Political Earthquake Rattles Turkish Political Status Quo

The recent crushing defeat of Turkish President Tayyip Erdoğan’s chosen candidate for mayor of Istanbul – the country’s largest city and centre of economic activity – demonstrated much more than the skill of a young, dynamic opponent with a clear message. The defeat revealed wide cracks in the dogmatic, resentful, autocratic veneer that Erdoğan had drawn over the country – cracks that will be almost impossible for him to repair.

            Another key message of this election – and why it heralds deep changes in Turkey – is that the slow, sometimes painfully slow, evolution of democracy is much longer lasting than the previous quick fixes of military coups that only made things worse in the long run by papering over rather than solving sharp divisions. Yet another message is that the term ‘Islamic democracy’ is not a complete oxymoron. When given the chance people in countries with an overwhelmingly Moslem population can indeed vote for positive change.

Ekrem Imamoglu and his wife Dilek. The new symbol of Turkey?

            From the time he first became mayor of Istanbul in 1994, then prime minister, then president with unchecked powers Erdoğan has feasted on the ‘we-vs.-them’  theme where the ‘we’ were the struggling masses of Anatolia and the ‘them’ were the so-called ‘White Turks’ of the traditional political, military, and economic elite. The message only got stronger when the bulk of rural Anatolia emigrated into Turkey’s booming cities. Erdoğan’s message of how the social, religious and economic concerns of the masses were ignored by the White Turks resonated loudly. The sad thing is that he was not completely wrong.

            Rainer Hermann, Middle East editor for the Frankfurter Allgemeine Zeitung, lived for almost 20 years in Turkey and the Gulf and is one of the most astute analysts of the region. He has travelled widely throughout Turkey and spent many days in the burgeoning suburbs of Istanbul observing how they have changed over the last 15 – 20 years. The festering slums have been replaced by apartment blocks, water systems, roads, public transit, and schools. ‘What Erdoğan failed to notice were the social, political and economic changes in the third and fourth generation of Anatolian immigrants into Turkey’s cities. Now almost 80% of the Turkish population now lives in the country’s 30 largest cities. By this time, they are thoroughly urbanized and their expectations are similar to many young people throughout Europe. In short, the ‘we’ he used to rely on has become the ‘them’.’

            With this background it is easier to see how Erdoğan’s proxy candidate in Istanbul,  the old faithful Binali Yildirm, had very little chance against the much younger and energetic Ekrem Imamoğlu who had previously been the mayor of one of the city’s several sub-districts. Yildirm sang the same old song, but this time the chorus was not with him.

            Another very good analyst of Turkish affairs, Kadri Gursel, noted that the Istanbul election amounts to a ‘political earthquake. The June 23 result is nothing less than a tectonic shift in Turkish politics, the impact of which was felt in all of Istanbul’s districts.’ He went on to say that Erdoğan ‘could well lose Turkey down the road because any political change in Istanbul reflects on the whole country sooner or later. A megapolis of 16 million people, Istanbul is a role model emulated by the rest of the country. It is a trendsetter in almost everything, from lifestyles and consumption habits to sports, culture and arts. And any trend that Istanbul does not adopt remains local, failing to spread across the country. This goes for political trends as well. One cannot win over Turkey without winning over Istanbul.’

            This defeat could also have a serious impact on Turkey’s foreign relations. It is one thing to punch above your weight and use the bellicose language of a neighbourhood bully when supported by the full-throated roar of 80 million people. It is quite another to act that way when the economy is in free-fall and that ‘full-throated roar’ has diminished to a whimper. A weakened domestic position will very quickly result in a weakened international position. Very few leaders will be willing to pay attention to or do any favours for someone they may start to see as a lame duck.

            This development couldn’t have come at a worse time for Erdoğan who is facing problems and increased isolation on multiple fronts – Syria, the Kurds, Iraq, the US, the European Union, Saudi Arabia and the Gulf, Cyprus, Greece, Russia – just to name a few. Take the Russian S-400 missiles for example. He is damned if he takes them and damned if he doesn’t. The American Congress has threatened serious economic sanctions – such as excluding Turkey from the advanced fighter jet F-35 program – if Turkey carries through with its purchase of the Russian missiles. Erdoğan is desperately lobbying President Trump to overrule the proposed sanctions, but Trump would have a great of difficulty in doing that because the sanctions were approved unanimously in the famously partisan Congress. Turkey has very few friends in Washington these days. If he doesn’t take the Russian missiles who knows how Russian President Putin will react. Not calmly one suspects.

                                                

Which one Mr. President? You can't have both.

                                                                                    

                                       

S-400

            

            

The next step in this rapidly unfolding drama is the much-talked-about creation of a new political party led by former stalwarts of previous AKP governments. Erdoğan could be in a very difficult position if they succeed in forming such a party and peeling away significant numbers of AKP members of parliament. Then he could find himself as isolated domestically as he is on the international front. If that happens his days as an autocratic one-man ruler could be over.

Is The Turkish Economy Strong Enough For A Marathon?

Over the past few years Turkey, like its neighbour Greece, has suffered a serious brain drain as thousands of talented young people—the kind of people Turkey can ill afford to lose -- left for a variety of political, social or economic reasons. Journalist Kadri Gursel, who had served a jail term for his sharp criticism of economic and political developments, revealed the extent of this problem in a recent column in Al-Monitor. One of those who left is a brilliant young financial analyst now working in Europe, and he offered these insights into the economic problems facing his homeland. For understandable reasons he prefers to remain anonymous.

          When I first started my career in finance 20 years ago,  my boss at the time gave me a book called “Warren Buffett’s Way”.  As a young Turk, who never heard of the great master before, I was impressed by the clarity of Buffett’s thinking and his simple explanations of quite complicated subjects.  One of the most striking examples was on how to approach macroeconomic analysis where he likened the U.S. economy to “a great athlete who runs sometimes fast and sometimes slow and we should not be worried about how fast he runs in the short run as eventually he will get to his destination”.  Later during the 2008 crisis, the great sage used the same analogy. This time he said that great athlete who should have been checking his blood pressure now had suffered a heart attack. What’s worse, he continued, is that the paramedics who arrived, instead of applying the resuscitator, started arguing about who was at fault. It doesn't help spending time worrying about who is to blame when the patient is having trouble breathing.

The economy is more than a 100 metre dash

            Borrowing Buffett’s analogy, we can liken Turkish economy to a typical Turkish athlete who likes to run a fast sprint just to get ahead. But then either he loses energy and leaves the race or relies on some supportive “substance” to finish the race, with the hope (and often confidence) that he is so smart that no one will find out about it.  Either way, the race ends in humiliation.  Beginning in 2002, the Turkish economy had run a great race with the help of a foreign trainer - the IMF --  who prepared a long term strategy and careful nutrition plan. The economy also had a technical adviser – the EU -- who promised Turkey the opportunity to compete with elite athletes, as long as it promised to learn and obey the rules of the game.  In addition, low global interest rates provided the perfect weather conditions for Turkey to shine by using foreign borrowing to import all the equipment and proper nutrition. Turkey, of course, promised to pay back all these loans after it had won the race.

Since 2013 a lot changed for our athlete. First, he fired his foreign trainer, stating that his own methods developed by the great leader Tayyip Erdoğan, are much better than the alien but scientific methods used by his old trainer.  Then, instead of trying to compete with elite athletes, he decided to join a new league in the Middle East – a league not known for having, let alone following, a lot of rules and where the concept of ‘fair play’ is considered just another Western intrusion into the region’s culture. However, lately our athlete realised that the competitors in the new Middle East are quite tough, and most of them (with the exception of one small runner – Qatar) have long memories and are not fond of the renewed Turkish activity.  Afraid of losing the race (and face) the trainer decided to push the athlete even faster.

This short-term tactic obviously needed more imported nutrients, equipment and even drugs (on credit), which resulted in Turkish economy growing over 7% in 2017, much faster than any of its competitors.  Given that the trainer’s strategy resulted in huge debts, around US$440 billion, it is understandable that foreign suppliers decided to ask for higher rates. They also stopped accepting IOUs in the name of Turkish Lira and more importantly showed some reluctance to extend or roll over maturing debt.   This obviously resulted in a sharp slowdown in the speed of our athlete or a complete halt to catch a breath in hopes of getting more foreign-supplied nutrients enabling him to continue with his fast run.  However, while he is catching a breath the trainer has started blaming everyone else, attacking other athletes, technical advisors and even some of the spectators who had nothing to do with the competition.  Moreover, once he started to feel the effects of his “cold Turkey”, he realised that he needs the drugs supplied by the others to continue with his performance. The trainer then began to approach some of these foreign suppliers for more supplies on credit.

What now?

However, this time it is different.  Given that our runner has completely run out of options he needs to readjust his speed or face the possibility of a major heart attack and leave the competition in disgrace.  Even in the best case where the foreign suppliers might agree to provide limited supplies enabling our athlete to continue running, the trainer needs to agree on a much slower pace. More importantly the trainer is told to stop his rhetoric against the suppliers and agree to make necessary changes to his current unhealthy diet of “using borrowed funds for construction of mega projects”.   The biggest problem in this case is that our tired athlete’s current manager, like any manager who believes he is smarter than everyone else, does not really understand the severity of the situation and is unwilling to change his game plan. 

He would rather to take the risk a risk of forcing his athlete to run even faster and force an even bigger catastrophe.  His management team has lost key members who have been replaced with family members and others whose priority is pleasing the manager rather than understanding the real rules of the game.  There is some small hope that a few of the family members understand the current situation. But there are doubts whether they can tell the manager to make key changes such as replacing the team doctor (Central Bank Governor) who has consistently been wrong in his diagnosis of what ails the athlete.

            To sum it up,  our Turkish athlete, once again is suffering from the effects of running much faster than his capacity and is completely exhausted. Our athlete now faces the choice of slowing to the pace of an overweight recreational jogger or forcing himself to run fast until his last breath – at which point he could probably only be saved by a foreign paramedic in the name of the IMF.   The decision is at hands of the manager and his team.