation, Turkey will need to address the crisis by restructuring foreign currency debt, fiscal tightening and probably by hiking interest rates, even if the government balks at the idea…. Small incremental moves will not do the trick. Turkey will try to avoid involving the International Monetary Fund, because its measures would be seen by the government as infringing on Turkish sovereignty.”

Even if many agree that the Turkish economic crisis is a reflection of mostly internal Turkish economic imbalances, Hurriyet Daily News’ Murat Yetkin believes that Mr. Trump’s tweets and economic policies precipitated the Lira’s fall over the edge: “Let’s be frank: The Turkish Lira was already heading toward a crisis, but statements by United States President Donald Trump …heated up the crisis further and accelerated its decline…. In the EU, there is an obvious anti-Erdoğan sentiment, but when it comes to Trump’s blows against Erdoğan weakening the Turkish economy, there is an obvious resistance there, too…. Trump managed to unite leaders, from Merkel to Putin, in support of Turkey, and banks and opposition parties in Turkey in support of the government against them.”

Times of Israel columnist Pinchas Landau agrees, but goes further by suggesting that Mr. Erdogan’s instrumentalization of the U.S. president’s Twitter rhetoric may do lasting damage to Turkey-U.S. relations: “Trump has given Erdogan an alibi – ‘the Americans are screwing us’ – which may yet enable him to get himself off the hook for this disaster. Even if the crisis does result in Erdogan’s downfall, the Turkish public will believe that it was a foreign plot that brought him down – and a large number of non-Erdogan supporters will rally behind his successor out of patriotic sentiment. Worse still, from an American perspective, the process already underway whereby Turkey is distancing itself from/ being pushed away by (choose your version) the West and into the waiting bear-hug of Putin’s Russia, will be given additional impetus. This will be the case even, perhaps especially, if Erdogan is forced to quit.”

This narrative transforming an economic crisis into a political one is already reflected in various editorials, including a recent one posted on Iran’s Press TV by Jafar Razi Khan: “the current row between the U.S. and Turkey and the ensuing deterioration of the two countries’ relations may be more the result of Turkey’s policy to get close to Russia and Iran rather than the incarceration of an ordinary priest…. Erdogan has already warned that Turkey would ‘seek new friends’ after the US ‘upset and annoyed’ Ankara with sanctions…. Erdogan has made it crystal clear that Turkey would be looking to form alternative economic alliances from ‘Iran, to Russia, to China and some European countries’…. Ties between Russia and Turkey are growing closer than ever. Turkey’s growing defense cooperation with Moscow includes a recent deal to buy state-of-the-art S-400 surface-to-air missile systems. At the same time, military collaboration with the US has been scaled back.”

In Turkey, Daily Sabah’s Mahmut Övür also perceives U.S. economic warfare aimed at bending Turkey to Washington’s will: “The recent crisis in exchange rates did not appear out of the blue but has a certain background…. But it is obvious that the underlying motivation is to settle accounts with Turkey. And this is the continuity of the same war through the economy…. [F]or the first time, Turkey has gotten the opportunity to recover from the imperialist siege that has constantly created new coups and threats ever since the late İsmet İnönü signed the Marshall Plan in 1947. Moreover, the exchange manipulation also presents Turkey the opportunity of being liberated from dependence on import activities, a problem that could not be resolved for years. Every citizen has a duty at this point. As we – as the Turkish nation – did in the July 15 coup attempt, we can overcome this economic attack only if we unite and resist together.”

Regardless of spin and rhetoric, Turkey’s economy appears to be in a downturn. The question many are asking, including this Gulf News editorial, is whether Mr. Erdogan is the right person to get it out of it: “The decline in value has been spurred by growing concerns over the general economic direction and policies adopted by the government and directed by its president, Recep Tayyip Erdogan, as well as a deepening standoff with the United States and deteriorating ties with Washington…. Normally, in mature economies with a political leadership that is responsible and responsive, the necessary course of corrective action would be to lessen the money in circulation and decrease any new supply by hiking interest rates. In Ankara, where political power has been self-centred on Erdogan, those corrective measures do not suit his personal economic management style — and the lira continues to fall as inflation increases.”

  • Middle East Policy

    Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.

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