Turkey could be heading into a perfect economic storm
The weakness of any authoritative leader -- be it US President Donald Trump or Turkish President Recep Tayyip Erdogan -- usually comes down to two weak links: their insistence on surrounding themselves with “loyal” people, regardless of competence,” and the mismanagement of the economy, usually by the same incompetent people put in power because of their loyalty.
The leaders may be perceived by supporters as projecting a positive force for their country. Their supporters may like the image such men project; one of self-assurance that the people believe will be good for their nation. The people feel safer, knowing their leader will protect them against all threats, foreign and domestic.
When no such threats exist, some can be fabricated. They can accuse the media of “fake news.” But what about when politicians talk about fake policies? Especially in a country such as Turkey, where there exists a long tradition of the all-powerful ruler -- be it the sultan or the founder of modern-day Turkey -- the face of a strong determined leader is more readily accepted.
For the most part, the people will put up with the whims and capricious ways of the leader. They will close their eyes on megalomaniac tendencies requiring building a huge presidential palace. They will glaze over the recruitment of a praetorian presidential guard equipped with horses that resembles something that belongs in tsarist Russia more than in modern-day Turkey.
They may close their eyes to military parades, which have the main objective of satisfying the leader’s ever-growing ego. They will forgive and explain the necessity of a leader solidifying the political base by surrounding himself with trustworthy people, some of whom are being rewarded for their political support.
They will even forgive nepotism, when sons and sons-in-law are offered government positions at the ministerial level, often for posts in which they have absolutely no experience whatsoever.
There is, however, a breaking point. There is that proverbial red line from which, once crossed, there is rarely any going back. This is when the economy starts to falter and when many begin to hurt and start to question the abilities of the leader.
Given that the economy has been reorganised to fit around the leader, giving him better control of the financial institutions, rightfully claiming credit when the economy fares well, so it is also rightfully so that the leader is expected to now carry the responsibility when the news from the financial world is less pleasant.
When life savings are rapidly thinning come the red lines they thought would never be reached, a time when all the flowery speeches that, not too long ago, gave the people confidence are starting to sound like empty words. For that, they find no excuses and this is often the turning point for many authoritative leaders.
For Erdogan that red line is rapidly approaching. The Turkish president, who managed to have the constitution altered, giving himself greater powers, believing that no part of Turkish life should be beyond his reach, not least of all the economy, is about to get a rude awakening.
“He has given himself sultan-like powers,” noted one observer. That one-way ego trip may come to an end soon. Erdogan has built his political following with a financial policy based on rapid expansion and constructing megaprojects. For this, his political opponents have criticised him, accusing that much of that expansion “was built on budgetary sleight of hand, cronyism and corruption.”
Now that Turkey faces its worst economic crisis since 2001, Erdogan is confronted with the limits of his authoritarian approach and could see the end of his long run of success.
Turkey’s financial troubles undermine investor confidence in other market economies and Erdogan’s financial policies are raising concerns about the exposure of banks even in developed regions, such as the European Union.
Turkey’s economic troubles, analysts say, are largely of Erdogan’s making.
His dispute with the United States has less to do with his financial woes than the possibility of facing economic sanctions and the fact that Erdogan’s efforts to shape the logic of monetary policy and international financial markets to suit his political aspirations.
Erdogan has imposed greater control over much of Turkey’s everyday life. His tentacles have reached into the media, the judiciary and foreign policy. Yet his weak point, the issue that may well unravel his hold on the country, is the economy.
Business leaders warn that the many strands of the president’s authoritarian approach are intertwined and that Turkey will not climb out of its hole until the country enacts major structural reforms that would undo many of Erdogan’s constraints.
In an interview with Bloomberg TV in May, Erdogan explained why he wanted more control over the central bank and interest-rate policy. His policy consisted of maintaining low interest rates, believing it would allow fiscal stimulus and it would encourage the construction industry.
Now the very fiscal policy the Turkish president said would give him absolute power is likely to be what is scaring away foreign investment.
The trouble with authoritarian leaders is that they begin to believe that they know what’s best when they do not. Ultimately, they pay the price for their ignorance but many people are harmed along the way.
The combination of the financial situation, the intrusion by the president into the financial world and the jittery money market have the basics of what could develop into a perfect economic storm.