Twin crises threaten AKP’s grip on power in Turkey

Twin crises threaten AKP’s grip on power in Turkey

Recep Tayyip Erdogan managed to gradually get Turkey out of an economic meltdown when came to power. (AFP)

The Justice and Development Party (AKP) came to power in Turkey in 2002 propelled by two main factors: The country’s economic meltdown in 2001 following years of steady decline, and the success of Istanbul’s young mayor Recep Tayyip Erdogan in leading the city through those difficult times. The AKP won the 2002 national elections and made Erdogan prime minister. That historical achievement is now being threatened by the same two factors.

In March, municipal elections in Turkey ended the AKP’s dominance of Turkish politics. Voters in the three largest cities — Istanbul, Ankara and Izmir — chose opposition candidates for their mayors. The AKP’s grip on power was especially questioned by the turnaround in Istanbul, the supposedly solid base for the party and now-President Erdogan himself.

On March 31, Istanbul’s voters chose Ekrem Imamoglu, the opposition candidate for mayor. The AKP challenged the results and a rerun was conducted on June 23, but Imamoglu won again, convincingly this time with 54 percent of the vote. The AKP candidate, Binali Yildirim, the former prime minister and AKP leader, got only 45 percent. The new margin of 9 percent was 45 times wider than in the March election.

And, just as the economic crash of 2001 contributed greatly to the rise of the AKP, a similar crisis now threatens its rule. The AKP scored its first win ever in the 2002 national elections, which focused on the crisis. The 2001 crash was preceded by years of persistent government deficits and growing debt. Investors divested out of Turkey and the liquidity crunch in private banks was made worse by the government’s inability to pay back its debts.

By February 2001, then-Prime Minister Bulent Ecevit admitted that Turkey was facing “serious crisis.” Massive unemployment, high inflation, and increasing taxes brought the economy to a standstill, with a credit crunch as interest rates rose to 3,000 percent. The Turkish lira plummeted to 1.5 million liras to the dollar.

The AKP and its choice for prime minister, Erdogan, subsequently came to power and managed to gradually get Turkey out of that economic meltdown, registering steady growth for more than a decade, impelling the country and its leader to regional prominence, something Turkey had not enjoyed for decades.

Grateful as Turkish voters were to the AKP for saving the country from economic malaise and aimless foreign policy, they eventually began to take it to task for failing to safeguard their economic prosperity, as well as its mismanagement and erratic domestic and foreign policies.

As in the period preceding the 2001 crisis, there are now several indicators of political and economic governance failure: Uncertainty among investors due to the crackdown on political opposition; detention or dismissal of tens of thousands from the civil service, the judiciary and security forces; and lack of press freedom, as Turkey continues to jail more journalists than any other country in the world.

As in the period preceding the 2001 crisis, there are now several indicators of political and economic governance failure

Abdel Aziz Aluwaisheg

Accusations of nepotism, corruption, insider trading and shady deals have also affected the business climate. And US courts have confirmed that entities close to Turkey’s leadership have engaged in busting sanctions against Iran. Recent announcements that Turkey would not abide by the American sanctions against Iran have made international businesses nervous, lest they become targeted by the US for violating those sanctions.

Turkey’s economic decline started before the failed coup of 2016, but has accelerated since then. Gross domestic product (GDP) has fallen sharply and the per capita income of citizens has declined by about 25 percent over the past five years. Turkey is experiencing what economists call “stagflation:” Inflation and unemployment are both in the double digits. Over recent months, the Turkish lira has lost 40 percent of its value against the US dollar, increasing the cost of imports and domestic prices. Although the devalued currency should have benefited exports, Turkey’s trade deficit is widening, not shrinking. International reserves have also fallen about 25 percent in five years.

Turkey has been officially in an economic recession since March, when it experienced its worst performance since 2008, with an overall GDP decline of 3 percent (annualized) and Turkish industry suffering five straight months of decline.

Wild fluctuations in exchange rates, interest rates and the stock market have persisted in recent weeks and the central bank has been unable to provide solutions for the continuing depreciation of the Turkish lira in overseas swap markets. The exposure of foreign banks to the crisis in Turkey is worrying bankers everywhere and international financial officials. Recent changes in the leadership of the central bank and the micromanagement of its monetary policy have also raised eyebrows, as President Erdogan is puzzling observers with his theories.

Prior to the March municipal election, Erdogan said that volatility in the lira and other financial assets was the result of a plot by Western countries, led by the US, to influence the vote and “corner Turkey,” adding that “the inflation rate will drop as we lower interest rates.” He repeated that theory about interest rates spurring inflation before investors in London in May. This week, following the sacking of the central bank governor, the government inserted this theory in its official 2019-2023 economic plan, Turkey’s 11th development program, which it presented to Parliament.

The AKP has now lost Istanbul, and the Turkish economy is in freefall. Could these two failures end the AKP’s grip on power? A lot depends on what the party leadership does next.

Abdel Aziz Aluwaisheg is the GCC Assistant Secretary-General for Political Affairs & Negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent GCC views. Twitter: @abuhamad1

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