Wednesday, 19 January 2022

The Collapsing Lira: Is it a Threat to the Turkish Regime?

Published in Articles

By Sada Garibova

January 19, 2022

While economic experts predict that Turkey’s new economic model will inevitably send the Turkish economy into a deep recession and impoverish its population, the regime is undeterred, and its commitment to new, unorthodox economic and monetary policies is unwavering. Given the historical pattern, a popular backlash is unlikely, and it would in any case not be allowed to imperil the survival of the regime. President Recep Tayyip Erdoğan is fully backed by the nationalist cadres of the state bureaucracy. The collapse of the lira may ultimately be more likely to pave the way for a more entrenched, authoritarian regime than to boost the prospects of the opposition.


Bahçeli Erdogan 

 BACKGROUND: In mid-November 2021, Turkey’s Central Bank lowered interest rates from 16 percent to 15 percent, the third cut in a year, sending the lira into a downward spiral. Although urgent measures introduced on December 20, 2021 helped the lira to partially recover, as of December 27, the Turkish currency had depreciated by nearly 17 percent since the interest rate cut in November 2021. Overall, the lira has lost more than 55 percent of its value since the beginning of 2021. 

President Recep Tayyip Erdoğan has claimed that interest rates are "an evil that make the rich richer and the poor poorer," and has declared an “economic war of independence.” The president holds that lower interest rates and cheaper currency will boost the economy and increase exports. Erdoğan calls this a new economic model for Turkey, but economists think otherwise and argue that such policies threaten to send the Turkish economy into a deep recession and impoverish its population.  However, the state bureaucracy stands united behind the unorthodox monetary policies of the president. Erdoğan was quickly supported by Devlet Bahçeli, the chairman of the Nationalist Movement Party (MHP) that is the ally of Erdogan’s Justice and Development Party (AKP). Bahçeli, who is the de facto co-chair of the Turkish state, fully endorsed the monetary policy, saying that "Turkey needs to rid itself of the hunchback of interest rates”. 

The new economic policies align with the ambitions of the nationalist state cadres to make Turkey as independent as possible of the West, by discouraging imports and encouraging export-led growth. Not surprisingly, Bahçeli, rather than defending the new policy in purely economic terms, securitized it, presenting it as part of the quest for strengthened national security. 

The population of Turkey, though, is reeling as the annual inflation has surged above 21 percent in 2021 and as consumer prices are rising almost daily. The minimum wage, which stood at US$ 487 in 2017, has dropped to US$ 367 despite the 50 percent raise that Erdoğan announced on December 16. On December 12 thousands marched in Istanbul, protesting the price hikes, heeding the calls of the trade unions that denounce the rise of poverty. 

For years, Erdoğan’s rule relied on the continued, robust performance of the Turkish economy; that economic crises sap popular support for governments and in most cases have lead to their downfall is well known. Crises aggravate economic grievances, increasing the probability of a government’s fall under the pressure from protesting masses or after suffering defeat at the ballot box. Indeed, Erdoğan’s AKP rose to power, winning the election in 2002, largely because the voters wanted to punish the parties of the outgoing coalition government for the 2001 economic crisis, when consumer prices skyrocketed and annual hyperinflation rose to 54 percent. And support for the ruling AKP itself has declined since the Turkish economy began to stumble. After Erdoğan’s new economic-monetary policies generated the first wave of high inflation in 2018 and consumer price index rose by 16 percent, the AKP failed to secure a parliamentary majority in the 2018 election, even though Erdoğan was re-elected with 52 percent of the popular vote. The deteriorating economy was also a reason behind the setback for the AKP in the municipal elections in 2019, when the party notably lost Istanbul and the capital Ankara. Arguably, high inflation and the collapse of the currency will hurt Erdoğan and his ruling coalition even more electorally, since the effects of the economic crisis will be particularly felt among the poorer strata of the population that form the core base of the AKP and of its partner MHP. Yet it should not necessarily be taken for granted that the opposition will prevail.

IMPLICATIONS: Despite political risks, the Turkish government is undeterred. “This is a risk that we needed to take,” said Erdoğan. The commitment to the unorthodox economic policies is unwavering. This begs an explanation.  One reason is that there is still plenty of time left until the presidential and parliamentary elections, which are scheduled for June 18, 2023. Both Erdoğan and Bahçeli have ruled out a snap election, which the opposition is calling for. The two leaders might truly believe that decreasing interest rates will eventually fuel the growth of Turkey’s export-oriented economy, and that economic conditions will have sufficiently improved by the time of the 2023 elections. 

However, there is a risk that such expectations might prove overly optimistic; the possibility that inflation generates economic grievances so unforgiving that there will be a surge of popular discontent well ahead of the elections cannot be dismissed out of hand. Turkey is vulnerable for the materialization of what is known in sociology as “J-curve” effect: this offers that popular revolutions and political unrest occur during a brief period of sharp economic decline after a prolonged period of growth.  Currently, such conditions are present in Turkey: 15 years of growth (the country’s GDP grew on average by 5.9 percent per year between 2002 and 2017) was followed, first by economic stagnation, and recently by sharp decline. 

On the other hand, there is no revolutionary precedent in Turkey’s history, of mass protests precipitating the fall of a government. The fear of the oppression of the state is deeply ingrained in the popular psychology. The 2013 Gezi protests in Istanbul was a rare exception of an anti-government popular revolt, yet the AKP government survived, even though its international image was irreparably dented. Since then, the Turkish government has significantly propped up its coercive apparatus, particularly after the 2016 coup attempt. With an enhanced coercive apparatus at its disposal, the regime has the resources to take on any protest movement, and its record clearly demonstrates that it will have no compunction in deploying these resources if need be. So, Erdoğan and Bahçeli might well feel confident that the regime is secure, and that a popular backlash against the economic policies, were it to materialize, can be successfully dealt with. 

While a popular backlash is unlikely given the historical pattern in Turkey, and would in any case not be allowed to imperil the survival of the regime, the Turkish regime could in theory face the risk of elite defections. Political scientists almost unanimously agree that elite defection in fact poses a more serious threat when economic conditions worsen than mass mobilization at the bottom. Worsening economic conditions curb a government’s rent distribution capabilities and hence make it vulnerable to popular discontent, which in turn incites elites to recalculate the costs and benefits of staying on board or abandoning a regime. Indeed, it is ruptures among the state elite that have precipitated the major shifts in Turkish politics: thus, it was the split among the state elite in the mid-1940s that brought about the end of the one-party regime.

In recent years, Erdoğan has been abandoned by former high ranking AKP officials – with former prime minister and foreign minister Ahmet Davutoğlu and former minister of economy Ali Babacan setting up new parties. Meanwhile, there are tensions among the old AKP guard and the nationalist cadres of the state bureaucracy with whom Erdoğan has formed an alliance. In December 2020, the former speaker of the parliament (and a close confidant of Erdoğan) Bülent Arınç was forced to resign from the presidential advisory board after his criticism of the nationalist policies of the government and calls for political reform were slammed by the MHP leader Devlet Bahçeli who demanded his ouster. These dissensions among the elite have recently resurfaced. 

In December 2021, Interior Minister Süleyman Soylu launched a probe over alleged terror links against the opposition-led Istanbul Municipality. Allegedly, hundreds of employees at the municipality are members of organizations that the government lists as terrorist groups. The move was sharply criticized by Bülent Arınç while other, leading AKP officials displayed their discontent with it. On December 31, Bahçeli retorted that Istanbul mayor Ekrem Imamoğlu, who does not hide his ambition to become president, should not be allowed to remain at his post “for one second” if the accusations are proven to be true. While there is unhappiness among the AKP old guard over the nationalist-authoritarian course of the regime, the state remains in the firm grip of MHP cadres that are determined not to allow any deviances from the policies in place.

CONCLUSIONS:  While economic experts predict that Turkey’s new economic model will send the Turkish economy into a deep recession and impoverish its population, the regime   is undeterred, and its commitment to the new economic and monetary policies is unwavering. The religiously conservative and nationalist discourse of Erdoğan has proven to be an extremely effective tool of political legitimization. So far, being backed by the majority for non-economic reasons has made the Turkish government less vulnerable to the effects of economic travails. Even though the poorer masses will be hardest hit if the new economic model fails to deliver, they might still remain loyal to a regime with which they identify in cultural terms. 

The new economic model is sustained by the belief among the state elite that decreasing interest rates will eventually fuel the growth of Turkey’s export-oriented economy, and that economic conditions will have sufficiently improved by the time of the 2023 elections. In the case that these expectations prove to be unrealistic, with inflation generating so unforgiving economic grievances that there will be a surge of popular discontent, the regime is prepared to deal with it.

The collapse of the lira is ultimately more likely to pave the way for a more entrenched authoritarian regime than boost the prospects of the opposition. While the opposition seeks to capitalize on the worsening state of the economy, the regime is determined to prevent it from succeeding. 

Sada Garibova is an independent analyst specializing on Turkey and South Caucasus

Read 12021 times Last modified on Wednesday, 19 January 2022

Visit also





Joint Center Publications

Op-ed Halil Karaveli "The Rise and Rise of the Turkish Right", The New York Times, April 8, 2019

Analysis Halil Karaveli "The Myth of Erdogan's Power"Foreign Policy, August 29, 2018

Analysis Svante E. Cornell, A Road to Understanding in Syria? The U.S. and TurkeyThe American Interest, June 2018

Op-ed Halil Karaveli "Erdogan Wins Reelection"Foreign Affairs, June 25, 2018

Article Halil Karaveli "Will the Kurdish Question Secure Erdogan's Re-election?", Turkey Analyst, June 18, 2018

Research Article Svante E. Cornell "Erbakan, Kisakürek, and the Mainstreaming of Extremism in Turkey", Current Trends in Islamist Ideology, June 2018

Analysis Svante E. Cornell "The U.S. and Turkey: Past the Point of No Return?"The American Interest, February 1, 2018

Op-ed Svante E. Cornell "Erdogan's Turkey: the Role of a Little Known Islamic Poet", Breaking Defense, January 2, 2018

Research Article Halil Karaveli "Turkey's Authoritarian Legacy"Cairo Review of Global Affairs, January 2, 2018


The Turkey Analyst is a publication of the Central Asia-Caucasus Institute & Silk Road Studies Joint Center, designed to bring authoritative analysis and news on the rapidly developing domestic and foreign policy issues in Turkey. It includes topical analysis, as well as a summary of the Turkish media debate.


Sign up for upcoming events, latest news and articles from the CACI Analyst