The Washington PostDemocracy Dies in Darkness

Opinion What’s wrong with Turkey’s economy? ‘Erdoganomics.’

A portrait of Turkish President Recep Tayyip Erdogan hangs in a money exchange shop in Istanbul on Dec. 20. (Francisco Seco/AP)

“Erdoganomics” is a new and evolving science.

It rests on an erratic management of the economy, coupled with double-digit inflation, fuzzy statistics and departure from a rules-based order. The underlying doctrine is that interest rates are the mother of all evil and cause inflation, though conventional economics says otherwise. Under the new discipline, as currency depreciates and citizens flock to convert their savings into dollars, the resulting market volatility can be managed by public threats against the business community, declaring a “war of independence” against foreign enemies and, God willing, a bump in exports.

If all else fails, there is always religion to fall back on. For example, a Koranic verse against usury can be used to bully bureaucrats into lowering interest rates.

This doctrine forms the basis of Turkish President Recep Tayyip Erdogan’s experiment with the national economy — but is politically and economically unsustainable.

Once an economic powerhouse on the periphery of Europe, Turkey is now caught between Latin America-style hyperinflation and Middle Eastern cronyism. At the heart of the problem is Erdogan’s attempt to take a sophisticated globalized economy and run it as an emirate does, replacing state institutions with personalized rule.

By 2014, Turkey was the world’s 16th largest economy, with a gross domestic product of nearly $1 trillion in 2013. Investors, entrepreneurs and citizens flourished. The government has since lurched into illiberalism, destroyed the investment climate and left the economy in tatters. Turkey is now the world’s 21st largest economy, according to an October report by the International Monetary Fund, and seems to have lost nearly a quarter of its GDP since 2013, in part because of capital flight and loss of investor confidence.

This meltdown is not the result of an attack by Turkey’s enemies nor of a global conspiracy to bring down Erdogan, as the government would like you to believe. It is a governance problem. The origins of the crisis lie in 2017, when the Turkish president pushed to abandon the country’s parliamentary democracy for a one-man regime in a narrowly won referendum. The transition to a quasi-authoritarian presidential system with no real checks and balances has consolidated massive power in the hands of Turkey’s strongman. And he happens to have strange theories on the economy as well as an ad hoc approach to governance.

What economy could survive the revolving door Turkey’s top bureaucracy has become? After being elected president under the new system in 2018, Erdogan first made his son-in-law, Berat Albayrak, finance minister but eventually fired him. In March, Erdogan fired his third central bank governor in less than two years, replacing him with a newspaper columnist who shares his unorthodox views. Soon after, he fired the deputy governor, and months later his new finance minister is gone, replaced with a loyalist with no economics degree on his résumé. Erdoganomics may not always be coherent, but it always values loyalty over competence. Yet no minister, no matter how loyal, can make this work.

Turks saw their currency lose 60 percent of its value against the U.S. dollar as the president pushed the central bank to lower interest rates in four consecutive months; it bounced back this week after emergency measures. The inflation is thought to be anywhere from 21 percent to 55 percent, depending on who you believe. Labels in supermarkets change overnight, creating a deep sense of public anxiety. Urban poverty has become visible and unbearable, with long lines for subsidized bread outside municipality stands in poor neighborhoods of Istanbul.

To avoid a bank run and reverse the decline in the Turkish lira, Erdogan announced this week a new set of measures to provide government financing to peg lira deposits to the dollar — an indirect interest hike and a strain on the treasury, according to some analysts. While Erdogan’s new scheme may momentarily quell the sense of panic, it is unlikely to curb inflation or restore investor confidence. Worse, it will probably deplete Turkey’s already diminished state coffers.

Elections are scheduled for 2023, and Erdogan is facing an increasingly united and motivated opposition that is leading in the polls. But the economy cannot wait that long.

Erdogan has survived multiple political crises and is an unrivaled master of Turkish politics. But recovering from an economic crisis is a more technical task than domestic maneuvering. You cannot run a sophisticated, modern economy on conspiracy theories and doctrines from the 7th century. Effective economic management requires bringing in expertise and listening to it, even if it tells you what you would rather not hear.

Erdogan’s system of centralized presidential rule hides those hard messages from the leader. It has replaced competent economists and bureaucrats with yes men who nod at whatever he says and then proceed to destroy the economy. Turkey — along with Erdogan’s ultimate legacy — badly needs a return to more conventional economic management.