Erdoğan’s effort to reform economy via foreign policy

Koç Holding Board of Directors Chair Ömer Koç announced his recipe for recovering the economy as “reducing country risk by implementing serious reforms, as was done in the first ten years of the 2000s.” In other words, he says, the way to recover the economy is through structural and fundamental reforms.

These words of Koç were published in the days when Turkey’s Organized Industrial Complexes took a three-day break from industrial production due to the shortage of natural gas. The government is trying not to reflect the crisis on the energy consumption of the households. On the other hand, there are hikes in natural gas, electricity, and fuel in the middle of winter. It is clear that a new recipe is needed, but President Tayyip Erdoğan does not think so.

Erdogan has a different recipe. He finds the dynamics of the capitalist economic model, which made the USA and Europe the wealthiest countries globally and enabled China under the Communist Party to catch up with the USA, wrong. He is entitled to his opinion. However, he imposes his “interest rate is the reason for inflation” theory, consequences of which are paid by the nation, and veils it by using Islamic discourse such as “nas – the words of God”. He wants to prove to domestic and foreign investors that his economic theses will work and break new ground in the world.

Managing the economy: The Erdogan-Way

Erdogan is constantly throwing new lambs into the wolf cage to prove that this recipe will harmonize with the global economy. Those who want to understand what I mean can count the number of the Central Bank Governors replaced during Erdoğan’s Presidency. The lambs that he finds fit become partners in the wrong cause by obeying Erdoğan’s wishes. Central Bank President Şahap Kavcıoğlu and Treasury and Finance Minister Nureddin Nebati are making the economy skid instead of running, with Erdoğan’s prescription, in a virtual world where inflation and interest are unimportant.

The President does not want to see the causality between the decreasing direct investments (not real estate purchases) and the increasing unpredictability and loss of economic and political credibility under his administration. He doesn’t want to acknowledge and show that the problem stems from his administration style and he wants to attribute it to an argument that Turkey is excluded because it is a country with a Muslim population.

Foreign policy comes into play here

Until recently, a foreign policy that could be summed up as “You have to accept me as such” was accompanying the interest-inflation equation that Erdogan was trying to reverse. The thesis of “Precious loneliness”, published by İbrahim Kalın on Twitter in 2013, constituted the theoretical discourse of this understanding. This view became more dominant after the military coup attempt of 15 July 2016. After Erdogan gathered executive powers in one hand and won the 2018 election, foreign policy and political economy began to turn against each other, as he put his ambitious economic theses into effect through the hands of his son-in-law, Berat Albayrak. (It was not a coincidence that Albayrak insisted on asking for the Foreign Ministry post for a while.)

The first example of this was US President Donald Trump’s threat of “destroy and obliterate Turkey’s economy” tweet as it hit the first financial blow and made Pastor Andrew Brunson be released. When we came to 2021 with currency crises and crises one after another, this situation led Erdoğan to another mistake.

Thus, if the “precious loneliness” thesis is abandoned and the “zero problems” policy in the Abdullah Gul era were to return, foreign investments would start to pour in. In other words, if we corrected the belligerent image in foreign policy, we could also restore the economy.

From Israel to Armenia: End of the precious loneliness

The signs of a turn in foreign policy began at the end of 2020 and the beginning of 2021 when it was foreseen that the exchange rate crisis turning into a financial crisis would lead to an economic crisis. The intelligence under Hakan Fidan and the military under Hulusi Akar played a role in this regard as much as the Ministry of Foreign Affairs under Mevlüt Çavuşoğlu, which has been brutally politicized and disabled in recent years. And not surprisingly, İbrahim Kalın played the leading role in this maneuver as well.

First, a contact was established with Egypt in the Libyan conflict area. With the intervention of the USA, the dialogue with Greece, which had been suspended for years, resumed. After Azerbaijan (with the support of Turkey) reclaimed its lands from Armenia, relations were established with Armenia through Russian President Vladimir Putin. Then, the United Arab Emirates and Israel, among the countries that Erdogan saw behind July 15 followed as well. Following Erdogan’s call through the Turkish Jewish Community, it was announced that Israeli President Yitzhak Herzog would come to Turkey. Finally, improved relations with Iraq helped fight the PKK.

But will devaluing the price of the precious loneliness bring foreign investment or recover the economy? That’s the problem.

Would Israel’s Periphery Doctrine work without reform?

Some leaked information from Beştepe shows that Erdoğan wants to create an area of friendship and security around Turkey. This is quite similar to the “Alliance of Periphery Doctrine” developed by Israel’s founding leader, David ben Gurion, in the 1950s. It was an influential doctrine for Israel, but its purpose was not to fix the economy but to ensure physical security.

The reason why foreign investment does not come to Turkey is not that Turkey has physical security or because it is a weak country in military and economic terms. Instead, the unpredictability and lack of reliability are brought about by the daily changing financial decisions, the highly politicized judiciary, the bidding laws that have made Turkey the world leader in nepotism, and the dysfunctional Parliament. On top of all this, an “unusual” economic-political view increased distrust among investors.

Ömer Koç talks about “reducing the country risk”. Of course, a non-combatant foreign policy would be beneficial in reducing Turkey’s investment risk. It is profitable to turn from any mistake, but the most important thing is to approach the economy with a new perspective.

Can Erdogan go for structural reforms?

When the AKP came to power in 2002, Bülent Ecevit, who dragged the country into the heaviest financial crisis up to that time in 2001, followed the exact recipe Kemal Derviş had dictated by the coalition government (his partner was MHP leader Devlet Bahçeli). That program was applied for a while under the administration of Prime Minister Erdogan and his Treasury Minister at the time, Ali Babacan after the IMF agreement was ended at the end of 2006. At the same time, EU Harmonization reforms were carried out in cooperation with the AKP-CHP, inflation was reduced, the Turkish lira, which had six zeros, gained value, and employment and growth increased. This is the period Ömer Koç is talking about.

Crises become more frequent as necessary reforms for the country’s economy, judiciary, and political structure are delayed.