President Recep Tayyip Erdoğan’s Islamist ambitions are taking a major toll on the Turkish economy. As per recent reports, a total of 8 billion Dollars have been withdrawn by overseas investors from the East Mediterranean country since January. Erdoğan is fighting wars on several fronts- he has locked Greece in the East Mediterranean, taken on France in Libya and has also antagonised the entire Christian world with his Hagia Sophia move.
Erdoğan’s extremely volatile and impulsive character that often leads to confrontations and conflicts is pushing away foreign investors from the country. Foreign investors are pulling out of Turkey as no one wants to stay in a country that is vulnerable to wars and conflicts.
The ruling Justice and Development Party (AKP) has been in power in Turkey for the last 18 years. In the initial years, AKP was able to draw in foreign investments at a pace of 35 billion US dollars per year by capitalising upon an economic recovery program with IMF sponsorship that was launched by the AKP’s predecessor.
Turkey has been described as an emerging-economy country, and according to the World Bank, “Turkey’s economic and social development performance since 2000 has been impressive, leading to increased employment and incomes and making Turkey an upper-middle-income country.”
But things have started going downhill with Erdoğan assuming sweeping powers by introducing a “one-man” executive system. The World Bank also stated, “However, in the past few years, growing economic vulnerabilities and a more challenging external environment have threatened to undermine those achievements.”
The international institution further stated, “There are also significant external headwinds due to ongoing geopolitical tensions in the subregion.”
According to Turkey’s Central Bank statistics, foreign investment in the Istanbul Stock Exchange has decreased sharply from 32.3 billion US dollars to 24.4 billion US dollars this year. Only as recently as 2013, the figure stood at a mammoth 82 billion US dollars. For the first time in the last 16 years, less than 50 per cent of the stocks are owned by foreign investors.
For the past two decades foreign investors made Turkey rich and as they flee out of the Islamist hotbed, the Turkish economy has also gone into a tailspin. Turkey is now staring into a major currency crisis, even as inflation is soaring unprecedentedly.
Turkey’s lira has slipped to its weakest level since May, when the Turkish currency had hit a record low. At the same time, the Islamist country recorded an inflation rate of 12.6 per cent, going beyond the expectations of economists. Analysts believe there are no signs of a turnaround with rapidly shrinking foreign reserves, inflation and currency devaluation.
Can Selcuki, Managing Director of Istanbul Economics Research also told CNBC that the lira is still “overvalued” which means that the Turkish economy is in for still more shocks. Selcuki said that inflation is at the highest level since August 2019 and has been rising steadily from 8.6 per cent last year. Now, the Coronavirus Pandemic is, of course, further debilitating the Turkish economy.
Selucki added, “Add to this, the increasing foreign-denominated debt, it seems like the lira will depreciate again in the coming months if fiscal policy doesn’t intervene.”
The all-powerful Turkish President doesn’t seem bothered by the economic crisis that his country in. He refuses to go by what the experts say. It is well-settled amongst economists that interest rates must be raised in order to restrict inflation. But Erdoğan believes that higher interest rates further push inflation. It is expected that Erdoğan will again cut interest rates which would make borrowing easier and create greater liquidity resulting in still higher inflation.
The investor sentiment is against Turkey in terms of geopolitical circumstances and financial prudence. You never know what Turkey might be upto.
Erdoğan has been bullying its NATO allies like Turkey, France and Italy. Earlier this year, Turkish troops were also engaged in hostilities with Russians in Syria. Currently, the Turkish President has been trying to carry maritime research activities in the Greek Continental Shelf, apart from violating an international arms embargo in Libya. He also bullies the EU on a regular basis with the threat of sending in refugees. The Hagia Sophia move has further alienated the West, which had been pouring in money into Turkey all this while.
As far as India is concerned, Turkey has taken a pro-Pakistan line on the Kashmir issue and this has further alienated New Delhi from Ankara. Erdoğan has made far too many enemies across the world. Sanctions could be around the corner and investors withdrawing out of Turkey can be seen as an omen of a major economic disaster.
Erdoğan’s Islamist fundamentalism first destroyed a liberal, secular Turkey. And now his expansionism and endless wars are ruining the Turkish economy.