Erdogan is a model strongman but his economic policies are bizarre and have given the world a bad headache
Turkey’s economy is in a state of crisis right now, exemplified by the collapse in the value of the Turkish lira. Turkish President Erdogan, like any other ultra-nationalist leader in the world, blamed others and indirectly blamed the US for all of Turkey’s problems. He has a point. US-Turkish relations have been strained for years, particularly with Turkey’s involvement in the Syrian conflict with Erdogan actively helping the forces fighting the Kurdish Peshmerga militia. The Kurdish militia, however, are supported with weapons, cash and tactical assistance by the Americans. In addition, there is the case of Fetullah Gulen, an Islamic teacher based in the US, whom Erdogan considers a political rival and wants the US to extradite. And Turkey recently placed an American pastor, Andrew Brunnson, under house arrest for allegedly supporting Gulen, so US Evangelicals pressured the White House to act. Things have become so bad that the US will not provide Turkey with their latest F-35 lightning II fighter and have sent back Turkish trainee pilots. Trump has also imposed a series of tariffs on Turkish steel and aluminum.
But as much as regional geopolitics are to blame for Turkey’s current malaise, the fact is that those have just made matters worse. Erdogan’s regime has nepotism as its central plank, his son-in-law was made Finance Minister, for example. And nobody in Turkey has managed to tell the Turkish leader that his policy of maintaining a low interest rate is downright ludicrous. Erdogan believes that hiking rates will stave off recessions, but with investors getting a better return on the US dollar now, that is where they are going. A strong US dollar is not always a bad thing for emerging economies; India’s IT services company share prices have shot up over the past few days thanks to the weak rupee. However, politically, a weak currency makes leaders look weak and Erdogan’s central plank to the Turkish people has been his strength and how he will bring back Turkish pride. But low interest rates mean that returns from Turkish investments are low and the sudden outflow of foreign currency from Turkey will put pressure on Turkey’s largest firms, all run by Erdogan’s pals which have massive dollar-denominated loans with some payments due soon. Even though the Turkish lira has recovered slightly, it may not be enough to stave off some industrial collapses in that nation. And because Turkey is a major emerging economy, problems with their currency have impacted India as well. True, the fall in the value of the rupee is not solely due to Turkey’s problems, but Turkey has contributed. Maybe it is time for Turkey to back down but can Erdogan do thatij