21 Aralık 2013 Cumartesi

Is the Turkish economy facing a political impasse?

I had asked myself this question in the title a long time before the present graft probe scandal was making headlines. Prime Minister Recep Tayyip Erdoğan's focus on maintaining power by winning the three 
pcoming elections has not only halted progress towards a new constitution but also postponed all decisive economic reforms.
This exclusive focus on Erdoğan's presidential ambition, which reveals his desire for the concentration of executive power in the figure of the president, developed in the aftermath of the June 2011 elections. Now this has become the sole focus of Justice and Development Party (AK Party) rule, excluding not only reforms in the labor market and tax system but also the political reforms capable of resolving the Kurdish issue and making Turkey a modern democracy.
Then the corruption scandal blew up. I am sure the readers of Today's Zaman are well informed about the nature and scope of this scandal, as well as about the importance of the individuals involved, so there is no need to repeat these facts. But what must be stressed is that this scandal, a real bombshell in Turkish politics, has increased pre-existing worries about the maintenance of political stability and the AK Party's ability to govern safely and competently in difficult times.
I would like to share an anecdotal event in this context. Almost two months ago, I gave an interview to a journalist from a German economic weekly. Once I had spoken my thoughts on the state of the Turkish economy, and I was rather optimistic about the country's economic governance other than in terms of reform, I asked for his impressions. He explained that when he met with some important German investors, they stated that they had suspended their investment plans because of political uncertainty. That claim was something new for me. I was also worried about the effects of political uncertainty, but I was not aware that it was already damaging foreign investment at that point.  
Now the risk of political instability is much greater than before. My friend Yavuz Baydar wrote recently in his column: “The AKP was elected in 2001 by a massive voter base which was sick of the deep corruption of the 1990's that brought Turkey to financial collapse. The word 'ak' means 'white' or 'pure,' and it was the masses' hope for a new Turkey, with a new moral order, that kept the AKP in power. These revelations thus pose an existential question for the AKP... Thus, it is no exaggeration to say that the AKP is now closer to a moment of reckoning -- because it seems to have reached a political impasse -- with no moral compass. We can only hope that Erdoğan does not make erratic moves that might make things worse.”  
I believe that this is the right way to define the political issue at hand. What strategy will Erdoğan follow from now on? I think there are two possibilities. Firstly, he can pursue his presidential ambition, which requires more authoritarian governance, and at the same time fight to control the corruption scandal and thus prevent a decline in the AK Party's electoral support. I doubt this strategy will be able to lessen the country's political uncertainty. On the contrary, deepening political fractures and growing polarization in Turkish society might weaken the AK Party even further, perhaps leading to a split. The risks of political instability would be reinforced, encouraging greater damage to the economy. A full-fledged economic crisis is not to be expected, since macroeconomic stability rests on the still-independent central bank, a firm belief in the virtues of fiscal discipline and a healthy banking system. However, rather weak economic growth, which is at around 4 percent, may slump even further, thus pushing up unemployment.
Erdoğan's other choice might be a return to a reformist agenda in terms of politics and economics. This requires, of course, the abandonment of his presidential ambition and a strategy of compromise both with the Republican People's Party (CHP) and Peace and Democracy Party (BDP) to draft a new constitution, guaranteeing democracy and a true separation of judicial power from the executive, and also to reform the electoral system as one of the key issues in the Kurdish settlement process. Greater order and predictability in the political sphere might allow the AK Party government to implement these economic reforms more efficiently, regardless of the political setbacks in the short term.  
It is up to the AK Party rulers to choose between these alternatives. 

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