The political consequences of Erdogan’s financial policies
The Turkish lira recorded a recent record decline against foreign currencies after the Central Bank’s decision to continue reducing the interest rate in the country within the vision of President Erdogan.
The significant deterioration in the value of the local currency, although it was relatively attributed to the recent decision of the Central Bank, but it sparked great controversy in and about Turkey, especially with regard to the possible political consequences of the monetary policy of the Turkish President, and specifically with regard to the upcoming elections.
Erdogan’s difference with regard to the interest rate is not limited to the opponents, but also extends to some of those affiliated with the government and the ruling party, such as the governors of the central bank who are appointed by the president himself.
The Turkish president disagrees with many economists, academics and politicians in the approach to addressing inflation in the country.
They point out that the most effective tool in the face of high inflation is to raise the interest rate to stabilize the exchange rate and the prices of goods and services in the country. On the other hand, Erdogan says that this would lead to economic stagnation and a slowdown in production.
The Turkish president’s vision is based on the need to reduce the very high interest rate in Turkey recently compared to developed and developing economies, to encourage businessmen and investors to resort to discounted loans and thus operate the production and export sectors and reduce unemployment and other economic indicators.
Proponents of this vision seem to realize that these positive results are expected in the medium term, while the near future will witness the side effects of lowering the interest rate, foremost of which is the depreciation of the lira, the rise in prices, and so on.
Erdogan’s difference with regard to the interest rate is not limited to the opponents, but also extends to some of those affiliated with the government and the ruling party, such as the central bank governors appointed by the president himself. Because of this dispute, three governors have succeeded in the position in less than one year.
The Turkish president confirmed his insistence on this vision in a speech to his party’s parliamentary bloc when he said, “I will not go the same way with the comrades who defend interest.”
He also intended to point out, in what seemed to him, in a subsequent speech, that the significant decline in the value of the lira was among the things that were in his calculations when deciding to cut interest, as he spoke with remarkable confidence, “We know exactly what we are doing, why we are doing it, what risks we will face and what Which we will get in the end.”
According to financial reports, the Turkish lira has lost 30% of its value since the beginning of this November and 60% on an annual basis, and it seems, according to current data and the Central Bank’s plan to continue reducing interest, that it has not yet reached its lowest value.
The assessment of the political consequences of the recent financial and economic developments prompts a search for the political reasons for the current reality of the Turkish economy, because in addition to the many financial and economic reasons and factors that contributed to this – including the emerging and long-term internal and external causes – there are political reasons that also had a contribution. .
In the first place, Turkish foreign policy has changed in the last few years, and Ankara is no longer on good terms with the United States, the European Union, and even NATO, of which it is a member, which has added to external pressures on it.
On the other hand, Turkey has become more involved in regional issues and files, including armed conflicts, especially in Syria, Iraq, Libya and the Caucasus, an engagement that certainly has an economic cost.
From a third angle, there is what is related to domestic politics or how to lead the economy. The structural problems that economists refer to and that the government does not deny are long-term and not born today, and therefore there is a responsibility that falls on the shoulders of successive governments of justice and development that have not found a viable solution yet, even external pressures. Manipulation and speculation do not depart from this framework, as governments are supposed to take measures and reforms that immunize the economy against them.
Finally, and within the same scope is the method of managing the financial file, the relationship with the Central Bank, and the adopted discourse. The aforementioned differences in vision with the Central Bank, the dismissal of its governor more than once, and the fluctuation of financial policies between raising and lowering interest rates in large proportions are all matters related to management and cast their shadows. On confidence in financial policies and the ability to anticipate the future, and thus encourage investment and so on.
The assessments differed regarding the large and rapid deterioration of the lira after the decision to cut interest, and although the decline was an obvious matter after the decision, the degree of deterioration and the time period during which it occurred were remarkable, which prompted different assessments, between the narrative of manipulation and exchange according to unreal values as stated in the Central Bank statement The opposition spoke of panic and mistrust of the local currency, and many investors and citizens went to “dollarization” in large quantities.
The political repercussions of the financial developments were not long in coming, as the opposition parties modified their rhetoric from calling for “early” elections to pressing for “immediate” elections, blaming the presidency for what happened after it placed it in the context of mismanagement and government failure.
Some small number of supporters of the opposition Republican People’s Party also came out, demanding the resignation of the government and the holding of elections. Therefore, the financial and economic developments during the next few days will be a determining factor in the extent of the opposition’s willingness to use the street to pressure the government and the public coalition to make early elections.
The foregoing means that the significant decline in the value of the Turkish lira increased political pressure on the government, although it was expected and perhaps intended in principle, regardless of degree and time. It also strengthened the opposition’s narrative and stance against the ruling party and pushed it to develop its position regarding the elections.
Constitutionally and technically, the opposition cannot force the Justice and Development to hold early elections, as it does not have the required majority in Parliament, and the Justice and Development still enjoys the full support of its ally, the National Movement, but the rapid negative developments regarding the lira put it on the defensive and weaken its position, even if temporarily. He realizes that he cannot bet on the stability of the national movement’s position with him in the event that the situation remains as it is or declines further, as its leader Devlet Bahceli is known for his volatile political positions.
According to this perspective, and in view of the possible repercussions, the Turkish president, his government, and the ruling party have four primary responsibilities in relation to this file, if they wish to continue popular support for it:
The first: presenting an understandable narrative to the street about the context of the recent deterioration, to convince it that it was among the negative regressions calculated within the framework of the government’s plan and not as things got out of control.
Second: Persuading the street, as well as the opposition economists and politicians, of the correctness of the vision implemented by the government, and explaining it in more detail, especially with regard to the expected duration of the negative repercussions, as well as when it should be expected to succeed and positively rebound to the citizen.
The third: Working to make the plan actually succeed, and to secure all the necessary requirements as soon as possible, so that the citizen can touch them himself, as actions are louder than words, as they are said.
Fourth: Adopting a policy of government spending and more generous support, especially with regard to the minimum wage, employee salaries, and some taxes, which seem to be the government’s consideration and plan for 2022, as announced by more than one official.
In summary, the economy was one of the most important reasons that prompted the Turkish people to disbelieve in the country’s political elite at the beginning of the millennium and to choose justice and development, and at the forefront of the party’s success factors and its continuation in ruling Turkey for 19 consecutive years, and it will certainly be at the top of the criteria on which the voter will formulate his decision In the upcoming presidential and parliamentary elections, whether they are held on schedule in 2023 or early.
The vision adopted by the Turkish president today increases the importance of this file and is closely related to the life of the ordinary citizen, especially since the recent developments coincide with other political facts, including the opposition alliance and the intensity of polarization, as well as the establishment of new parties from the womb of justice and development that can be deducted from his popular balance and electoral treasury. one percentage or another.
All of the above means that the upcoming elections will be more difficult for Erdogan and the Justice and Development Party than the previous ones, and therefore need more caution in managing the financial file in particular so as not to be an additional factor in weakening opportunities in the upcoming elections.