Erdoğan’s legacy continues as Turkey braces for another crisis

Turkey has posted explosive growth in recent years, but an overreliance on credit-driven stimuli and an increasingly authoritarian government have shaken confidence in the economy


In 2013 the Turkish government unveiled a scheme to reconstruct the old Ottoman military barracks in place of Taksim Gezi Park, and thus the seeds of a 3.5 million-strong uprising were planted. It wasn’t long until hundreds – and later thousands – of protestors took to Gezi Park, first to stop trees from being felled, and later to voice a far wider sense of discontent with the way in which an increasingly authoritarian government had encroached upon its people’s freedom.

What followed was a hammer-and-tongs crackdown on those camped at Gezi Park. It was here that pictures of battered and bloodied protestors hit the headlines and the country’s then Prime Minister, Recep Tayyip Erdoğan, was labelled an enemy of the people by the international press.

Over a year on from the eight deaths and 8,000 injuries to have come as a result of the uprising, Erdoğan has been made president. And while, for some, the prospect of Erdoğan as president seems absurd, his national legacy is arguably greater even than Mustafa Kemal Ataturk, the reformist statesman responsible for forming modern-day Turkey.

In the years prior to Erdoğan’s reign, the country faced a decade of economic uncertainty, as well as a series of out-and-out military conflicts. Inflation, at its peak, was running at 90 percent and the vast majority of the country’s tax revenues were being put towards keeping national debt in check. The obstacles, at the time, seemed impossible to overcome, yet Erdoğan and his Justice and Development Party (AKP) took it upon themselves to reverse the country’s fortunes, and set the $1trn-plus economy well on its way to breaching the world’s top 10.

Erdoğan’s legacy looks soon to unravel, however, as the country braces for another crisis, and one that looks to plunge the battle-hardened population into an economic downturn. Turkey’s economic prospects are fading fast, and many are concerned that Erdoğan’s hard-headedness and increasingly authoritarian streak could put the national economy in jeopardy.

What was once a relative safe haven in a rickety community of emerging economies has come to represent something of a crisis zone

Boom and bust
Since 2002, Turkey’s GDP and per capita income has near enough quadrupled in size, owing to continued and explosive growth in the construction and consumption sectors, as well as a major windfall for commodities in emerging markets. Throughout this same period, some of the country’s better-known destinations have transformed almost beyond recognition, and construction work on skyscrapers, shopping malls and any number of ambitious infrastructure projects has shown no sign of slowing.

Turkey’s growth has been all the more impressive given that it sits in such close proximity to crisis stricken nations such as Greece and Syria. For international investors, Turkey represents a haven of stability in an otherwise volatile community, and this, coupled with the government’s eagerness to welcome foreign investment, has turned Turkey into a budding economic opportunity.

However, on pausing to take a closer look at Turkey’s last decade, it soon becomes clear that the country is fast-approaching a dangerous predicament, similar in nature and in scale to the one suffered by its more developed counterparts only a few years ago.

A crisis zone
What was once a relative safe haven in a rickety community of emerging economies has come to represent something of a crisis zone. The government is facing an anti-corruption probe, the currency has sunk to record lows, its firms are forced to contend with mounting debts, and the once explosive economy is slowing to a crawl. Just last year the country’s stock market lost a third of its value, annual GDP growth clocked in at barely over two percent, and inflation far exceeded the five percent target set by the central bank.

The IMF closed out 2013 by warning that the country could only sustain its high level of growth at the “expense of growing external imbalances”, and advised policymakers to focus on reducing external vulnerabilities in order to break free of a perpetual boom and bust cycle.

As a result, support for Erdoğan, which has been driven predominantly by economic prosperity, is beginning to wane, and the country looks poised now to enter a new post-boom era of lacklustre economic activity.

The principle cause for the downturn, in short, is an overreliance on credit-driven stimulus and an overarching air of short-terminism in the way in which the government has attempted to catapult the economy to premier league status.

As has been the case in so many emerging markets, the foreign-dependent, debt-financed economic model has fallen foul of sudden changes in global financial markets. And where once policymakers were presented with the opportunity to invest wisely and lay down the foundations for long-term prosperity, the consequences of not doing so have turned the country into yet another misfired success story.

Erdoğan’s dominance
Erdoğan, whose popularity boils down to the country’s rosy headline figures in years passed, should be held at least partly responsible for Turkey’s slide. When the country’s inflation and current account deficit came in at over seven percent last year, Erdoğan refused to raise the headline interest rate, which served only to underline the stubbornness and heavy handedness with which he can sometimes address economic challenges.

It is this facet of Erdoğan’s character, combined with the increasing centralisation of economic power that troubles onlookers, given that any ill-advised policy decisions could pass without scrutiny. As was made clear by last year’s uprisings, Turkey’s population is concerned about the economic clout Erdoğan and his party wields when it comes to making economic decisions, and most would like to see his influence cut back.

It’s true that Erdoğan has restored a measure of stability to Turkey’s economy. However, the headline figures fail to paint the complete picture, and the country’s policymakers must surely concede that mistakes have been made in the lead up to the recent downturn; mistakes that must be rectified should Turkey cement a more sustainable means of growth.