Erdoğan’s economic gamble: Will tycoons feel the pinch too?

Turkish Vice President Cevdet Yılmaz unveiled the Medium Term Program (MTP), outlining Ankara’s economic roadmap for the next three years. The MTP marks a crucial juncture for both the country’s economic recovery efforts and the political future of both President Tayyip Erdoğan and Erdoğan’s Justice and Development Party (AKP) government.

While numerous questions arise, the central issue is clear:

“Will the AKP’s approach, which has heavily impacted millions of workers, retirees, and unemployed citizens, now extend to the pro-government business groups that have long been their allies?”

If so, it suggests a more equitable distribution of the economic burden, though the fairness of this distribution remains debatable. If not, the promised economic recovery becomes increasingly elusive.

Erdoğan is acutely aware that as long as the public bears the brunt of the economic crisis, his government’s position will be precarious in the upcoming presidential and parliamentary elections.

How do we know he’s aware? We can tell from yesterday’s MTP presentation.

Erdoğan’s strategic moves

At the MTP presentation, Erdoğan insisted on the presence of all economy-related ministers, not just Vice President Cevdet Yılmaz and Treasury and Finance Minister Mehmet Şimşek, including ministers from Agriculture to Energy.

This move sends a clear message: “Stop scapegoating Şimşek; everyone will be held accountable for failure.”

It’s also significant that Yılmaz, not Şimşek, led the MTP announcement. This shows a higher level of government ownership of the program.

Secondly, he publicly endorced the program. Just after the announcement, the president swiftly announced his full support for the MTP on his X (formerly Twitter) account, later reinforced through official presidential channels.

This endorcement appears aimed at two key groups:

1. AKP insiders: Erdoğan sees that the recent rumors about Şimşek’s resignation largely eminates from the inner party circles.
2. Pro-government business groups: The term “pro-government” (yandaş) may bother Erdoğan, but these groups are a key audience. Many are upset by Şimşek’s proposed austerity measures and tax reforms.

The pro-government business circles’ unease

Şimşek’s proposed reforms, including, “pay more if you earn more” tax approach, crackdowns on the informal economy and revisions to tax exemptions, threaten to reduce the substantial profits that some businesses have enjoyed for two decades.

Many are resistant to altering the status quo that has been mutually beneficial for so long.

Laborers, civil workers and retirees have no chance to avoid taxes: it is deducted from their salaries. People are already bear a heavy tax burden through indirect taxes, which is an injustice in itself.

Just like the previous governments, ruling the country for 22 years, AKP government has the power over workers and retirees. But will this power extend to pro-government businesses?

Will Erdoğan act on his strong words of support for the MTP? Can he make his ministers follow through?

For example, can the government reclaim tax exemptions given out generously over the years. Some may have been necessary but what about others which served pro-government business interests?

Can the public procurement law, which has been weakened by exceptions for numerous tenders tailored to certain groups, be fixed and properly implemented?

Why can’t the economic targets be met?

The economic targets keep changing. With the new MTP, the government increases the inflation forecast from 38 percent to 41,5 for 2024, while decreasing the growth forecast from 4 to 3,5 for 2024.

So why is the government constantly forced to change its targets? It is because they cannot implement their own program. Pro-government businesses and their affiliates within the AKP are obstructing it.

There’s a trust issue with the program. That’s why Erdoğan must keep reassuring everyone that it won’t change.

The AKP government knows judicial reform is crucial for attracting foreign investment. Yet they cannot implement it. Even the ninth judicial package is on hold due to demands from their alliance partner Nationalist Movement Party (MHP) which raise public questions like “another amnesty?”. This creates distrust in the judiciary.

The government keeps paying pro-government companies for infrastructure projects. These projects under Public-Private Partnerships often fail to meet targets. Meanwhile citizens struggle with daily expenses.

The Public Savings Circular affects small things like school tea rooms and cleaning services. But it doesn’t touch the lavish offices of politicians and top bureaucrats. Citizens notice this disparity.

Unanswered questions in the MTP

The biggest unanswered question is “How?”

• The MTP says employment will increase. But how?
• It promises more economic growth. But how?
• It talks about public sector savings and tax justice. But how will it be achieved in the next three years when it couldn’t be achieved in the last two years? That’s not there.

The title of economist Fatih Özatay’s commentary on the MTP covering the years 2025-2027 actually told a lot: “Isn’t it nice? We expect miracles just by setting targets.”

One more critical question

There’s one more question. This is the main question millions are waiting for an answer to:

How will 2025 salaries be set? Will they reflect the high inflation of 2024 or will they be based on the government’s (likely lower) inflation forecast for 2025? Even the IMF warns about this, saying, “You need to do it, but don’t bee too harsh.”

All these questions point to one central issue: Can President Erdoğan, like the citizens, make pro-government business circles share the burden of economic recovery? Can he turn his recent strong words into action? If he can, iw till benefit both the citizens and himself.