By Oren Laurent
President, Banc De Binary
On Sunday, Turkey was tasked for the first time with electing its President. Recep Tayyip Erdogan, barred from standing as Prime Minister for a fourth time, won with a distinct 52% of the vote. Somewhat controversially, he amended the constitution after a referendum in 2007 stating that the presidency should be publicly elected and has announced that because of this, the office will now hold greater power. What does his victory mean for Turkey’s future?
Under Erdogan, Turkish politics has become a series of paradoxes. In his eleven years in power, the economy has grown an average 5% per year, but this has coincided with a more authoritarian style of politics. He represents democracy but according to the Committee to Protect Journalists, Turkey was the leading jailor of journalists in the last years. The investments in public and private infrastructures, from railways to shopping malls, have gained Erdogan popularity at home, but his foreign policy has led to criticism abroad. Notably, at the start of the Arab Spring in 2011, Erdogan presented Turkey as a model of Muslim culture meeting Western democracy, yet Turkey’s economic success has helped to fund the anti-Western Muslim Brotherhood in Egypt and Hamas in Gaza.
This disharmony looks set to continue. Not only will Erdogan hold sway as President, but it is highly likely that his AKP party will choose as their next leader someone in line with Erdogan’s agenda. On his election campaign earlier this month, he vowed both that “Turkey will be one of the world’s ten biggest economies by 2023” and that he will continue to crack down on political foes.
Yet how long can Turkey flourish in a global economy if it cannot assert its dominance overseas?
Sitting on the border of Europe and the Middle East, Ankara could have played an important diplomatic role in working towards a ceasefire agreement between Israel and Hamas, but instead it has frustrated Israel and America with its outspoken one-sidedness. Erdogan refuses to cooperate with Egyptian President al Sisi and has been highly critical of Iraq’s Prime Minister Nouri al-Maliki. Undermining its own ability to mediate and influence, Turkey no longer has ambassadors in Syria, Israel and Egypt, and its relations with Iraq and Abu Dhabi are strained.
Aside from the political repercussions, and risk to the tourist industry, the country’s trade and investment could also suffer from its increased isolation. Investors may be cautious about the potentially erratic style of policy making which could negatively impact the country’s business environment. Although gross domestic product has soared, Erdogan’s policy of keeping the interest rate close to zero has led to cheap credit and high levels of business and household debt. Given the debt bubble and the fact that Turkey’s current-account shortfall reached 7.5% of its GDP in the first quarter of this year, it would be in a highly vulnerable position if it lost foreign investment.
It is a safe bet that Erdogan will continue trumping his existing economic policies for the time being but he must also take responsibility for Turkey’s current political state. Perhaps now that he has won the vote of the electorate, he will tone down his language and appease his American allies. If he wishes to avoid a crashing economy, that is surely the very least he must do.
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