Turkey: Dollars and Sultans

(To Gino Lanzara)
14/05/19

We speak of Turkey, certainly, but we ask you for an act of lay faith, to associate Giambattista Vico, his courses and historical appeals, his ages of of, The heroes, The men, the non-random and regulated sense of cycles.

Turkey is a country hard; first interpreter of an era divine and heir to imperial splendor and power, then experienced the Kemalist revolution, the next time of the heroes that, relegated to the religious aspect in the background, has exalted secularism and statism but without having to deal with both a deep-rooted centuries-old tradition, and with the consequences of its own politics, generating an inevitable rift between rural geographical areas and more areas progressed.

Ataturk, that is secularism, State, and above all the economy, which has always played a capital role in Turkish history: Cold War, adherence to the Truman Doctrine and to NATO, allowed about 1947 billions to flow between the 1970 and the 3 of dollars useful both to maintain the Alliance's second army in efficiency, and to facilitate the creation of the private sector of the economy, functional to the industrial development of the country.

Ismet Inonu, a member and successor of Ataturk, favored an economic liberalization in contrast with Kemalist statism and greater freedom of expression, which later became political freedom.

Here it is necessary to recall some key points: first, the birth of the Democratic Party, a subsidiary of the Republican People's Party, which immediately set about limiting state intervention in society, the economy and private enterprise; second, the President of the Republic Celal Bayar and the Prime Minister Adnan Menderes (photo, cover Time), architects of the so-called democratic decade, between 1950 and 1960 and, above all, not coming from the ranks of the Army.

New men? Yes, certainly in a reformist key to Kemalism, which was contrasted by a religious revival which, with the improvement of living conditions in the countryside, consolidated its grip on the masses.

A happy ending story? No. The import of raw materials, machinery and consumer goods exacerbated the balance of payments situation with foreign countries, to which was added a drought that brought agriculture to its knees; usual script: repression, censorship, return to the scene of the Army, which however took the defense of the old president Inonu.

In the 1960, with a devastating economic crisis and an increasingly authoritarian Democratic Party, the Armed Forces proclaimed themselves de facto custodians of the Kemalist heritage, and not saviors of the Homeland as in the rest of the MO, took control of Istanbul and Ankara by arresting the president Bayar and Prime Minister Menderes, then executed. The military, attracted by the suggestions Westerners allowed the development of a multi-party system, even if under protection, which however did not prevent executions and hundreds of trials.

The age of the had arrived men, who saw the troubled emergence of a new Turkey, crisscrossed by crises and constant problems, and with the entry into the scene of new elites, represented by Prime Minister Demirel, along with the political actors of all time. The economy over the years has remained the Achilles heel, linked to a pervasive state presence, and to a dependence on foreign countries for raw materials and oil. Alongside the structural limits, a demographic increase was added which pushed the agricultural population to move in large urban centers and abroad.

At the end of the years, 60 repeated the spectacle already seen: economic recession and instability brought the military back to the stage, with the imposition of a government conditioned by a memorandum dictated by the Armed Forces. The economic emergency continued to rage, compounded by the 1973 oil shock which worsened the dollar balance of payments.

1980: another military coup (photo) with the usual purges; late 80: new violent economic crisis, new political instability, and the emergence of the growing influence of an unofficial political Islam. State strikes, processes and purges, economic recessions: what will be the next cyclical Turkish historical appeal?

Dollars and Caliphates

In 2014 Erdoğan made clear the intention to renew the historical cycle divine, intending to rejoin ideally to that political subjectivity at the time interpreted by the Ottoman Sultanate, and where the term Caliph it takes on a decisive importance as the vicar of the Prophet to the spiritual guide of the Umma. However, especially in the economic field, the dynamics underlying markets and politics have no cure for ideologies and faiths, and regularly present the bill, whether it be heroes or less. The economic crisis that began to grip Ankara since last summer, despite presidential proposals, did not ease its hold, and was associated with the local elections last March, where Erdoğan's AKP succumbed to the National Alliance, formed by the Popular Republican Party (CHP) and the Good Party (IYI), Ankara, Istanbul, Smyrna, Antalya, Adana and Mersin, or strategically important centers from the socio-economic point of view.

Although at the national level the AKP has retained the majority of the votes (45%) and political primacy, the defeats remain significant and heavy, also and above all in light of the appeal presented by Binali Yildirim, and by the verdict of the Supreme Electoral Commission, which imposed the repetition of consultations in the city of Istanbul, a representative center of national political dynamics and patronage.

The elections gave vent to the malaise connected to the further worsening of the economy conditioned by inflation, currency devaluation and reduction of infrastructure investments, for which it does not seem possible to resort to the usual increase in public spending.

After a growth probably drogata which rested on unstable foundations, Turkey again fell into recession, with a decline in GDP in the last quarter of 2018% compared to the previous quarter, in turn concluded with a recessive decrease of 2,4 per cent, below of the goal of government growth. Even more worrying is the decline in private consumption, at the center of the government strategy that, over the past few years, has always favored public measures and loans at particularly advantageous conditions for private companies, families and the poorest social groups, at the base of its electorate ; the other significant figure is the per capita income, which returned below the threshold of ten thousand dollars. All these indicators were reflected on the lira, devalued by 1,6% during the 30 compared to the US dollar.

Even the friction between Erdoğan and the central bank is nothing new, given the clear desire to contain interest rates, and the attempt to condition the monetary policy of an institution whose decisions have proved to be the most discerning, succeeding in temporarily contain inflation thanks to the increase in rates and the contraction of the trade deficit; foreign funding also decreased (3,6%), with a huge flight of foreign capital of no less than 20 billion dollars in the second half of the year 2018.

Although the AKP supporters blame the crisis mainly on the US, the latest electoral results showed widespread discontent that resulted in a drop in consensus as already happened after the financial crisis of the 2009. Even without the effect of US tariffs, there are still many difficulties connected with the belief that Turkish societies are not able to repay their debts, even though Erdoğan had previously invoked both the divine judgment and the more prosaic change in currency local of all foreign currency circulating in the country. In short, the beginning of yet another perfect recessive storm, with rising inflation and unemployment, despite the exceptional powers attributed by the National Assembly to the president, and despite the economic outlook Turkish appeared after the less dramatic summer following the release of Pastor Brunson, the cause of the dispute with the US, after the political management of the Khashoggi murder, and subsequently the fall in oil prices with the temporary American exemption from the Iranian embargo . But the momentary deflation has gone through an economic contraction with the downturn in the construction sector, which has always been alongside Erdoğan, the creator of an expansive monetary policy capable of allowing low-cost borrowing to invest and refinance.

Electoral ballot boxes and financial defaults

Let's recap: Turkey is on the brink of a financial crisis, especially after the collapse of the 30% of the Lira and the rise in government bond and bond yields. Both the US economic sanctions against Turkish government officials and the economic policies of the executive intimidated the markets; dollar consolidation and rising interest rates made the weaker emerging markets difficult to survive.

Il Wall Street Journal has identified seven fundamental points of the Turkish crisis: the free fall of the Lira, the renewed increase in inflation due to the cost of imports, the surge in financial charges related to bond yields, the current account deficit due to the imbalance between import and export , the incidence of foreign debts that are difficult to settle due to currency weakness, the growth in bad debts due to the possible insolvency of debtors, the dependence on oil to be settled in dollars, a factor that has drained the Turkish foreign currency reserves; moreover, it cannot be excluded that a possible worsening of the economic-political crisis, with the fear of a further loss of consensus, could exacerbate the internal tensions of the AKP in anticipation of the succession struggle to Erdoğan, already struck by the unexpected outcome electoral in Istanbul, a place of high symbolic value and the economic and financial heart of the country.

The appeal presented by the AKP must therefore be examined in the light of the possibility of opening a new phase of political opposition and economic uncertainty from now until the expiration of 23 June; if it is true that Istanbul has assumed this capital importance, it is necessary to see what the price Erdoğan will be willing to pay, given the multiplicity of the variables and a final result that does not seem so obvious.

While Istanbul remains in suspense, Ankara is wondering if there is still a currency margin to defend the currency with an effective control by the Central Bank. Abn-Amro was already aware of the situation in early May, with the certification of a relatively low level of resources, and the absence of currency buffers such as swap1 sensitive to any unforeseen circumstances, such as any further friction with the US.

The Lira is however continuing to lose ground against the dollar despite the resources burned by the Central Bank, with a significant increase (28%) in the probability of economic-financial default, and with the ten-year government bonds attested to the high yield of the 20 %. At this time, Turkey is also the main European export basin but also the strongest weakness for the German economy, given the high levels of exposure and trade, a situation that penalizes the EU in cascade, due to the whose defense is not unreal presuppose an intervention by the ECB.

Time for men?

The decision taken by the Electoral Commission casts shadows on the independence of its work but, beyond this, proposes dynamics that, in some way, continue to be persistent. The problems are different: the imposing political forms in Turkey are not new, and it would be enough to verify the duration of the electoral spaces reserved for the AKP and the oppositions; furthermore, it remains to be ascertained which level of clash has reached the political competition within the majority party, governed and formed by a man who has effectively set aside Kemalian secularism to pursue the glories of an empire that, before its official end, showed obvious signs of abating.

The military, in this context, after the coup of 2016, are still i custodians of Ataturk's political legacy? To what extent? And, last but not least, what will be the European policy, so immobile and of little participation during these years, in the light of the upcoming elections? Taking it for granted that of are otherwise engaged, and that of heroes there really aren't any more, all that remains is men, in fact incapable of evidence of actual value.

1 The swap contracts fall into the category of derivatives, contracts that are based on other instruments and with which the counterparties decide to exchange sums of money.