The Economic Costs of Erdoğan
For more than a decade, financial markets gave Recep Tayyip Erdoğan the benefit of the doubt and supplied the Turkish economy with easy credit. Such debt-fueled growth almost always ends badly, and now it has.
DURHAM/CAMBRIDGE – Turkey’s political model has long lost its luster, but a growing diplomatic crisis with the equally erratic administration of US President Donald Trump has now pushed the country’s economy into a full-fledged currency crisis. The Turkish lira has lost nearly half of its value over the last 12 months. And, because Turkish banks and firms have borrowed heavily in foreign currency, the lira’s freefall threatens to bring much of the private sector down with it.
President Recep Tayyip Erdoğan, having won the first election since Turkey’s formal change from a parliamentary to a presidential system in June, now governs the country autocratically. He relies on government ministers selected more for their loyalty (and family ties to him) than for their competence.
For more than a decade, financial markets gave Erdoğan, who was Prime Minister until 2014, the benefit of the doubt and supplied the Turkish economy with easy credit. Economic growth became dependent on a steady flow of foreign capital to finance domestic consumption and flashy investments in housing, roads, bridges, and airports. This kind of economic expansion rarely ends well. The only real question was when it would.