Rise and fall of the AKP
The Erdogan era featured an economic boom and landslide electoral victories. The economic and financial crisis opens up new scenarios for Turkey’s political future
- Tuesday, 29 October 2019
The joke 'It's the economy, stupid!' which underscored Bill Clinton's 1992 electoral campaign seems to have been the main inspiration of the AKP era, within which one can single out at least two stages: the first being the period between victorious elections of 2002 and 2011, with 2007 viewed as a major turning point when the debt with the IMF was finally expunged; and then from 2011 onwards, amid instances of unrest such as the Gezi Park demonstrations of 2013, the failed coup of 2016 and the defeat in the administrative elections in Istanbul and Ankara in 2019. These are two stages in which continuity, both on a political and economic front, is only apparent.
During the first stage, in the wake of the reforms already begun as a reaction to the 2001 economic crisis under the leadership of Kermal Dervis, the AKP offered its electorate and then implemented a neo-liberal programme which, thanks in part to redistribution policies, marked a clear break with the economic policies of previous governments which had always succumbed to cyclical growth followed by an inevitable economic crisis. Up to 2011, the AKP also exploited international dynamics to bolster its economic stability, by taking advantage of its improved relations with the EU to reduce its deficit/GDP ratio to 2% and rein in its public debt down to 61% in 2006. In the year when its candidacy for European membership was accepted (2005), the AKP government also introduced the new Turkish lira, with a move that confirmed the general optimism surrounding the national and global economies and promoted the arrival of foreign capital, which between 2003 and 2007 increased from 1.7 billion to 20 billion, partly encouraged by the high rates of interest. The low level of inflation over this period, besides guaranteeing increased wealth for the business and entrepreneurial classes, also bolstered the growth – if not the actual birth – of a Turkish middle class.
The reduction of the inequality gap had a considerable impact, especially on the more peripheral parts of the country, which from one election to the next have stood out as the true electoral stronghold of the AKP, and to which the party has guaranteed sizeable increases in public spending in areas such as health, education and public services, besides informal redistribution mechanisms, which despite being strongly criticized by the opposition parties, nevertheless add one more arrow to the Sultan's bow. Thanks to an unquestionable political charisma, the then Prime Minister Recep Tayyip Erdogan managed to hold on to his popular support even during the 2008-2009 crisis. In truth, though the country first experienced negative growth in 2009, the crisis was very different to the ones it had witnessed up to then. In 2001 the crisis was the result of bad economic management due to the incompetence of the national policy decision makers. This led to an exponential rise in both the deficit and inflation and the need to fall back on the support of outside institutions such as the IMF to restore the country's financial equilibrium. However, when the crisis of 2008-2009 came along the country's tax situation was kept under control, inflation never reached double figures and the banking system, unlike those in many European countries, turned out to be extremely sound. Therefore the AKP political class had an easy time underlining how the crisis was due to external factors and that the country's growth was already restored by 2010, when Turkey stood second in the growth rankings for countries within the OECD area.
From 2011 onwards however, the situation changed radically. This was mainly due to international developments, in which the emerging BRICS economies and the development driven strategic state capitalism model, alongside a growing authoritarianism, provided indications that the traditional domination of the West could be overturned. In this new context, Turkey shifted its allegiance towards the Russian-Chinese axis represented by the Shanghai Cooperation, which strengthened the bonds with its Islamic identity while the redistribution policies were gradually replaced by a new state involvement in economic activities. By setting up of a new sovereign fund (the Turkiye Varlik Fonu) the state began to set up partnerships with private entrepreneurs to undertake major investment in infrastructural civil works and real estate refurbishing, particularly extensive in the larger cities. This maintained the economic dynamism as well as the focus on growth, though less care was given to the sustainability of the measures adopted to fund these operations and to redistribution.
The marriage with so called competitive authoritarianism also led to a de-Europeanisation of the country which led to a shift in both its foreign policy, much more involved in regional conflicts than before, and changes to internal institutional dynamics, with economic decision making now being passed over to the Ministry for the Economy, cutting out the Central Bank. Reducing the prerogatives of the Central Bank did however damage credibility on international markets, which reacted with scepticism when confronted with the low interest rate policies promoted by the government. While these policies were functional in bolstering the construction sector and favouring real estate purchases, in a global financial and economic context they ended up weakening the lira against the dollar and the other strong currencies, putting it at the mercy of speculative attacks which led to the currency crisis which the country is currently having to endure. A solution to this crisis has been sought by increasing public spending which has however led to an exponential rise in inflation, which once again hit double figures in 2015.
Following the approval of the presidential reform (2017), the feared risk that a change of government might pose to both political and economic stability enabled the AKP to secure another victory in the early elections called in 2018. Many viewed the choice of early elections as an attempt to avoid an excessive fluctuation in consensus and buy time to achieve greater economic solidity, a stated priority of the Minister for the Economy, Erdogan's son-in-law, Berat Albayrak.
However, on an international level, the financial markets were none too appreciative of both the appointment of Albayrak and the government's failed attempts to reduce inflation, and an even greater impact was had by Trump administration's introduction of sanctions as a reaction to the detention measures affecting American citizens enacted after the failed coup. On an internal level, the first reaction to the difficulties encountered in solving the economic crisis were evident in the results of the 2019 administrative elections, which, despite the rerun of elections in Istanbul, saw the AKP heavily defeated in both Ankara and the country's main economic centre, that very same Istanbul.
With new sanctions, even imposed by Europe, now on the horizon as a response to Turkey securing military supplies from Russia and engaging in drilling operations off the coast of Cyprus and the Central Bank's independence increasingly threatened by the controlling influence of the political leadership, as proven by the replacement of Murat Cetinkaya with Murat Uysal as governor, the economic situation appears to be somewhat controversial. The World Bank foresees a GDP growth for 2021 of around 4.2% (compared to the 2.5% reported for 2018), but, in conjunction with the IMF, it has warned the Turkish authorities of the need to introduce corrective measures to ensure growth continues to be sustainable and does not instead increase the country's financial frailties.
While awaiting the new elections scheduled for 2023, the AKP may therefore work on a new programme of reforms designed to secure that economic stability that may lead to further electoral success. These same years may however be sufficient for the opposition to capitalise on its recent victories and come up with a believable alternative programme, therefore bringing an end to the AKP's domination by exploiting that same economic variable that has sanctioned the latter's success.
This article is also published in the September/October issue of eastwest.