"turkish President Wants Short-Term Economic Gains For Next Elections"

- President Tayyip Erdoğan is acting with a politician’s short-sighted perspective as the country heads towards elections, said economist Ümit İzmen. “The Justice and Development Party is following a new form of populism, similar to that from the 1990’s, yet with different methods and tools” she said.

Turkish President Recep Tayyip Erdoğan is after short-term economic gains as the country is heading towards elections, said an economist to explain the debate between Erdoğan and the Central Bank over the interest rate. The government needs to boost growth ahead of the June elections, said Ümit İzmen, adding that the ruling Justice and Development Party’s (AKP) new form of populism will stop paying off, especially after the next elections.

Do the developments of the last week, which witnessed a fluctuating foreign exchange rate, give a specific message about the economy?

Nothing happens in Turkey in isolation of global developments, but of course the debate on the interest rates between the Central Bank and the political will has affected the value of the Turkish Lira. We should not pay so much attention to the short-term fluctuations. We should not miss the big picture and rather focus more on structural reforms.

Why do you think the president is so obsessed with the interest rates?

For every economy, low rates are desirable. The president is looking from a politician’s perspective. He has a short-term perspective. Lower interest rates will give momentum to the economy, and since we are heading towards critical elections again this year, it is important to keep the growth rate higher compared to last year, since last year’s rate was so mediocre.

How do you think foreign investors’ views will be affected?

Foreign investors will compare Turkey with other similar countries. In terms of global performance, I think these discussions will not send so many negative signals to foreign investors. There is serious recession in the world.

How do you see the AKP’s economic performance during its years in office?

Turkey’s performance in the 2000’s was good, but it should not be exaggerated. Similarly, after the global crisis, when you compare it with the world, the situation is not as pessimistic as we think it is looking from inside.

In the 2000’s, the AKP was successful to a degree in implementing macroeconomic stabilizing policies. But by 2007, shortly before the global crisis, the dividends had already ended. In other words, we would have seen a slowing down of the economy even if there were no global crisis. But the slowing down was associated with the global crisis. Currently, the tendency is to have policies just to save the day.

A few years later, when the world economy recovers, then our breath is not going to be enough to catch up with the world economy. The construction sector and shopping malls will not be enough in the long-term to have a healthy economic structure for a nation of 77 million people.

It has to have a production dimension, and I have been visiting many towns in Turkey and I do not see much of a sign of industrialization. The real sector needs to be more productive. We have been saying this over and over again, but there is no other way out. We need to be talking about a very serious educational reform. In a few years’ time, we will not be able to adapt to the fast-changing economy.

Many will ask: how come the government stopped performing so well?

As I said, I think their performance in the beginning was exaggerated, as their current under-performance is being exaggerated too. But obviously there is an under-performance and we can probably explain this with “governance fatigue.”

While you suggest the president is acting with a short-term perspective, would you say, however, that the institutions in Turkey are autonomous enough to prevent the government from doing everything it wants? After all, the Central Bank is not cutting interest rates to the degree wished by politicians.

In the 2000’s, we saw important progress in terms of the autonomy of institutions. Looking back to the 1990’s, the economy went into a crisis due to the lack of institutional autonomy. Economic policies were geared to guarantee winning the elections and these policies could be implemented since the institutions were so dependent on the political will. So, we had to break that link. That link was broken.

But this was only the economic dimension of the problem. We still have the same constitution, the same political parties’ law and the same electoral system. Structural reforms were done only to a minimum; the changes needed to be complemented by changes to the political structure; institutional autonomy should have been guaranteed with a new constitution that protects democratic rights. As this was not done, we are having the current debate. Today, the government can enact a law and dismiss the governor of the Central Bank.

So you think that the autonomy of institutions is under risk in Turkey?

Of course it is, we have seen that for years, and it is not just the Central Bank. We have seen many institutions under similar stress. The institutions are still fragile due to the political system; that’s why we should be talking about a new constitution.

The AKP came in saying they were different from traditional parties, but do you think we are going back to the 1990’s?

There is such a tendency in the world; there is a new form of populism. We criticize the populist policies of the 1990’s, but what the AKP does is another form of populism. Their methods and ways are different, but the gist is the urge to control the rent, to control who is benefiting from the economy.

Populist policies were costly for the political parties of the 1990’s yet the AKP has been winning elections.

In the 1990’s, the annual income per capita was around $3000. Now it is $10,000. Indeed, there has been serious progress in fighting poverty. But we are now seeing the presence of a middle class. People are no longer hungry, they have a house and they can get better clothing. But now people are looking for something else, like a green space in front of their house. Development at the expense of cultural and natural assets starts backfiring after you reach a particular level of income per capita; which is around $15,000. So getting richer will bring more demands of democracy.

So, do you suggest that populist policies will stop paying off at one stage?

Let’s also not forget that the growth rate is below the historical average; 2 percent means that everybody stays at the same stagnant level. There are tremendous income gaps in the Turkish society. Unfair income distribution can be digested in a society where everybody gets richer, but grudging starts when the rich get richer but the poor remain poor. If Turkey cannot adapt to the improvement in the world economy, populist policies will stop paying off.

So, there are two risk groups for the AKP.

On the one hand, there are those who have reached a certain degree of welfare, asking more in terms of issues like the environment, etcetera. On the other hand, the very poor will look at the very rich, and these will be the groups made richer by the government. The very poor will also start grumbling, since they will see that a group that comes from a similar socio-cultural background to them has become rich while they remained poor and they will question that situation.

So, you suggest there will be an erosion in the votes gained by the AKP?

We will definitely see that in the period up to 2019, following the June elections.

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