The ruling Justice and Development Party (AKP) was formed a while after the economic crisis in 2001; its leader Recep Tayyip Erdoğan defined that crisis as “management crisis.” What we are going through today is also a management crisis with economic consequences.
The day after the Turkish Lira fell to a historic record low, Central Bank Governor Murat Uysal was removed from his post on Saturday and Naci Ağbal replaced him. It had been 16 months since Uysal had taken over. He also had taken the post after Murat Çetinkaya was dismissed.
On Sunday, Treasury and Finance Minister Berat Albayrak, who is in charge of economy management, posted his resignation in Instagram. Since his Twitter account was closed, for some time, it was not clear whether he had been hacked or the post was real. Later, media outlets, almost all of them international, confirmed the resignation from a ministry official in Ankara. Apart from politics, even this is showing us how the flow of information is in the economy. It also demonstrates a strong image regarding the monologue of the local media.
As a person who believed, for a long time, that “without political normalization, the economy will not be able to normalize,” I thought that changing a couple of bureaucrats, or dismissing a couple of ministers will not heal the wounds in the economy caused by politics. These moves will not reestablish the confidence in the economy.
Albayrak’s resignation is a privilege unique to him. The reason is that there is no other example in the 17-year old Erdoğan rule that an official resigns as a personal choice. All the other cabinet ministers who have been changed up to now have been either removed by Erdoğan’s will or moved to another cabinet post. The “resignation” privilege granted to Albayrak is due to the fact that he is Erdoğan’s son-in-law. He has been spared of the disgrace of dismissal.
His distinctiveness in the cabinet was also due to his being Erdoğan’s son-in-law. This provided him with very strong political support and power. Even before he became a minister it was known that he was influential in Presidential decisions particularly on who was to be appointed to economy management. While Mehmet Şimşek was the minister, the appointments to the positions of the Central Bank Governor and the Treasury Undersecretary were Albayrak’s initiatives.
This political power and support provided him with a higher than ever “self-confidence.” This was the reason he was able to sign, with no hesitation, wrong and erroneous decisions. Due to these features of his, he has been called, “the iron fist” in Ankara, it has been told.
Those decisions he made were made up of economic steps the consequences of which were never thought over. From July 2018 until today, in all technical channels of economy, business was done with “an iron stick.” A “command economy” at its best was practiced.
In August 2018, when price increases followed the exchange rate shock, Albayrak’s team exerted pressure on private companies to “lower prices.” Restrictions on interest rates for deposits and loans were imposed on banks; several senior bank executives who were not liked lost their jobs through phone calls from Ankara.
Measures such as introducing restrictions on foreign currency transactions, the Turkish Lira ban on foreign establishments in swap transactions, introduction of exchange expenditure tax in foreign currency sales and fixing its ratio at a level as high as 1 percent, as well as delayed deliveries of foreign currencies have damaged the convertibility of the Turkish Lira. Turkey’s 30-year old free exchange regime lost some of its credibility.
Nobody can say his economic policy had a certain framework. The efforts to “veil” the symptoms, not the issues in the economy was always the priority in his administration.
The main factor in his economic policy was opting for huge credit expansions through state-owned banks. This became an extraordinary credit expansion at the time of the pandemic. The command economy, here, also introduced a model forcing banks to lend. Banks were almost dragged to risky loans.
When an exclusively loose monetary policy was accompanying this loan expansion, it increased pressure on exchange rates. Residents demanded more foreign currency and gold. The Central Bank responded to this by selling its foreign currency reserves worth up to 120 billion dollars to the market through public banks. Then the foreign currency erosion in the Central Bank was veiled. More anxiety surrounded the market. The bank’s net reserves became negative at around 50 billion dollars.
These policies led the Turkish Lira to its most valueless level in history.
While we were all witnessing a train crash in slow motion, while all these were happening, it is not possible that Erdoğan who has granted this power be uninformed of it.
I had predicted that an “adventurous economic policy” would come after the ruling party lost two major cities in the local elections in March 2019. It did happen so.
The loss of votes in the past elections seems to be continuing in the epidemic period as opinion polls indicate. It is very clear that the reason for this is that economic conditions on the street affect people’s lives.
Efforts to recover the economy by a giant credit expansion caused the sharp depreciation of the Turkish Lira and a higher cost of living. Due to these new damages, we have observed that Ankara is making an effort, for some while, by taking symbolic steps such as adopting a “hawkish stance” in foreign policy and opening Hagia Sophia to worship in domestic policy so that the party’s core electorate is consolidated.
In the last couple of days, apparently the economic collapse has rung alarm bells in Ankara. The dismissal of Central Bank Governor Murat Uysal is nothing more than a public scapegoat operation.
Indeed, Uysal was not the only decisionmaker of these wrong policies. Uysal proceeded in the direction drawn by Berat Albayrak, who was the person conveying Beştepe’s will.
The political quake following the 2019 local elections activated several steps in Ankara’s economy policy that resembled “an elephant in a glass shop.” Ankara fell into the whirlpool it created itself.
Unfortunately, as past experiences also show, politicians who drag the economy to a bad threshold are also not able to manage the crisis. They create a whirlpool and cause losses for the country.
It will be very difficult for Naci Ağbal, one of the most virtuous and experienced technocrats in economy management in Ankara, who is appointed to head the Central Bank, or the new minister to replace Berat Albayrak, to improve this picture. Maybe they can stop further worsening.
The increasingly authoritarian administration in Turkey was named the Presidential System of Governing in 2018. This system is grinding down whatever comes into the whirlpool it has created including the economy, institutions and rules, even the circles of nepotism they have authorized.