Opinion: Turkey in need of sharp political change

Opinion: Turkey in need of sharp political change
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After the Ottoman’s faced defeat in World War I at the hands of allied forces, a brave Turkish military officer who served during WWI led the Turkish War of Independence against allied occupation and is credited with the founding of the Republic of Turkey. He was bestowed with the title ‘Atatürk,’ meaning ‘Father of the Turks.’

Mustafa Kemal Atatürk, the founder of modern Turkey, wanted a progressive Turkey able to embrace tolerance, encourage an open-minded society, and achieve secularism.

However, perhaps he tried too swiftly to change a country with deep Muslim roots by challenging Muslim ideologies, such as banning headscarves in public, because he disdained a society prejudiced on the basis of what religion or practices one followed.

Subsequently, to his detriment, right-wing parties took advantage of this position and tried to exploit it during a rather tumultuous phase for Turkish politics in the 90’s, wherein Islam was ‘reborn’. The common Turks had had enough, as the Lira depreciated at an alarming rate and inflation reached astronomical figures.

The Turkish economy was hemorrhaging when a minnow emerged victorious in the 15th Turkish General Elections; the AK Party. This party talked about European Union membership and spoke moderately. Led by Recep Tayyip Erdoğan, it was indeed a watershed moment for Turkey. This was the paradigm shift it desperately needed.

Erdoğan’s era saw income per capita rise to $10,900 from $2,000 since the early 1980s, double digit inflation figures of 65% which plagued the 80s and 90s, falling off a cliff to ridiculously normal levels.

Source: http://www.tradingeconomics.com/turkey/inflation-cpi>

Foreign exchange reserves, excluding gold, grew from $4bn in the early 80s to $110bn. Government debt has fallen from 80% to ~35% of GDP. Structurally though, problems persist.

While the Foreign Direct Investment remains constant at 1.5%, Current Account Deficit (% GDP) continues to dwindle downwards, averaging  -6%. The chronic low savings rate doesn’t help either; averaging 15% in the 21st century versus a world average of 23%. It has to rely on external funding of which short-term external debt (% reserves including Gold) is dangerously high at 98%. With an imminent interest rate hike by the Federal Reserve, Turkey remains vulnerable to hot-money outflows.

After taking up position as President of Turkey (a merely ceremonial position), Erdoğan, post-exhausting his term as Prime Minister in 2014, had hoped the AK Party would win the June 2015 Parliamentary elections. This would allow for tweaking of the constitution thus enabling the President to gain greater powers.

Erdoğan is now faced with the prospect of going “cold Turkey” after 13 years of unadulterated, absolute power. He needs to make peace with this issue, as Turkey needs less populist policies and more austerity, less interference in the functioning of the Central Bank, thereby restoring its credibility in the financial markets in the eyes of investors.

Turkey needs policies encouraging a savings rate in a country whose demography is its strength (average age is 29 years old) and to preserve what Atatürk and Erdoğan dreamt of – a strong, educated and secular country whose strength is its calm yet resilient demeanor.

Categories: Europe, Politics

About Author

Tanya Rawat

Tanya Rawat holds a MSc Finance from Manchester Business School and BSc Banking and Finance from The London School of Economics and Political Science, UOL. Her MSc thesis focused on the emerging markets; ‘Forecasting volatility of returns in the Asian arena using the ARCH family of models‘. Prior to her current role within the Macro and Strategy arm within Asset Management at Arqaam Capital, Tanya has worked in London within the financial data services industry.