The second time round, and Turkey's currency crisis

Karl Marx once famously remarked that all great world-historic facts and personages do appear twice; the first time as tragedy, the second time as farce. These comments should be seen in a French context, in the seizure of power by Napoleon III, the nephew of Napoleon Bonaparte, in 1851.

Nevertheless, in his essay Marx makes a valid point, that the tradition of dead generations weighs like a nightmare on the brains of the living, so that as they seem to be revolutionising themselves and things, they anxiously conjure up the spirits of the past to their service.

This is true of the current monetary crisis in Turkey. On the one hand, TÜSIAD, the Turkish Industry and Business Association, calls for a rapid return to the generally accepted rules of economic science. On the other, President Recep Tayyip Erdoğan has designated his interest rate policy to be the mainstay of an “economic war of independence”, conjuring up the imagery of the Turkish War of Independence from 1919 to 1923, when Turkey fought to liberate itself from foreign powers.

When Turkey’s economy last collapsed, in February 2001, I had a front seat in the stalls and now I have a horrid sense of déjà vu at the present turn of events.

Twenty years ago the issue was one of corruption. When the economy collapsed, the overnight lending rate had reached 7,500 percent and the value of the lira was halved after a confrontation between President Ahmet Necdet Sezer and Prime Minister Bülent Ecevit at a meeting of the National Security Council.

Now the issue is different and in keeping with the collapse of the “new economic model”, which Erdoğan’s son-in-law, Berat Albayrak, then Treasury and Finance Minister, introduced in August 2018. One principle was to provide full independence in monetary policies, and this was supported by the president, who called for Turkish citizens to convert their foreign exchange savings into liras.

This was part of a “national struggle” and “my people's answer to those who declare economic war against us". However, the president’s call has not been heeded, as according to official data almost two-thirds of bank deposits are in foreign currency. This also applies to bank deposits held by real persons.

The $128 billion in forex reserves already sold by the central bank to support the lira is the subject of controversy. Furthermore, this month the central bank has burned through an additional $4 billion “due to unhealthy price formations in exchange rates” and intervened a fifth time on December 17.

The current process, where it is possible to follow online the rapid depreciation of the lira (at the time of writing, 20.72 TL to the euro, 18.35 TL to the dollar), is like following a patient in intensive care with organ failure.

Now Erdoğan has invoked Islam and its rejection of usury in defence of his economic policy, which puts his followers in a bind. “We are lowering interest rates. Don’t expect anything else from me. As a Muslim, I’ll continue to do what Islamic law requires,” he said.

The Italian astronomer Galileo was put in a similar bind when he was forced by the Church to recant his claim that the earth moves around the sun. But Galileo added: “E pur si muove” (Yet it does move).

Erdoğan has also lashed out at TÜSIAD and accused the association of trying to bring down the government. Likewise, Devlet Bahçeli, leader of the MHP (Nationalist Movement Party) and Erdoğan’s partner in the People’s Alliance, has accused Kemal Kılıçdaroğlu, leader of the opposition CHP (Republican People’s Party), of being the conductor of an orchestra of lies and hypocrisy. He too claims Turkey’s economy is under siege.   

According to MetroPoll’s survey for November, Erdoğan’s approval rating has fallen to under 40 percent. Because of the “Economic Liberation War” the President is waging, the crisis has been elevated to the status of a national security issue with a corresponding crackdown on criticism and protest.

Consequently, the President has declared social media to be one of the most serious threats to modern democracy and finds it important to inform the public to fight against disinformation and propaganda “within the framework of truth”. To protect the public, new legislation will make spreading disinformation and fake news punishable by up to five years in prison.

In an attempt to alleviate criticism of galloping inflation, Erdoğan has also decreed a 50 percent increase in the minimum wage but this is unlikely to have much effect. To ease the situation he has also sought to improve relations with, for example, the Emirates and Saudi Arabia. This has already borne fruit, as the Abu Dhabi crown prince has after a visit pledged $10 billion in investments. However, whether this will improve Turkey’s creditworthiness is doubtful.

To an outside observer, these proceedings may seem farcical. As the head of one investment bank put it: “All that Turkey needs is for one man to retire and Turkey could be off to the races.” But for the millions of Turks involved, whose livelihoods are at stake, the outcome could well be tragedy.          

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