{"id":657827,"date":"2018-09-16T19:36:24","date_gmt":"2018-09-16T16:36:24","guid":{"rendered":"https:\/\/www.turkishnews.com\/tr\/content\/?p=657827"},"modified":"2022-11-29T15:17:59","modified_gmt":"2022-11-29T12:17:59","slug":"conspiracy-and-cronyism-turkeys-economic-spiral","status":"publish","type":"post","link":"https:\/\/www.turkishnews.com\/en\/content\/2018\/09\/16\/conspiracy-and-cronyism-turkeys-economic-spiral\/","title":{"rendered":"Conspiracy and cronyism: Turkey\u2019s economic spiral"},"content":{"rendered":"<div class=\"rm-article-wrap\">\n<div class=\"re-article-inner-box border-bottom clearfix\">\n<div class=\"col-sm-3 left_single_dash_detail\">\n<div class=\"rm-article-writer-box border-bottom\">\n<div class=\"article-details-top desktop\">\n<div class=\"authors-profile-wrap clearfix\">\n<div class=\"rm-left-wr\">\n<p class=\"rm-profile-name\">Aykan Erdemir<\/p>\n<\/div>\n<\/div>\n<div class=\"authors-profile-wrap clearfix\">\n<div class=\"rm-left-wr\">\n<p class=\"rm-profile-name\">John Lechner<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"rm-social border-bottom\">\n<p class=\"article-date\">14 September 2018<\/p>\n<\/div>\n<\/div>\n<div class=\"col-sm-7\">\n<div class=\"field field-name-body field-type-text-with-summary field-label-hidden\">\n<div class=\"field-items\">\n<div class=\"field-item even\">\n<p>Hours before the Thursday\u2019s decision by the Central Bank of Turkey to\u00a0raise\u00a0its benchmark rate 625 basis points to 24%, President Recep Tayyip Erdogan launched into one of what is now a trademark tirade\u00a0against higher rates. He\u00a0denounced\u00a0interest rates as \u201ca tool of exploitation\u201d analogous to the \u201cheroin trade\u201d \u2013 and the Turkish lira\u00a0tumbled\u00a0in value in response, just as it did when the Turkish strongman\u00a0decried\u00a0interest rates as \u201cthe mother and father of all evil\u201d back in May.<\/p>\n<div class=\"article-inner__quote--right\">\n<p>Turkey\u2019s economy has been in free-fall in recent months, the currency losing 40% of its value against the US dollar this year.<\/p>\n<\/div>\n<p>This time, however, the lira\u00a0made back its lost ground\u00a0once the central bank bowed to conventional economic wisdom,\u00a0in contrast to\u00a0when it held rates steady in July. Nonetheless, global markets continue to watch Erdogan\u2019s\u00a0economic mismanagement\u00a0with great concern, not least because European lenders are\u00a0exposed\u00a0to Turkey with over\u00a0$160 billion\u00a0worth of loans.<\/p>\n<p>Turkey\u2019s economy has been\u00a0in free-fall\u00a0in recent months, the currency\u00a0losing\u00a040% of its value against the US dollar this year. Investors struggle to understand whether Erdogan actually believes his own\u00a0bizarre assertion\u00a0that higher interest rates lead to higher inflation.\u00a0Yet Erdogan is serious, as it becomes clear by closer examination of the two orthodoxies that appear to influence the Turkish president\u2019s thinking.<\/p>\n<p>First of all, Erdogan\u2019s Islamist worldview goes beyond the traditional Muslim belief that\u00a0<em>riba<\/em>\u00a0(interest or usury) is\u00a0<em>haram<\/em>\u00a0(forbidden). Erdogan has often\u00a0referred\u00a0to an \u201cinterest rate lobby\u201d in speeches when pushing for lower interest rates from the central bank, and he is\u00a0loath to\u00a0hike interest rates or agree to a bailout from the IMF. Many interpret the phrase as simple short-hand for financiers and bankers.<\/p>\n<p>However, the reference to a mysterious lobby appears to take on a different complexion when considering the view of Erdogan\u2019s political and ideological mentor, Necmettin Erbakan, himself a former prime minister.<\/p>\n<p>Erbakan saw interest rates, or the \u201cinterest rate lobby\u201d, as part of a deeply anti-Semitic and conspiratorial thesis to control the world. In Erbakan\u2019s view, Zionists control all governments through a mix of institutions, including the United Nations, Bilderberg Group, and Council on Foreign Relations. Erbakan\u00a0asserted\u00a0that Jews control the economy by \u201cdriving countries into economic crises and then lending their governments money at exorbitant interest rates\u201d.<\/p>\n<p>In this light, Erdogan\u2019s blame of the 2013 protests in\u00a0Gezi Park\u00a0on the \u201cinterest rate lobby\u201d appeared to carry a much darker and more sinister message.<\/p>\n<p>The second orthodoxy to which Erdogan adheres has less to do with the transcendental and more to do with everyday politics. Since his ascent to power in 2002, Erdogan has reached out beyond his narrow Islamist base to build a substantial support and patronage network for his surprisingly well-choreographed crony-capitalist regime. Low interest rates helped to inflate and sustain the\u00a0real estate bubble\u00a0at the core of Erdogan\u2019s complex system for funding his political enterprise and distributing the spoils.<\/p>\n<p>The allocation of lucrative construction and infrastructure contracts to loyalists has become a key political tool for the government, allowing Erdogan\u2019s\u00a0cronies\u00a0to grow rich, forming a new elite, while the general population benefited from a housing boom. Yet nearly 90% of the credit for these projects\u00a0came\u00a0from loans in foreign currencies.<\/p>\n<p>Now, with the lira\u2019s massive devaluation in 2018, servicing that debt\u00a0has become\u00a0incredibly difficult, if not impossible, for Turkish companies. To protect the new elite that he created with the aid of foreign currency loans, Erdogan likely had to sign off on the central bank\u2019s decision to hike the benchmark rate, even as he ranted against it.<\/p>\n<p>What we are seeing is the strange interplay between Erdogan\u2019s two orthodoxies. He appears to feel backed into a corner. Erdogan did his best to keep interests low, which in turn helped construction bosses to keep mortgage payments low, and residential and commercial units affordable. But low rates also had the effect of devaluing the Turkish currency, making foreign currency debt servicing impossible, bringing construction magnates to the verge of bankruptcy. Thus, one of Erdogan\u2019s two orthodoxies had to give way.<\/p>\n<p>Erdogan\u2019s dual orthodoxies are resonant at times, and dissonant at others. But what matters most is that both are dragging the Turkish economy to ruin. Unless the Turkish government returns to conventional economic wisdom, the country will continue to be plagued by Erdogan\u2019s personal demons, pitting the requirements of proper economic management against obsessions ranging from the conspiratorial to the corrupt.<\/p>\n<p>Luckily, Turkey still has a pool of talented but sidelined economists, with a proven track record in earlier crises, who can pull the country out of this quagmire. Yet, given Erdogan\u2019s dual orthodoxies, the relatively simply decision to put them back in charge may be beyond him.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Aykan Erdemir John Lechner 14 September 2018 Hours before the Thursday\u2019s decision by the Central Bank of Turkey to\u00a0raise\u00a0its benchmark rate 625 basis points to 24%, President Recep Tayyip Erdogan launched into one of what is now a trademark tirade\u00a0against higher rates. He\u00a0denounced\u00a0interest rates as \u201ca tool of exploitation\u201d analogous to the \u201cheroin trade\u201d \u2013 [&hellip;]<\/p>\n","protected":false},"author":4092,"featured_media":647243,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[846],"tags":[],"class_list":["post-657827","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/657827","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/users\/4092"}],"replies":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/comments?post=657827"}],"version-history":[{"count":0,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/657827\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media\/647243"}],"wp:attachment":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media?parent=657827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/categories?post=657827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/tags?post=657827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}