The growth years are set to succumb to a new era of debt and distress, forcing the country to look inward and maybe even dispense with Erdogan
One of Israel’s frustrations with Turkish President Recep Tayyip Erdogan wasn’t just his visceral dislike of the Jewish state but the fact that he was presiding over a country with growing economic and military power and pretensions to regional leadership. Erdogan wasn’t only an enemy but an increasingly powerful one.
Those days are now coming to an end. Erdogan may remain an enemy, at least in terms of inflammatory rhetoric, but Turkey’s economy is rapidly going down the drain and with it will go his ability to influence events in the region.
The Turkish economic miracle that Erdogan was given credit for over the last decade and a half was more an illusion than reality. The economy grew rapidly, at times at a pace that exceeded China’s, but its foundation was faulty.
The expansion was financed by an influx of foreign capital, which was readily available and extraordinarily cheap in the post-2008 era of low interest rates. But instead of investing in machinery and equipment, research and development, and education to raise productivity levels, the money was used to finance construction projects that were increasingly grandiose and gave little back to the economy.
When the 2016 abortive coup threatened to undermine growth, Erdogan propped it up with generous government-guaranteed loans to business and a revision of the way the government processes official economic data.
In this year’s first quarter, gross domestic product grew 7.4%, and that’s the way the leader likes it. Erdogan’s ability to stay in office since 2002 and enhance his power through the 2018 referendum amending the constitution was as much about his ability to deliver sustained economic growth as it was about restoring the place of Islam in Turkish life.
As it turns out, the Islam stuff was secondary to Erdogan’s real agenda, which is above all about amassing power. Keeping the economy growing through a formula of borrowing, building and (consumer) binging is the way to do that. But the formula by its very nature has a limited shelf life and that has come due.
Not all of the emerging disaster is Erdogan’s fault, but nearly all of it is, especially since he now has nearly unlimited power over the economy and has used it to impose his unorthodox views, such as that high interest rates increase inflation.
Global interest rates are rising, which makes it less attractive for foreign investors to put their money in Turkey. True, Turkey has raised interest rates, but it has been an exercise of too little too late, presumably because of Erdogan’s baleful intervention.
Foreigners are taking their money out of Turkey and so are Turks (by one estimate 12% of the country’s rich left last year). Like foreign investors, they’ve been put off by growing corruption and economic mismanagement under Erdogan.
The capital flight has left the lira down more than 30% this year and left Turkish companies with growing dollar-denominated debt that many will not be able to pay. If the currency losses another 25% of its value, Turkey’s banks will have no capital cushion left to face defaults. Add to that the Trump White House’s decision to impose financial sanctions on two cabinet ministers and a threat to halt Turkey’s duty-free access to U.S. markets.
It’s hard to picture a scenario where this doesn’t all end in a crash landing for the Turkish economy. Raising interest rates would stop the lira from spiraling downward but would cause economic growth to collapse. Erdogan doesn’t seem to have the personality traits that would let him make amends with the United States, admit his mistakes and defer to others on economic policy or negotiate (as he might have to) concessions in exchange for a bailout from the International Monetary Fund. In any case, an IMF bailout would put an end to the Turkish miracle.
It would be foolish to try to predict how Erdogan and the Turkish people would respond to the crisis. For now, it seems Turks are buying the story that the crisis is all part of a conspiracy against their country and are standing behind the president. Maybe when the extent of the debacle becomes apparent they’ll turn on him and the Erdogan era will end to the relief of Israel and many others.
Either way, the muscular Turkey we had come to know during the Erdogan era is over. Ankara will be much more preoccupied with debts and the economy than with dreams about reviving Ottoman glory and power. It may even choose to make amends with its old enemy Israel.
Finally, I offer an unpleasant reminder to Israelis who will be celebrating Erdogan’s woes, in particular the Israeli right and its fantasy of Donald Trump as the tried and true friend of Israel.
The reason Washington imposed sanctions on Turkey is that Erdogan was playing games on a deal Trump believed had been sealed to release the imprisoned American pastor Andrew Brunson. Trump is enamored of strongmen like the Turkish leader, but more than he likes quasi-dictators he likes to do deals. Erdogan committed a grave sin in Trump’s eyes and is being made to pay heavily.
Now, when you think of people who specialize in double-dealing, the leader of another eastern Mediterranean country immediately comes to mind. If the Trump peace plan ever gets off the ground, which is by no means a given, the Benjamin Netanyahu-Donald Trump bromance could come crashing down.
@ Michael S:
I believe that the Ancient Jewish kingdoms, and later, after the Maccabees freed Israel, would make alliances because of LOOMING threats on the horizon. I only recall one alliance entered into actually during a conflict that the Judean king was losing; and I’m not sure he was actually a king, maybe an Tetrarch..it was after Herod.. Of course On consideration, I might recall more….but wars didn’t last long enough in those days to arrange what you suggest, often being decided by a single battle. In Israel of course, with it’s small area, and many cities, all fortified, it would become a matter of the invaders besieging and capturing them one by one., each alone and ruled by a governor.
For many years, hundreds in fact, Israel itself was ruled by subsidiary kings, paying fealty to one of the large Empires, with representative governors often also residing in the capital city..This is not explicitly mentioned in the Torah, but there are one or two dropped remarks plus archaeological discoveries which make this believable. In only one brief period, that of David, could a claim to Empire be made, as he extended his rule and influence of the weaker surrounding states like Moab, Ammon, Philistia and etc. That’s where the declaration that it extended from the Mediterranean and the Red Sea, to the Euphrates, originated from.
@ Hugo Schmidt-Fischer:
I saw this morning in Arutz 7, that the Turkish Economy chief has been “begging” the US to return to discuss matters that have caused their rift. It seems they are already suffering badly, their currency alone losing 30%. So you are right on the mark here.
Hi, Hugo
I agree with your prediction that Erdogan’s troubles will probably impel him toward more and more obnoxious behavior, just as they did to Hitler. Iran, as you note, is already in this phase of accelerating aggressiveness.
Ultimately, most dictators meet an untimely end. Exceptions abound, though, including Mao, Stalin, Lenin and Franco, who managed to die in bed.
I believe the Iranian theocracy will fall, for social as well as exonomic reasons. That’s because most of Iran’s population probably opposes the ayatollahs, and some do so vocally. Erdogan, on the other hand, is very popular among ordinary Turks; and the more extreme he acts, the greater his popularity.
In case you haven’t seen my exchanges with Edgar G., I believe Erdogan is probably the “Gog” of Ezekiel 38-39; and as such, he will attack Israel. Iran, according to the prophecy, will be allied with him, along with the leaders of Sudan and what seems to be Libya. We’ll see how that works out. I’ve been predicting along this line for over 30 years, so I get some satisfaction from watching the pieces fall in together.
Israel has an interesting history, because of its geography. Most of its wars have been factional fights between the Jews themselves (no surprize there). Most of the other fights have been with neighbors corresponding to Egypt, Jordan and Syria. When one Jewish faction would find itself getting the worse end of the above conflicts, they would sometimes ally with the “next tier” of powers, corresponding to modern Turkey, Iraq and Iran. Ultimately, those pacts would turn against the Jews, and they would be conquered by their would-be allies: the Assyrians, Babylonians and Persians, in turn; then the Greeks and Romans.
Predicting a Turkish attack on Israel, therefore, is nothing new. What is new, is that the prophecy speaks of Israel as having been re-born by Jews returning to Israel from all over the world. That happened in the 20th Century, so Ezek. 38-39 is for today.
Quite the opposite, is true. Erdogan precisely must turn aggressor because of the dismal state of his economy. His weakness shall not become a deterrence.
Hitler attacked his neighbors because his country was bankrupt. Contrary to public wisdom, and despite President of the Reichsbank, Hjalmar Schacht’s endeavors, the state of the economy was catastrophic, the often touted public works a disaster and trains did not leave on time. It’s just that if people complained about this, they would have been deported to Dachau. But Germany was a failed state.
France and Poland were ransacked by the Fuehrer, yet the German command economy obviously, was still in shambles, as all national-socialistic economies indeed are doomed to be. The only possible next step thus was to attack Russia in order to plunder her oil reserves.
As Dominique Villepin famously said. The EU is like riding a bicycle. You have to go on. If you stop cycling, you’ll fall down. The same is true for failed states and dictatorships.
Likewise with Iran. They know they have reached ‘peak oil’. Their reserves will only decline. Since the Ayatollah revolution, their fertility has fallen from 7 per child bearing woman to 1.7 today. This is less than the replacement rate required to leave the population at its level of today. Hence the only way forward for a dictatorship with a failed economy is to attack while they still have enough soldiers and sufficient funds to pull it off. This is why Iran is so aggressive. It is for them a question of now or never.
And this is why Turkey will become even more of an obnoxious aggressor, not less. Haaretz, as usual gets the geopolitical picture entirely wrong.