Falling, falling, falling

Storm clouds gather

Foreign policy has already been affected by the nosediving lira, but, argues, Esen Uslu, there is also the distinct possibility of mass protests over prices and wages

President Recep Tayyip Erdoğan has always liked to point out that his economic policies are based on the letter and spirit of Islam. He has claimed time and again that rising interest rates is the cause, while inflation is its result. This rhetoric used to be served as a side-salad to the ‘borrow and spend’ main course in his kitchen of economic policies. Now the changed circumstances have rendered it to be the only grub available to dish out.

In the ‘quantitative easing’ period, when great sums of money were pushed into the international economy to avoid collapse, a few countries, including Turkey, became awash with ‘hot money’: that is, easily obtainable short-term credits. Borrowing heavily and investing in major infrastructure projects buoyed the economy and created a sense of never-ending growth.

Underlying problems were swept under the carpet. The quality of higher education has not improved; the behemoth of inefficient bureaucracy servants steadily expanded; the military-industrial complex grew uncontrollably under the cover provided by the ‘war against terror’. Meanwhile, Erdoğan’s chosen supporters gorged themselves on cushy public contracts and shady deals.

Now the merry-go-round has stopped - not only because of a changing international economic climate, but because of foreign policy kickback. Anti-imperialist rhetoric, albeit with a soft-Islamist tinge, attempts to balance off America against Russia, while maintaining bully-boy tactics in regional conflicts, effectively constituted Erdoğan’s foreign policy. But inevitably this package led to isolation and the current dire economic consequences.

Limited options

Over the last year Erdoğan’s son-in-law and former finance minister, Berat Albayrak, together with the team he placed at the helm of the Central Bank, attempted to keep interest rates low and maintain the value of the Turkish lira by selling $128 billion of reserves. A policy which failed dismally.

Despite a change of personnel, the low interest rate policy is still being promoted, but now there is no attempt to maintain the value of the lira - hence the nosediving Turkish currency. The bets this time are on bringing in lots of ‘Islamic finance’. That, of course, also requires a new alignment, when it comes to foreign policy. Erdoğan was an ardent supporter of the Muslim Brotherhood in Egypt and maintained that support even after the military coup - much to the dismay of other Arab countries.

Turkey quickly took the side of Qatar in its regional conflict and provided troops to protect the Qatari regime against the United Arab Emirates. The murder of the dissident journalist, Jamal Khashoggi, in the Saudi embassy in Istanbul was another element in the cooling of relations with wealthy Gulf countries.

But now Erdoğan has to put bravado aside and, licking his wounds, has attempted to improve Turkey’s relationship with the UAE. Under the watchful eye and prompting of the US, which does not want to make Iran the only beneficiary of all this, a temporary reprieve was provided. At a recent high-level meeting the UAE promised to provide credit to Turkey to the tune of $100 billion. Now Erdoğan touts that to woo those in his party who believe his economic policies are wavering at best, or totally confused at worst, to supporting him for the foreseeable future: that is, in the next elections.

Thanks to the lower value of the lira, manufacturing costs have been marginally reduced in terms of export markets. Erdoğan hopes to maintain the growth that followed the ending of most Covid restrictions through a new export drive, and believes he will be able to keep the Turkish working class in check during the coming bitter months.

But suddenly a new element has been added to his rhetoric on economic policies. His accustomed style of creating shadow opponents, and firing verbal salvoes against ghost targets, has enabled him to deliver colourful speeches to his domestic audience without shaking or stirring anybody abroad. The anti-American and ‘anti-imperialist’ rhetoric has now been embellished with the need to win the “economic liberation war”.

The president has also enrolled the army top brass to support this new rhetoric. The National Security Council - that is, the body formed by the previous ruling junta that brought top generals and top ministers together and provided levers to the armed forces to keep the civilian government in check - met on November 25. The bland press releases of the NSC usually reiterate all the well-known positions on the usual subjects, such as the dirty war in Kurdistan, the occupation of parts of Syria and Iraq, the disputes with Greece, and the Caucasus conflict between Armenia and Azerbaijan.

However, this time the press release contained a surprise. In its ‘official speak’ it stated that the NSC had

evaluated the challenges and threats encountered, and that may be encountered, in the process of implementing economic policies focused on investment, production, employment and export in line with the targets utilising the durable infrastructure that has been built to date, and forcefully stressed the resolve to reach the centenary of the republic by attaining a robust economy and strength in all other fields.

Now Erdoğan’s “economic liberation war” has become a priority for the NSC. It was only the Kurdish issue that preceded it in the eight points mentioned in the press release. All this is a clear indication that at present Erdoğan enjoys the support of the armed forces, and they are ready to keep popular opposition in check if need be.

Working class

As the lira rapidly loses value, the price of goods ordinary folk buy every day has skyrocketed. The rosy projections relating to price rises and the general inflation rate provided by an inept statistical department have been discredited. But the reality of inflation is not only about prices: it is about wages too, and the annual date to readjust the compulsory minimum wage has arrived.

The previous proposal from tame unions, which was deemed unacceptable on the government and employers’ side just a few weeks ago, is now too low to even merit consideration. In Turkey more than half of those employed are paid only the minimum wage, so setting its level is a serious matter. Considering that the unemployed do not enjoy the benefits of a social security system or health insurance, and any substantial rise in the minimum wage could push many into more precarious employment, the tax base would be in danger of reducing drastically.

The effects of an unbearable tax burden have been seen during the last year. Some sales taxes on essential commodities, such as fuel, were lowered, as purchasing power shrunk. Tax concessions were granted to the automotive sector, which is one of the driving forces of the economy. However, such selected actions inevitably disrupt business. Buying early and stocking goods as a measure to protect against inflation has been common, but, while this may have stimulated growth temporarily, this could well ignite a new crisis in a few months time.

So Erdoğan, speaking to a few selected journalists asking approved questions in a lengthy TV interview on November 30, declared that a new line of credit would be available to medium and small enterprises. He stressed that output and employment would rise, and everything would be fine once again. The consequence of such credit in a hyperinflationary period is to encourage the privileged few to switch from the lira and invest in foreign currencies. In the end they hope to make more money by selling their foreign currency holdings than investing them in enterprises.

As a people living under hyperinflation over long years, for us the nosediving Turkish lira and the ensuing economic hardship is business as usual. Will the working class be cowed by the threat of war and brutal oppression? Some have started to bang spoons on pans every night, but will the masses join in?

The omens coming from the left are not promising at a time when the loyal opposition parties are keen to get the votes of the disgruntled, but do not want to be seen cooperating with the Kurds. The Peoples’ Democratic Party (HDP) has been trying to develop a joint position with other left parties and groups, hoping to bring a day of reckoning to the loyal opposition. However, the HDP’s overtures have been met with a kick in the teeth. The Left Party, which is the rump of the ÖDP (Freedom and Solidarity Party), and the TKP (the remains of the former Socialist Power Party, which assumed the mantle of communism), and the EMEP (Labour Party) have all stated that they were unhappy with what Selahattin Demirtaş, the imprisoned former leader of the HDP, had proposed. Those three parties now believe that a ‘democracy front’ is possible without the Kurds - that despite opinion polls showing that the HDP could easily get 15% of the vote in the next election.

Many are hoping that the left’s timidity will be overcome by a massive wave of popular protests over prices and wages.