Erdogan’s Big Poker Game
Why he’s never going to fold
Roman Abramovich, a Russian oligarch of Jewish origin, famed for being the owner of the football club Chelsea, at the peak of the ongoing Russian- Ukrainian conflict decided to dock his million-dollar yacht in Turkey. Now, why on earth he would choose Turkey of all places is an easy guess.
As a country that sits at the cusp between Europe and the Middle East, Turkey has a rich history of both cultures intertwined throughout its history that winds down the tracks of footprints left by the apostles mentioned centuries ago in the Bible.
Recep Tayyip Erdoğan, the president of Turkey runs a very tight ship. When he first took control of the country two decades ago in 2003, Turkey was still considered a secular state. Over time, he gradually replaced all the generals in the armed forces with loyalists, thereby cementing his power. Brick by brick, he began to dismantle the secular nature of Turkey while keeping its economic prospects still alive.
Then the pandemic came in 2020 and threw everything out of gear.
In order to survive, governments the world over pulled out their checkbooks and started writing stimulus checks for their helpless populations, thereby laying the groundwork for the inflation we see now. Turkey was in a similar situation. However, this is where Erdogan broke away from the pack.
Once inflation began to climb, he insisted that his Central Bank governor reduce rates to spur growth. When his governor (an economist) refused to comply, Erdogan replaced him with a crony (Şahap Kavcıoğlu), who then reduced interest rates further and sent inflation soaring.
Ask any economist and they will flag this as a sovereign crisis in the making.
Erdogan’s logic was straightforward (to himself): To spur economic growth one needs to cut interest rates. Although the brightest economists in Turkey would tell him that one needs to factor in all the other macroeconomic indicators at the national level, Erdogan rubbishes all this as foreign conspiracies to dethrone him and destabilize Turkey.
A survey of Turkey’s GDP growth could paint an incorrect picture of the state the country is in. While GDP has expanded by 7.6% (admirably), this comes at the cost of runaway inflation (seen below), signaling stagflation.
The Turkish lira has almost collapsed (lost 20% against the U.S. dollar this year), foreigners are bolting out of the barn door with their money, and prices of everyday items are sky-high. This, in turn, has resulted in a few local elections held in 2019 not going his party’s way.
Elsewhere, in September this year, Liz Truss waltzed into 10 Downing Street with her own mandate to re-introduce Reaganism into an economy as wobbly as Turkey’s. All hell broke loose as bond traders began dumping British government bonds and yields spiked. Within a whisker, Liz had disappeared into the night taking her finance minister along with her.
However, with more fiscal profligacy, Erdogan still survives!!
Now, enter Abramovich and his ilk, to play their part. Runaway Russian tourists fleeing a war they never wanted also include millionaires who want to park their funds somewhere away from the prying eyes of Western intelligence. In fact, there is indeed data to show that Russian money (and lots of it) has been pouring into Turkey since the onset of the Russia-Ukraine war
This could be what is still keeping the Turkish lira afloat — but for how long?
Western allies have somehow chosen to turn a blind eye to this due to the precarious position Turkey is in with respect to its geographic location and its ties to both Russia and the US.
While Turkey admits Russians into her borders as tourists, she also supplies Ukraine with drones - clearly a case of running with the hare and hunting with the hounds, but how long can they play both sides and still win!!
Turkey goes to the polls in 2023, it remains to be seen whether she suffers the same fate as Liz Truss did when she played with numbers she did not understand. The last time an uprising happened in Turkey, it was quelled successfully with the help of the military.
The game is still on, and Erdogan is clearly not folding anytime soon!!
