For several weeks now, Turkey has been making international headlines for various reasons. Not the least of these were the back-to-back sackings of the governor of the Central Bank, Naci Ağbal, on 19 March, followed by his deputy. Erdoğan’s move was followed by a sharp 15% one-day collapse in the value of the lira. Mainstream, bourgeois economists were aghast at what they regarded as insane, erratic behaviour from Erdoğan. But there is method in the madness. Above all, Erdoğan is terrified of a social explosion.
After Erdoğan came to power in 2002, the Turkish economy was able to muster years of strong growth on the back of a booming world economy. Industry and production saw massive growth and, generally, so too did wages, while employment levels remained stable. But after the 2008 crash, this process began to unravel. There was a short boom triggered by the cheap money flooding world markets after the crisis. But such a boom was only possible on the back of massive speculation and a huge accumulation of debt.
But for years now – before the crisis and pandemic of 2020 hit – the Turkish economy has been on a descending path. There have been ups and downs, but the overall direction has been clear. In 2011, GDP growth stood at over 11%. In 2017, it hit its last high of 7.5%. In 2018, GDP grew by less than 3% – the lowest levels seen in Turkey since the crisis of 2008. Towards the end of 2018, the Turkish economy was displaying clear signs of overheating: the lira fell sharply, inflation soared to over 20%, and the possibility loomed of a default followed by a catastrophic economic collapse.
Only the massive intervention of the central bank could stabilise the situation. In September 2018, it increased interest rates to a colossal 24%. Rates stood at these levels for the following 10 months. But such a policy helped to bring the already enfeebled economy – which was completely dependent on cheap money – to a grinding halt. By the end of 2018, Turkey was already in recession. Until the pandemic and the world economic crisis hit in March 2020, there was little in the way of a recovery, with a meagre 0.9% GDP growth registered in 2019.
Erdoğan feels the pressure
Erdoğan can feel pressure building from below. He knows from personal experience that one misstep could spark a mass uprising, confining his regime to the dustbin of history. After all, it has only been ten years since a wave of revolutions in the Arab world brought down neighbouring autocrats in one regime after another. And not even eight have passed since the Gezi Park uprising, which saw millions take to the streets, shaking the Erdoğan regime to its core.
The reason his regime didn’t fall back then was due to the weakness of leaders of the Gezi movement. Their vague liberal demands could not appeal to the working class, in particular those layers that had seen their living standards rise dramatically since Erdoğan’s rise to power. Until recently, Erdoğan enjoyed strong support amongst these layers, as well as sections of the middle class. But the economic decline of the intervening years has rapidly eaten away at that base of support.
Barely eight years have passed since the Gezi Park movement burst onto the scene. Erdogan knows what the consequences of a misstep could be for his regime / Image: Mstyslav Chernov
Some are tempted to explain away Erdoğan’s actions in terms of the malign and erratic features of his personality. His personality has certainly left its stamp on the way events have played out, but the key thing to understand is that Erdoğan fully grasps what would happen should a mass movement erupt. Hence he has resorted to a string of foreign adventures; hence his systematic eradication of opposition in the state apparatus and the media; hence his attempts to divide the people along national lines by hardening the oppression of the Kurds, etc.
Trying to plug the volcano
Bourgeois economists are sneering at Erdoğan for meddling in the affairs of the central bank, which is supposed to operate independently of political pressure. In reality, Erdoğan has no choice. In July 2018, Erdoğan elevated his son-in-law, Berat Albayrak, to the post of Minister of Finance. He did so to ensure that the Central Bank’s policy would always be under the close inspection of someone who no one could accuse of valuing ‘economic principles’ over the stability of the regime.
After initially stabilising the situation, Erdoğan’s monetary policy from 2019 onwards was to push interest rates as low as possible, while Turkey’s reserves of foreign currencies were spent to prop up the lira and fill current account deficits. The bourgeois economists raised a hue and cry. This has meant, however, that for the last year, Turkish exports were relatively cheap. Among other factors, this led to a rapid rebound (+15.9%) in the third quarter of 2020 after a sharp -11% decline in the second quarter. Turkey even registered a net growth of 5.9% for the year as a whole.
But it has also meant pressure on the lira has risen steadily, and inflation has soared once again. This has been exacerbated by the fact that Turkey has had to depend, even more than other countries, on printing money since the crisis hit. But there is no ‘magic money tree’. All that can be achieved by such a policy, in the long run, is to thoroughly disrupt the monetary system and the economy. By the beginning of November of last year, the situation became unbearable, with the lira reaching an all-time low against the dollar. Turkey arrived at a critical situation where it was left without any foreign currency reserves whatsoever.
Erdoğan was left with no other option than to attempt to avoid a meltdown by firing then governor of the Central Bank, Murat Uysal, on 7 November, replacing him with Naci Ağbal, who was prepared to increase interest rates. Erdoğan seemed to be giving in – finally – to the constant calls from international markets to end the meddling in the Central Bank’s policies. The very convenient decision of his son-in-law, Albayrak, to step down from the Finance Ministry for “health reasons” seemed to confirm the shift. Erdoğan, it seemed, had finally given in to the inevitable – despite all his public declarations that he didn’t believe high interest rates could stop inflation. Just like in 2018, “hard but necessary” policies would again be carried out.
But today is not 2018. The elbow room provided by Turkish capitalism is shrinking by the minute. In an attempt to bring the devaluation of the lira and inflation under control, Ağbal started steeply raising interest rates: from 10.25% to 19% in just a few months. But in a context of a worldwide slump and rising COVID-19 cases in Turkey – which could soon force another lockdown – tight monetary policy is bound to kill off every hope of even a short-term economic recovery.
Whilst all around the globe printing presses are in full motion, Turkey is being asked to stop theirs! On top of everything, there was no fall in inflation at all. On the contrary: official inflation figures now stand at 16.2% for March, compared to 14% in November. Figures for food and goods of daily use are much higher, imposing tremendous pressure on the poorest layers of society.
No room for maneuver
For Erdoğan, the 2% increase in interest rates on 19 March (higher than the 1% increase that was earlier assumed) was the straw that broke the camel’s back. A day later Ağbal was fired and – to make sure no one thought there was a way back – his deputy was fired shortly thereafter. For the moment, there has been no change in the interest rates. But Erdoğan has made it clear that he is calling the shots once again, and has publicly announced his “determination” to cut interest rates.
The markets reacted quite predictably. The lira fell like a stone. In just one day it lost 15% of its value against the dollar. At one point it almost reached its record low from last November, despite interest rates now being almost double what they were back then! In the week following the announcement, the main Turkish stock exchange fell 13%, and interest on 10-year government bonds rose by 5 percentage points to 19%.
The sharp twists and turns in Erdogan's economic policies reflect desperation amid Turkey's spiralling economic crisis / Image: own work
Where once international capital was using high interest rates to make a quick buck, Turkey is now experiencing a massive flight of capital. Deutsche Bank reports that in the week following the decision alone, $1 billion in shares and $750 million in loans were pulled out of Turkey by foreign investors. Even before these events, foreign investment was at a low point. The state may even be forced to introduce control on capital flow, which for a capitalist country like Turkey would be a sign of desperation. And at best it would only represent a temporary measure to plug the hole while disrupting the economy even further.
From the standpoint of fiscal mechanisms, Turkey is out of options to battle these developments. It is out of cash and out of room. The Turkish state will be forced to print even more money, fuelling further inflation. The situation could spiral out of control.
That the Erdoğan regime is swinging back and forth between different approaches – returning to a clearly failed policy after only four months – is a sign of sheer desperation. Economically speaking, Erdoğan is lighting a heap of straw under a powder keg, just to keep himself warm a little longer. On the one hand, any increase in interest rates will put enormous pressure on the economy and therefore on ordinary Turkish people, undermining support for the regime. On the other hand, not acting will inevitably lead to an economic disaster such as the one in 2000-2001, which led to the downfall of the previous government and Erdoğan’s rise to power. All moves are bad moves for Erdoğan!
Even before the latest events, the increasingly difficult situation the regime found itself in left it increasingly reliant on foreign adventures to shore up its domestic support, and to find opportunities for profit. In these adventures, Turkey has maneuvered between the big imperialist powers – particularly the USA and Russia, but also China and the EU. Turkey also tried to exploit the growing crisis inside the EU to secure its position.
In all these twists and turns in foreign policy, given the dire situation Turkish capitalism finds itself in, Erdoğan isn’t so much focused on the long-term perspectives. He is much more interested in any short-term support he can muster, especially if it takes the form of hard cash.
Ursula von der Leyen, as president of the European Commission, personally visited Ankara as part of Turkish-EU negotiations in this context. At the talks, Erdoğan apparently signalled his willingness to find a solution to the conflict around Cyprus in return for “better economic cooperation and more financial support”. The EU, reportedly, is also very open to the idea, which would include expanding the tariff union between it and Turkey.
Erdoğan is broke and desperately needs to extract more cash for his role as the EU’s border guard against refugees.
Revolution is brewing
Erdoğan and the regime of the ruling AKP are running out of options. The regime knows that it has to watch its back. Erdoğan’s reserves – economically and socially – are running thinner and thinner. This is particularly true of Erdoğan’s support in working and lower-middle-class layers of society, which have been hit hard by rising prices, unemployment, and lockdowns.
Although there is a theoretical ban on layoffs for the duration of the pandemic, for instance, unemployment is rising. It was reported recently, for example, that over 170,000 people were laid off under ‘code 29’ of the labour law in 2020, which entails laying off workers for various breaches of discipline in the workplace. Unions claim that it is just a convenient way for companies to fire people despite the layoff ban. On top of that, ‘code 29’ terminations entitle the sacked worker to no compensation, and furthermore, they would also be ineligible for unemployment benefit.
As tensions rise, a new slump in the economy could produce the conditions for a mass uprising from below. Even now, despite the might of the Turkish state and the constant propaganda of the media, the regime has been unable to fully suppress the movement of students of Boğaziçi University in Istanbul, who continue to protest against the new rector appointed directly by Erdoğan. One can only imagine what will happen when the mighty working class of Turkey enters the scene.
The regime is moving preemptively to try and block every possible channel from which political discontent might erupt through the use of further repression. As we saw at Boğaziçi University, whilst this tightening of oppression may give the regime temporary breathing space, it will only undermine its stability in the long term. Yet what other options does Erdoğan have?
All along the line, Erdoğan is trying to flag up his support by pandering to increasingly narrow and reactionary layers of society. Most recently he announced Turkey’s withdrawal from the Istanbul convention – an international treaty for the prevention of violence towards women. This is an attempt to bolster his support among Islamists, who have denounced the treaty as an attack on ‘traditional values and the family structure’ and for ‘normalising homosexuality’.
But the crisis of Turkish capitalism is forcing millions of women back into the home. Femicides are skyrocketing in Turkey, and in a million ways life is becoming unbearable, above all for poor and working-class women. Erdoğan’s measure might boost his popularity among a narrow layer, but it is motivated by his isolation from increasingly broad layers of the population. The revulsion his actions have provoked will only further isolate him.
Increasingly isolated from the masses, the Erdogan regime is increasingly forced to rely on the brute force of repression, as we saw in response to the Boğaziçi University protests / Image: bianet
In one of its boldest – and most desperate – repressive measures so far, the regime is now planning to introduce an outright ban on the left-wing HDP (Peoples' Democratic Party), which enjoys wide support among the Kurdish minority. Under conditions that can only be described as semi-legality (the party’s presidential candidate, Selahattin Demirtaş, has been in prison since 2016), the party nevertheless managed to get over 10% in the 2018 elections. There has been a constant string of imprisonments of popular HDP politicians. The latest victim is the popular MP, Ömer Faruk Gergerlioğlu, who was arrested at the beginning of April and who will spend two years in prison for supposedly “supporting terrorism”.
At the moment, the move to outlaw the HDP altogether is on a temporary halt after the constitutional court found some “errors of form” in the law. This isn’t an ‘independent judiciary’ showing some flickering sign of life. It is rather more likely to be a delaying tactic to give the regime a bit of extra negotiating room in its discussions with the EU.
An explosion is being prepared in which all the combustible material that has piled up over years in Turkey will ignite. The question is not if any of the above-mentioned factors will reach a breaking point, but rather which of them will break first and when. The next period will see the reawakening of the strengthened working class in Turkey. In numbers and strength, it has grown enormously in recent decades. The task now is to prepare for that reawakening by building a revolutionary organisation with a Marxist programme in Turkey, which can serve as the tool for the working class to sweep away the rotten edifice of Turkish capitalism once and for all.