Economics a greater threat to Erdogan than politics

There is no doubt that the stunning Istanbul local election result is the single biggest setback in President Recep Tayyip Erdogan’s 16-year career as paramount leader of Turkey. An earlier March 2019 contest saw Erdogan’s Justice and Development Party (AKP) lose the mayor’s race by a whisker to the Republican People’s Party (CHP) reformist candidate, Ekrem Imamoglu. Not used to being crossed, the increasingly authoritarian Erdogan demanded a rerun due to the narrow margin of victory — just 13,000 votes — and bullied the Turkish electoral board into doing his bidding. At the time, it seemed merely another dreary step on the road to Erdogan’s eclipsing the rest of Turkish society.
But a funny thing happened on the road to cynicism. The people of Istanbul, enraged at this obvious insult to their choice, rallied around Imamoglu, bequeathing him a far more convincing 54 to 45 percent victory in the June 23 recount. Erdogan’s hubristic miscalculation has turned a minor setback into an existential crisis, as his very aura of invincibility has been the major casualty of the Istanbul election.
All this is true, but an overexcited international press has largely ignored political risk realities. It is a fact that the Turkish opposition is in control of cities accounting for almost 70 percent of Turkey’s gross domestic product (GDP), with nine of the 10 biggest urban areas in the country ruled for the next five years by a mayor linked to the opposition. Istanbul itself is Turkey’s biggest city and commercial hub, accounting for fully 31 percent of the country’s overall GDP in 2017. The startling CHP victory ended 25 years of AKP dominance in the city where Erdogan himself began his career, ironically as mayor.
While this is obviously significant, on closer inspection, all this amounts to less than meets the eye. Despite the local election results, Erdogan’s many political enemies (accounting for restive forces within his own AKP Party, the CHP-led opposition, and the various Kurdish parties) are not yet in any real position to unseat him, and will struggle to do so even in four years’ time, when the next presidential election will take place.
Fractious, divided and weak, these disparate forces are also constitutionally at a real disadvantage. Due to Turkey’s French-style, highly-centralized system of government, much of the funds needed to run the country’s major cities flow directly from the presidential palace in Ankara. To put it mildly, it is unlikely that Erdogan is going to be fiscally generous with his enemies. This fact, coupled with his increasing control of the state bureaucracy, media, and the military, means that a political reversal of fortunes is not, by a long way, Erdogan’s greatest danger.
Instead, as the dust settles from the Istanbul result, the counterintuitive primary political risk facing the Turkish president lies in the mirror. Erdogan’s days may be numbered not due to his political problems, but due to both his hubris and almost total ignorance of economics. It is this key and neglected internal factor that is far more likely to bring about his downfall.

Erdogan’s hubristic miscalculation has turned a minor setback into an existential crisis, as his very aura of invincibility has been the major casualty of the Istanbul election.

Dr. John C. Hulsman

Soon after coming to power in 2003 (first as prime minister and then as president), Turkey underwent an economic boom, which Erdogan largely left to others to engineer, most notably his then right-hand man (and now erstwhile opponent) Abdullah Gul. Never very interested in economics, Erdogan has championed an unorthodox economic model based on short-term, credit-fueled growth, built around the construction industry and greater domestic consumption.
This long period of affluence finally broke down in 2018, in the depths of a currency crisis that saw the Turkish lira lose 36 percent of its value against the dollar. The respected Turkish Central Bank, in line with economic orthodoxy, duly raised interest rates to a hair-shirted 24 percent, and the crisis abated somewhat.
Erdogan, horrified that the party was over, railed against his able central bank, urging — in defiance of all economic history — interest rate cuts instead. While the bank prevailed, the damage was done, both in terms of Erdogan’s reputation for competence and for the very notion of the central bank’s independence.
And the dire economic results have become ever clearer. At the very time investor nervousness about Erdogan’s erratic behavior has crested, Turkey has to service around $275 billion in foreign currency-denominated debt. The country endured a technical recession at the end of 2018. Unemployment has increased from 8.4 percent in January 2012 to a dangerous 14.7 percent in February 2019. Also, the populace is hurting due to inflation rates hovering at about 20 percent. The International Monetary Fund forecasts Turkish GDP will decrease in 2019 by a steep 2.3 percent.
Not even the imperious president of Turkey can evade the reality of these economic numbers forever. By not fixing the roof while the sun shines — by not undergoing structural economic reform while he had the chance during the decade-long Turkish economic boom just concluded — Erdogan will now have to govern a very different country, unused to the hard times it undoubtedly faces. It is this economic reality, far more than the temporary triumph of opposition politicians, that is the stake pointed at the heart of a man who until recently was considered politically indestructible.

• Dr. John C. Hulsman is the president and managing partner of John C. Hulsman Enterprises, a prominent global political risk consulting firm. He is also senior columnist for City AM, the newspaper of the City of London. He can be contacted via www.chartwellspeakers.com.