By failing to address the core issues plaguing Turkey’s economy i.e unemployment, insufficient resource to pay external debts, AKP will find itself to on raging waves. Despite the fact that most see that as demise of AKP in coming political election, this won’t happen. On the contrary, President Erdogan will find his way to come out of this unprecedented challenge.
It is not a secret that Turkey’s economy has been fragile despite the fact that it has been advised how Turkish economy is strong. Even lately, Treasury & Finance Minister Albayrak stated that Turkey’s reserves are more than adequate. However, this does not seem to be reflecting the Central Bank reserve’s accurately.
Turkish Lira has lost its 15% value since January 2020. PMI index has fallen sharply to 33.4. It is the worst PMI index for the last 11 years. In the market, there has been an ongoing concern that the Central Bank of Turkey (TCMB) dissolves their reserves in order to prevent US Dollar value rise above the 7 Turkish Lira levels. The Reuters news agency reported that TCMB reserves have decreased to alarming levels.
Reuters also argued that the TCMB has been dissolving its foreign currency reserves through the swap method and through public banks since mid-April, so that the exchange rate does not exceed 7 levels.
Reuters claims that the Turkish State banks sold $32 billion in foreign currency this year, and this is equal to the total of interventions made in the market last year. Reuters claims that it is alarming for Turkish market.
IMF has projected that Turkish economy will shrink 5% during 2020 although most find it optimistic. As tourism dried, the unemployment rate will rise from 13.8% to around 20% during summer 2020.
President Erdogan sees IMF as threat to Turkey’s security. Therefore, it is unlikely that there will be a potential bailout. Moreover, the increase in interest will likely to create disappointment in nationalist and conservative community which AKP leans on to be in power. Therefore, AKP has options other than not much to lean on private companies and start imposing monetary control to maintain the solvency of Turkish Lira. At certain points, it is inevitable to see some businesses go bankruptcy since around $88 billion private sector short term debt beings alarming.
It is interesting how Putin and Erdogan have similar path before them. Both states are in economic problems and both leaders have similar limitations and options to follow. President Erdogan has to show great emphasis on nationalism to connect his leadership with public. Therefore, Ankara has limited options to act independently and aggressively to gain nationalist stature.
Syria and Libya would be those areas although Turkey would avoid any military operations due to fear of US sanctions or promoting greater conflict with Russia. In Libya, Saudi Arabia, UAE, Egypt and Russia seem to cooperate in order to balance Turkish backed forces gain. However, the Turkish backed forces starts gaining territory against Haftar forces. While all countries are dealing economic impacts of Covid-19, the pandemic negatively impacts those countries support to Haftar’s forces. Therefore, the gains in Libya would help President Erdogan to accumulate nationalist support around him.
Moreover, President Erdogan might choose escalating a controlled crisis against UAE and Saudi Arabia (after end of Ramadan) due to their support on Haftar forces. However, the effect would be limited since people would perceive as distracting from arising economic problems.
We project that US military would opt withdrawing from the region once the oil prices are remaining so low for coming decade. Thus, compels Turkey to protect its borders. Therefore, President Erdogan has certainly a good excuse to claim; national security.
However, what take our attention is that President Erdogan faces a future deepening uncertainty. As the economy goes worse, President Erdogan will see growing opposition narratives. Although there is a possibility of early elections during 2021, Geopolitic Compass does not consider that President Erdogan would take such risk without warranting enough support from public.
For that to happen, escalating national security issues in Libya and Syria should impose Turkey to take measures beyond its borders. Thus would increase the nationalist narratives by AKP which would accumulate the nationalist votes. If President Erdogan believes that the support is inspiring, then a snap shot might be considered. Otherwise, none of the opposition party elites seems to eager claiming administration change in a snap election genuinely.
