Turkey in deadlock

In the last two years I wrote two academic papers published in Germany and the US on the economics of the 2002-2011 decade. In these papers I discussed the factors behind the success of the Justice and Development Party (AKP) rule, which can be summarized in two points: good economic governance and democratic reforms.
Good economic governance can be explained by a fiscal discipline that was not seen in decades, respecting the independence of the central bank, which was an unexpected gift given the historic command economy tradition in Turkey, and sound supervision of the banking system in the aftermath of the meltdown which occurred with the 2001 disaster. These factors allowed for a dramatic decrease in the two-digit inflation rate raging for more than 30 years as well as in real interest rates and they pushed growth rates up. The high economic growth based on booming private consumption and investment fueled by an abundance of international liquidity filled the state's coffers, enabling the AKP government to conduct vast social programs without jeopardizing the public sector balance. At the same time we witnessed important democratic reforms, the two main achievements being the start of membership negotiations with the European Union and ending the statuary interference of the army in politics. The start of membership negotiations in 2005 immediately had an effect on foreign direct investments (FDI), which made an impressive jump from $3 billion to $15 billion within a year. Moreover, EU membership negotiations became an important source of confidence with investors regarding the future of Turkey's democratic and economic stability. Solutions to historic problems like the Kurdish issue appeared to be within Turkey's reach. However, in concluding my papers, I argued that the next decade would not be as easy as the previous decade for the AKP because of three events: Real interest rates having reached their limits of around 1 percent are likely to only increase from now on; economic growth based exclusively on domestic demand as well as on an appreciation of the lira caused a huge and unsustainable current account deficit (CAD); and the international liquidity glut is ending. Thus, I wrote that the AKP faces harsh challenges. Pursuing economic growth, at least at a respectable level, and improving the social conditions of the poor will depend on the implementation of politically difficult reforms in the labor market, the fiscal system, etc. The electoral success of June 2011 -- receiving almost 50 percent of the vote -- originating from the achievements cited above pushed Prime Minister Recep Tayyip Erdoğan and his friends to claim more and exclusive power. Unaware of the challenges, they focused all their energies on a presidential system that would make Mr. Erdoğan the uncontested ruler of Turkey. Economic reforms were postponed, a new constitution process was blocked and the solution to the Kurdish problem reached a deadlock. The changes in AKP policies as well as in the global economic environment did not delay having adverse effects on the Turkish economy: Real interest rates increased, the lira depreciated and economic growth decelerated -- the average growth rate in the last two years has been limited to 3 percent -- while the CAD is still unsustainable despite its decline to some extent. As though these existing problems were not enough, the AKP added on to them. The so-called “interest rate lobby” discourse and political pressure on the central bank have undermined the bank's independence. Now we are witnessing an open authoritarian shift by the AKP. I don't want to detail the contents of this shift since readers of Today's Zaman should be well informed of the different anti-democratic laws voted in urgency by the AKP majority in the last few weeks as well the threats against freedom of the press. Furthermore, an alleged corruption scandal has definitely made the legitimacy of AKP rule questionable. The EU anchor is no longer guaranteed. Last but not least, the future of democracy has become uncertain. In this context the economic situation will further worsen. Admittedly, Turkey is in a deadlock. How is it possible to get out of this deadlock? I don't believe there is an easy answer. We have to wait for the results of the ballot boxes on March 30 to be able to see clearer.