The doomed rebellion of a Turkish economist

The clouds of dust are still swirling in Turkish economics and politics from the dismissal of central bank governor Naci Ağbal last weekend.

Next on President Recep Tayyip Erdoğan's whirlwind agenda are changes to the government cabinet. Erdoğan, who sacked Ağbal by decree late last Friday night, was expected to announce the overhaul at an annual congress of his Justice and Development Party (AKP) this week. Political commentators are continuing to discuss possible ministerial candidates and when they might be appointed.

Clues concerning Erdoğan’s intentions for the executive had already emerged in the week prior to the AKP congress. As well as the shocking change at the central bank, a chief prosecutor announced a closure case against the pro-Kurdish Democratic Peoples’ Party (HDP) at the president’s behest. Erdoğan has also annulled the Istanbul Convention, which sought to guarantee women’s rights in Turkey.

As thousands of Erdoğan’s supporters gathered at the congress in Ankara, many without masks despite a third wave of the COVID-19 pandemic, it has become clear that his People's Alliance - a combination of the AKP and the far-right Nationalist Movement Party (MHP), now intends to take Turkey on an even more Islamist, nationalist, and authoritarian journey.

Erdoğan, backed by the undemocratic MHP, has become the sole political authority in the country.

The president’s appointment of Şahap Kavcioglu, a party loyalist and sympathiser of his unorthodox theory that high interest rates cause inflation, as central bank governor, and his discarding of Ağbal, who he hired a little over four months ago, shows that Erdoğan, at a whim, can quickly appoint people who serve him best at any particular moment, and dismiss those just as quickly who do not. No doubt, we will be watching with dismay as this kind of behaviour becomes more common in the coming period.

On Tuesday, Yiğit Bulut, a chief adviser to Erdoğan on the economy, appeared on television before a bright red, fluttering image of a Turkish flag, to announce that the net reserves of the central bank are not in negative territory, confounding both official data and the analysis of leading economists and former central bank officials.

As an economist in Turkey, any attempt to prove Bulut or any other adviser to Erdoğan wrong now gets you branded as a traitor, despite indisputable facts arrived at through mathematics and knowledge of economics.

Another Erdoğan adviser thought he could silence those opposing Ağbal’s dismissal this week by simply saying that the president may have been engaging in "non-economic mental gymnastics" and that nobody else should bother to understand. All those questioning the viability of Erdoğan’s decisions are then expected to look the other way with no obvious concern for their own intellectual capacity.


central bank
New Turkish central bank governor Şahap Kavcıoğlu

When it comes to public duty in Turkey’s authoritarian period, not one official does anything that goes beyond acting as a vehicle or voice for Erdoğan’s economic choices. Otherwise, the door beckons. For example, Kavcioglu, appointed with the sole aim of easing monetary policy in line with the president’s wishes, will feel no shame in promising price stability, as he did this week, while being unconcerned about finding anyone to believe him. He is well aware that, in doing so, he will not be held accountable for the difference between what he says and what he actually does, so long as he acts in line with the will of the authority.

This week, Kavcioglu seemingly felt no reason to explain why Turkish citizens should exchange their hard currency and gold into the Turkish lira, other than the need to defend the country. He simply knows that he has Erdoğan’s approval, so there is no need for any other justification.

As an economist, one can prepare a ‘five-star report’ arguing firmly against Erdoğan’s unorthodox theory that higher interest rates are not the cause of inflation. Yet, years can pass, you grow older, and discover that this mistaken belief still rages on. You end up spending a decade stuck in a fruitless vicious circle of debate that does not go beyond the basics of introductory economics. Meanwhile, as you watch rising unemployment, a deterioration in the education system, accelerating inflation, increasingly frequent economic crises and ordinary lives basically getting wasted, you suffer the guilt of not being able to help cure Turkey’s economic maladies.

It is not difficult to predict the consequences of the decisions that Turkey’s "authoritarian-Islamic-nationalist" economic administration will take in the coming period. Turkey has entered a period of drift, now fully palpable with the central bank reshuffle. The story behind the Ağbal-Kavcıoğlu switch has meanings beyond any single bureaucratic change. It constitutes a turning point that we will look back on in the years to come.

It is now easy to see that inflation in Turkey will accelerate further, that interest rate cuts will be followed by heavy interest rate hikes, that the lira will turn into a worthless piece of paper, that the banking system, which is already immersed in bad debt, will face further troubles down the road, and that the economy will be unable to post growth due to balance of payments problems. And perhaps the easiest thing to predict is that this whole course of economic events will cause earthquakes in politics.

The saddest thing is that Turkey does not have to endure all these calamities - there are enough educated people to reverse the situation. It is the single authority’s personal ambitions and nothing else that are driving the country down this horrible path. 

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.