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Ankara’s greatest challenge is fixing the economy

Once stable and prosperous, Turkey is battling on multiple fronts, but despite the country’s woes it has escaped the specter of widespread civil discontent until now. The failed coup, and the purges of alleged sympathizers from all walks of life, served to bring the nation together, sending President Recep Tayyip Erdogan’s approval rating soaring to new heights.
He has capitalized on his popularity to usher in the constitutional changes he needs to expand his presidential powers — or as his critics maintain, “to rule by decree” — which Parliament is en route to rubber-stamping, oiled by an alliance between the ruling AKP and the Nationalist Movement Party.
That said, the transition is far from smooth. A debate on “ending Parliament’s authorization to inspect ministers and the Cabinet” saw tempers fray among opposition lawmakers, causing punches to be thrown, with one of the brawlers nursing a broken nose.
Ultimately, the issue is set to be decided by a national referendum that is likely to go in Erdogan’s favor, notwithstanding sporadic street protests swiftly ended by police using teargas and water cannon. In the current climate, dissenters are generally tainted as traitorous.
An onslaught of deadly terrorist attacks by Daesh and the Kurdistan Workers’ Party (PKK), combined with perceived Gulenist infiltration of national and civil institutions, have ignited nationalist sentiment, bolstered by Erdogan’s finger-pointing at unspecified foreign governments plotting against him.
A large section of Turkish society bristles at criticism from European governments that the country is straying from the diplomatic path. People feel they are under siege, and the vast majority of Turks are rallying around their leadership, confident that their Teflon president will keep them safe.
However, what happens if people used to comparatively high living standards begin to feel their pockets being pinched? Given the factors ranged against it, can Erdogan’s government — credited for a miraculous recovery from the 2001 economic downturn — reverse Turkey’s downhill economic trajectory before being forced to deal with a popular backlash?
The state of Turkey’s currency is a reflection of its economic challenges. Last year, the lira lost 20 percent of its value against the US dollar, and fell a further 12 percent in the first weeks of 2017. Inflation has risen by 8 percent, and according to Bloomberg the price of energy, food and transportation have accelerated way beyond expectations.
Erdogan’s trademark fiery response was designed to appeal to patriotic instincts: “What’s the point of giving foreign currency value? There’s no difference between a terrorist with a weapon or a bomb in his hand, and a terrorist who has dollars, euros.” Meanwhile, the central bank has halved its foreign currency reserves in the hope of increasing liquidity.
Tourism, one of the country’s economic mainstays — accounting for 13 percent of GDP — was down by a third in 2016, triggered by a series of deadly attacks against nationals and foreign visitors. The head of Turkey’s hotel association TUROB told Hurriyet Daily News that the sector could take four years to recover.
Canadians have been advised to avoid all travel to Turkey. Other countries, such as the US, UK, Australia, New Zealand and the United Arab Emirates (UAE), have raised travel warnings.
Although keen to invest, many investors are taking a wait-and-see approach. Moody’s has stuck the knife in by downgrading Turkey’s credit-rating to junk status, citing the government’s response to the coup attempt and the “effectiveness of government policy and the rule of law.” Fitch has warned it may take a similar course on Jan. 27, when the ratings agency is scheduled to revise Turkey’s credit rating and economic outlook.
However, there are bargain-hunters who see the weaker currency as a boon. A new innovative plan aims to tempt investors with the carrot of Turkish citizenship provided they are able to invest in the depressed real estate market to the tune of $1 million, invest $2 million in companies, or deposit $3 million in a Turkish bank.
The prospective in-flight of foreign currency may alleviate the need for an unpopular hike in interest rates, but that could be offset by the Federal Reserve’s planned incremental dollar interest-rate increases.
The jury is still out on what Turkey’s economic future may bring, due to unpredictable domestic and foreign political uncertainties, the country’s increasing involvement in Syrian hostilities, and the possible eruption of enemy sleeper cells embedded within. The hope is that the nation can beat such obstacles to its economic health before company closures and job losses rock its hitherto-solid foundations.
• Linda S. Heard is an author and columnist specializing in Middle East affairs.