Who threatens economic stability?

As the day of local elections -- which have been transformed into a de facto referendum on Justice and Development Party (AKP) rule -- is approaching, the AKP's spokespeople have added a new argument to the ruling party's defensive repertoire, besides the infamous plot allegations. According to this new argument, if the AKP's power is reduced following a low share of the vote on March 30, the days of economic instability will return.
Who really threatens economic stability? The first question that must be raised regarding this argument is: Should we take it seriously? To ask in another way: Should the millions of people who voted for the AKP in June 2011 be afraid of the loss of economic stability? My answer is yes. Economic stability is threatened and we should be afraid of this, but who is really threatening economic stability? It is true that after the lost decade of the 1990s, rocked by recurrent political and economic crises, Turkey experienced a decade of political and economic stability under AKP rule. During this period, per capita income has increased by an average of 3.5 percent per year, meaning a real increase of 46 percent per capita over 11 years. Moreover, this increase has particularly helped the poorest 40 percent of households. This impressive per capita increase has ensured a sizable drop in poverty, whatever measure we use. I assert this with full knowledge of the facts, as one of my current research priorities is poverty in Turkey. We must add to the drop in poverty the improvement in public services, particularly in the health sector, which is not included in poverty measures. So, the new defense line of AKP could be persuasive for the electorate. Unfortunately, the mass of ordinary voters are unable to perceive where the real danger lies. This is understandable. What is less understandable is that even foreign investors, who should be better informed and capable of making a sound analysis, have a similar approach to the economic stability issue. The other day, watching an economics program on TV, I was shocked to hear an investment consultant saying that her foreign clients believe that if the AKP receives over 45 percent of the vote, this will be perceived as a guarantee of economic stability, since the AKP would preserve its strength and political uncertainties would be obviated. Such silly nonsense. The economic stability was due to two basic factors: first, a well-functioning open market economy, thanks to a sound fiscal policy and respect for the autonomy of key economic institutions such as the Central Bank of Turkey, the Banking Regulation and Supervision Agency (BDDK) and the Turkish Competition Authority; and second, the existence of a pluralistic democracy respecting -- to at least a minimal degree -- the Copenhagen criteria, under which Turkey is pursuing membership negotiations with the EU. These two pillars provided a crucial contribution to the fairly high economic growth by encouraging investment and maintaining the inflow of foreign capital, filling the gap between low domestic savings and high investment -- in other words, financing the huge current account deficit. However, erosion in these pillars is now jeopardizing Turkey's economic stability. Since the Gezi Park protests of last year -- and even more acutely since the graft scandal erupted on Dec. 17 -- neither a well-functioning open economy nor a pluralistic democracy that respects the rule of law can be assumed in Turkey under the rule of the AKP, as long as Erdoğan leads the party. The prime minister's criticism of the so-called “interest-rate lobby,” his strange approach to fighting inflation with low interest rates, his open defiance regarding the conduct of monetary policy by the central bank and his growing interference in other economic institutions must be construed as leading indicators of an imminent change in economic policies if the AKP emerges from the March 30 local elections with a comfortable support. However, the biggest threat to economic stability comes from the dangers of Erdoğan's drift toward authoritarianism. A strong electoral show of support will certainly encourage him to continue with a revitalized conviction to interfere in the judiciary, the press and in stigmatizing various business communities accused of being “traitors” and “plotters.” This atmosphere is certainly not propitious for investment and therefore economic stability and growth. It could also be asked if a low share of the vote for the AKP would better serve economic stability. This is not something we can be sure about. Nevertheless, I can assert that if this comes to pass, we can at least hope that important changes will occur in the ruling party, making it capable of returning to the old days when rationality and modesty were held in higher esteem than madness and arrogance as is the case nowadays.