Early last Saturday morning, Recep Tayyip Erdogan, Turkey’s imperious president, had a Donald Trump moment. Instead of one of the former US president’s Twitter tantrums, Erdogan issued decrees. The first, firing the central bank governor, could amount to economic suicide. The second, withdrawing from a treaty to prevent violence against women that Turkey was the first to sign a decade ago, threatens to bury the remnants of the country’s reputation as a democracy that protects all its citizens.
A brief recap. Last November, the lira, Turkey’s currency, was plummeting. The country was entering its second currency crisis in the two years since Berat Albayrak, the president’s son-in-law, took over the finance ministry. The powerful and abrasive Albayrak chased the high economic growth based on consumption and cheap credit demanded by Erdogan. He bowed to his father-in-law’s belief that interest rates are “the mother of all evil”, refusing to raise rates to curb inflation, burning through more than $100bn in a failed defence of the lira. Central bank governors that refused to kowtow were dispensed with.
Suddenly, the cosseted Albayrak became another weekend casualty. The currency rebounded as Erdogan appointed Naci Agbal, his predecessor at finance, to head the central bank. Insiders say Agbal, loyal but economically orthodox and critical, convinced Erdogan the economy was in peril and, with it the legacy of the president and his ruling Justice and Development party (AKP).
Last weekend, Agbal, who had restored the credibility of Turkey’s monetary policy, was also dispensed with, triggering a sell-off of Turkish assets, with the lira initially tumbling 14 per cent amid big falls in bonds and stocks. Conspiracy theories about the sudden departure abound. Most probably, Erdogan simply did not like the numbers. On Thursday, Agbal had surprised the markets with a sharp rise in interest rates of 200 basis points. Since November he has raised rates by 8.75 percentage points to 19 per cent.
Despite the turnround in investor perceptions of Turkey, Erdogan must have been grinding his teeth at a time when other G20 economies are trying to get their heads round negative interest rates. Furthermore, Turkish inflation remained high; it was too early for the course correction to feed through fully. For Erdogan, this was surely proof his theory that interest rate rises accelerate rather than put a brake on inflation was correct. Agbal’s replacement, Sahap Kavcioglu, a little-known banker, former MP and cheerleading columnist on an AKP tabloid, certainly believes so.
Reverting to eccentric monetary policies carries huge risks. Turkey is low on foreign exchange reserves, relying on complicated swap deals with local banks where half of deposits are in dollars. It needs to refinance roughly $180bn in foreign borrowings this year. Rows with its European and US allies over maritime borders in the Mediterranean and, as a Nato member, buying Russian missiles and busting sanctions on Iran, leave it vulnerable to punitive measures.
But Erdogan’s monetary bombshell almost pales beside his pulling out of the Istanbul Convention, the Council of Europe treaty to combat violence against women. Erdogan, ever more autocratic since he ascended to the presidency in 2014, at a stroke lifted still fragile protections from half the population of Turkey, where as many as three women a day are murdered.
“This is a very dark tunnel we’re going through”, Elif Shafak, the acclaimed Turkish novelist, told the FT Weekend Festival hours after the decree. “When you lose democracy, women’s rights and minority rights are among the first to go.”
The move is Erdogan’s latest flouting of the rule of law at home and abroad. He has all but crushed the independence of the Turkish judiciary. He serially ignores judgments of the European Court of Human Rights, which demanded the release of political prisoners such as the activist and philanthropist Osman Kavala, or Selahattin Demirtas, leader of a leftwing pro-Kurdish alliance.
Cocooned by courtiers after pushing aside independent aides, Erdogan has almost lost the ability to set coherent policy. Instead, after losing control of most of Turkey’s great cities, including Istanbul and Ankara, in 2019’s local elections, he concentrates on throwing political red meat to his Islamist and ultranationalist electorate. A hollowed-out AKP is more like an opposition than a ruling party on the cusp of its third decade in power. This is a demonstration of power, but also of vulnerability.