Depending on how you look at it, Recep Tayyip Erdogan either is a political genius with a keen sense of electoral timing, or his country’s worst economic nightmare. For Erdogan, politics is the art of survival – and he is extremely good at it. He correctly judged voters’ temperament and called early elections on June 24. But what has been good for Erdogan at the polls has not been good for Turkey, now with the lira in free fall and a major crisis brewing in Turkish-American relations that, in turn, is pummeling the economy. Worse yet, Erdogan is just getting started.
With Erdogan as Turkey’s leader, financial market confidence has been, and will remain, elusive. Indeed, the current financial crisis is all of his own making, a result of his populist spending policy and inexplicable belief that the best way to fight inflation is to lower borrowing costs. Then, add to that his tendency to surround himself with sycophants and his control of the central bank and the result is a financial and economic crisis whose root cause is Erdogan himself.
But what of the role in the crisis played by the worsening of relations with the US? To be sure, Erdogan and Donald Trump used to make a “beautiful” pair, as perhaps the American president might have put it. Trump famously gave Erdogan a fist pump and heaped on him much praise at the Nato summit last month. Yet, ironically, it was also during a brief conversation at that very summit that the seeds of today’s strained ties were planted. Trump apparently believed Erdogan promised to release the American pastor, Andrew Brunson, jailed on dubious charges by Turkey, in return for Washington’s help in securing the release of a Turkish citizen jailed by Israel for helping Hamas.
But while Trump delivered, Erdogan did not. Fury followed.
Brunson’s release has been a major cause for the powerful evangelical community in America, and Trump needs all the help he can get from the Christian right to prevent a Democratic landslide in congressional elections this November. After a storm of angry tweets demanding that Turkey immediately release Brunson, the previously unimaginable occurred: the US imposed political and trade sanctions on Turkey.
Turkey’s interior and justice ministers were made “specially designated nationals,” barred from doing business with Americans and from gaining access to financial assets in the US. More ominously, last Friday when the lira took a 15 percent nosedive, Trump announced a doubling of steel and aluminum tariffs, sending the Turkish currency even lower. (In a comedy of absurdity, Trump reportedly wanted to punish Turkey for supposedly lowering its currency to gain an unfair trade advantage.)
The Turkish-American partnership until now was believed to be too big and too important to ever allow to fail. Ankara is a Nato ally that hosts a US base with nuclear weapons. Turkey, in its fight against terrorism, has been a regular recipient of American intelligence. It was unthinkable that it would be lumped together on the sanctions list with the likes of Iran, North Korea and Russia. Yet, that it is where it resides today.
But being on the wrong side of the US is not where Turkey’s interests lie. With the central bank’s reserves dwindling, $250 billion in private-sector debt due this year, foreign investors fleeing and inflation rising, the meltdown of the lira threatens to create a balance of payments crisis that will bankrupt a large number of companies. The result will be higher unemployment and recession. Should that occur, Erdogan will have no choice but to seek support from the International Monetary Fund, over which Washington exercises veto power.
Of course, there are steps Erdogan can take immediately to avoid that. The central bank should be freed of political interference, allowing it to urgently raise lending rates by 5 to 10 percentage points. Erdogan needs to announce an emergency budget that tightens fiscal resolves and commits to cutting all big projects. But should all that not be enough – and there is the strong possibility they won’t be – the release of Brunson, the American pastor, as well as offers of an olive branch to Washington would greatly help avert new sanctions and signal to markets that if the worst were to materialize, at least the possibility of an IMF stabilization package would not be unfavorably looked upon by the Americans.
But, then again, Erdogan is not known for backing down.
In an opinion piece in The New York Times, he blamed the United States for Turkey’s troubles and declared that that his country was ready to find new strategic partners – Erdogan harbors fantasies about Russia, China or Qatar bailing out Turkey. In reality, however, none of these countries has the power to save Erdogan from himself. Voters who gave Erdogan a resounding victory in June could not have imagined the road he would lead them down. Today, the political obstinacy of the master politician is fighting economic orthodoxy. If Erdogan wins, all of Turkey loses. Expect much turbulence ahead.
Ömer Taşpınar is a senior fellow at the Brookings Institution and a professor of national-security strategy at the National Defense University in Washington.
AFP PHOTO/OZAN KOSE