On Erdogan’s Journey


In his column for GURU, NES Professor Ozgur Evren talks about the recent presidential elections in Turkey, discusses the results of Erdogan's rule and shares some expectations from his new presidency.

 - What helped Erdogan win the election?

 - How has his policy affected the welfare of the population?

 - How can he respond to the depreciation of the Lira?


The outcome of the presidential elections in Turkey was quite surprising. Before the first-round election, data from reputable survey companies showed that Erdogan was behind by 4-5 percent. There were solid reasons that fed this expectation: soaring inflation, Erdogan’s immigration policy and the huge number of refugees, the destruction caused by the earthquake, etc. Moreover, in 2019, Erdogan’s Justice and Development Party had lost the majority in the largest two cities, Istanbul and Ankara. 

Erdogan managed to be re-elected, nonetheless. I think there are three main reasons. First, a serious part of the electorate votes in line with their religious and ethnic affiliations. It seems fair to say that in many dimensions, Erdogan represents the character of the average Turkish man. (Yes, the median voter theorem works!) Unintentionally, Erdogan brought everybody who dislikes him closer, but the opposition remains deeply divided. A strong allergy to immigrants and ethnic Kurds is widespread among right-wing factions of the opposition, while a significant part of ethnic Kurds are preoccupied with preserving their identity. Surely, southeastern towns, where Kurds form the dominant ethnic group, also voted against Erdogan. But it appears that the median Turk is living in central Anatolia, in the triangle between Konya, Kayseri, and rural Ankara, and has no intention to move anywhere else.

Second, jobs in every sector of the country’s economy, from academia to construction, assistance for needy families, as well as government procurement contracts are allocated on the basis of individuals’ and businesses’ connections with Erdogan’s vast party network. Being a part of that network is a matter of survival for many individuals, and they happily become one given material benefits. Presumably, psychological aspects of group membership are also feeding the loyalty of many individuals who somehow find themselves within this network.         

Third, while doing little to please the white-collar workers and the middle class, Erdogan did not hesitate to open his purse for the blue-collar workers, who make up the majority of the work-force. As of now, the minimum wage is around $430. This is a historical peak that was last seen in 2016. Since then, Turkish Lira has depreciated deeply, but right before the election, Erdogan increased the minimum wage by 55%, which brought it back to the 2016 level, in USD terms. 

So, the poor majority witnessed yet another “heroic’’ effort to protect them against inflation, but objectively, right before the election, their purchasing power was much lower compared to 2016. Since the 2019 local elections, acting under direct orders of Erdogan, Turkish Central Bank has been following a mind-boggling policy that aims to limit Lira’s depreciation with unconventional methods, while offering a real interest rate that converges to minus infinity. Consequently, the dollar rose much less than house prices and rents, which must have badly hurt all low-income groups. That is, even the 55% raise should be far from covering the losses in purchasing power.

Meanwhile, Erdogan frequently mentions the high inflation rates in Europe as well as the US, in sentences that often end with the Arabic phrase “Alhamdulillah,’’ meaning “praise be to God.” He is proudly representing the traditional culture of Turks, inherited from the Ottoman era. This is a key feature that allowed him to keep his voter base with almost no scratch, while the macroeconomic parameters of the country have been in free fall since 2016.

After the first round of the election, the opposition started bringing up the unfair nature of the campaign period. Provocative claims against the opposition and manipulative usage of state-media are two main criticisms. In a not-so-polarized country, such practices could backfire, but in Turkey their only visible effect is the revival of polarization. The gains of the opposition in the 2019 local elections seem to have curtained this polarization, and fed false hopes in the opposition circles.           


What is next?

To find out where Turkey is headed to, we should first note that the central bank burned all of its foreign reserves to limit Lira’s depreciation. Recently, some mild capital control measures were put in place. Severer restrictions may become necessary for continuation of the current policy.

According to the current constitution, Erdogan cannot be re-elected in the next presidential election. Consequently, some say, he should be more concerned with his retirement plan, as opposed to his chances of being reelected. If so, he could choose to raise interest rates in order to fight inflation, despite the contractionary effects. Ongoing negotiations with the former finance minister Mehmet Simsek support such expectations. 

I personally think that normalization of economic policies is unlikely because Erdogan is a true believer of the theory that high interest rates cause high inflation. Necmettin Erbakan, the father of the political Islamist movement that raised Erdogan to power, had also sharp anti-interest views. While the two leaders used different arguments/rhetoric, presumably, the views of both are rooted in the Islamic rule that prohibits interest.  

The elephant in the room is the deteriorating relationship between the US and Erdogan government. The year 2016 seems to be a breaking point, which marked a heated exchange between the Turkish Minister of the Interior and the US State Department about the coup attempt that took place in Turkey. We also started witnessing a rapprochement of Turkey and Russia, crowned by the $400 missile deal in 2017. This was unthinkable up to that point, as Russia and Turkey were actively supporting opposite sides in the Syrian civil war. The US responded to the $400 deal by removing Turkey from the F-35 warplane partnership. 

Halkbank, owned by the Turkish government, was charged in New York in 2019 for bank fraud and helping Iran evade US sanctions. A serious fine remains possible, much like new sanctions against Turkey due to its ongoing relations with Russia. This would produce an unprecedented crisis between Turkey and the US, and increase the likelihood of capital controls. In turn, if the economic conditions become unbearable for a greater fraction of people, the Turkish government may choose a more authoritarian path - local elections in 2024 will be the next hurdle. That being said, the first signs after Erdogan’s election victory suggest that the Biden administration will seek cooperation with Turkey.