Early Saturday morning, Recep Tayyip Erdogan, the imperious President of Turkey, had a Donald Trump moment. Instead of one of the former president’s tantrums on Twitter, Erdogan issued executive orders. The first one, dismissing the governor of the central bank, could amount to economic suicide. The second, the withdrawal of a treaty to prevent violence against women which Turkey was the first to sign ten years ago, threatens to bury the vestiges of the country’s reputation as a democracy that protects all of its citizens.
A brief recap. Last November, the lira, Turkey’s currency, was in free fall. The country was entering its second currency crisis in two years since Berat Albayrak, the president’s son-in-law, took over the finance ministry. The powerful and abrasive Albayrak chased away the strong economic growth based on consumption and cheap credit demanded by Erdogan. He bowed to his stepfather’s belief that interest rates are “the mother of all evilRefusing to raise rates to curb inflation, burning over $ 100 billion in a failed lira defense. Central bank governors who refused to bow were dismissed.
Suddenly, the pampered Albayrak became another victim of the weekend. The the currency rebounded like Erdogan appointed Naci Agbal, his predecessor in finance, at the head of the central bank. Insiders say Agbal, loyal but economically orthodox and critical, convinced Erdogan that the economy was in danger and, with it, the legacy of the president and his ruling Justice and Development Party (AKP).
Last weekend, Agbal, who had restored the credibility of Turkey’s monetary policy, was also removed, triggering a sell-off of Turkish assets, with the lira initially falling 14% amid a sharp drop in bonds and stocks. Suddenly leaving conspiracy theories abound. Most likely, Erdogan just didn’t like the numbers. On Thursday, Agbal surprised the markets with a sharp rise in interest rates of 200 basis points. Since November, it has raised rates by 8.75 percentage points to 19%.
Despite the shift in investor perceptions of Turkey, Erdogan has had to cringe as other G20 economies try to sidestep negative interest rates. In addition, Turkish inflation has remained high; it was too early for the course correction to fully materialize. For Erdogan, this was surely proof that his theory that interest rate hikes accelerate rather than curb inflation was correct. Agbal’s replacement, Sahap Kavcioglu, a little-known banker, former MP and cheerleading columnist for an AKP tabloid, certainly believes it.
The return to eccentric monetary policies carries enormous risks. Turkey has few foreign exchange reserves, relying on swap deals with local banks where half of the deposits are in dollars. It is necessary to refinance around $ 180 billion of foreign loans this year. Lines with sound European and we the allies over the maritime borders in the Mediterranean and, as a member of NATO, the purchase of Russian missiles and the lifting of sanctions against Iran, make it vulnerable to punitive measures.
But Erdogan’s money bomb is almost pale next to his withdrawal from the Istanbul Convention, the Council of Europe’s treaty to combat violence against women. Erdogan, always more autocratic since his assumption of the presidency in 2014, suddenly lifted still fragile protections half of Turkey’s population, where up to three women a day are murdered.
“It’s a very dark tunnel that we go through,” Elif Shafak, the acclaimed Turkish novelist, told the FT Weekend Festival hours after the decree. “When you lose democracy, women’s rights and minority rights are among the first to disappear.”
The move is Erdogan’s latest violation of the rule of law at home and abroad. He practically crushed the independence of Turkish justice. He serial ignores judgments of the European Court of Human Rights, which demanded the release of political prisoners such as activist and philanthropist Osman Kavala, or Selahattin demirtaş, leader of a pro-Kurdish leftist alliance.
Cocooned by courtiers after pushing aside independent assistants, Erdogan almost lost the ability to define a coherent policy. Instead, after losing control of most major cities in Turkey including Istanbul and Ankara, in the 2019 local elections, it is focused on throwing political red meat at its Islamist and ultranationalist electorate. A hollowed out AKP looks more like an opposition than a ruling party on the cusp of its third decade in power. It is a demonstration of power, but also of vulnerability.