As Turkey slides into the grasp of the autocrat, we’ll see how good his grasp is when it comes to the fine points of managing his country. For example, the economy nearly crashed near the end of 2016, and now that the referendum passed, giving President Erdogan far more power, he has that sitting in his lap. Mustafa Sonmez reports in AL Monitor:
Yet there is also the other side of the growth-glowing coin, where new fragilities are emerging on top of existing ones. The unemployment rate, for instance, reached 12.6% in February. Inflation hit 11.7% in consumer prices and 15.3% in producer prices in May, emerging as one of the most serious problems in the short run. Tourism revenues, meanwhile, signal a decline even in comparison with 2016, which was already a crisis year.
The government’s lavish spending and various incentives to avert the crisis, including corporate tax discounts, premium supports and reduced VAT rates, will all mean budgetary strains in the long run that would upset public finances. Ultimately, the lower classes will end up paying the price.
There is also the question of what will happen at the Credit Guarantee Fund, which has sponsored the issuance of Treasury-guaranteed loans totaling some 180 billion liras, with maturity terms extending to 10 years and often including grace periods of up to three years. The volume of the fund itself was raised to 250 billion liras in March, which led public banks in particular to lend lavishly in the run-up to the referendum. This may result in clamors when reimbursement time arrives.
The banking sector’s loan volume has expanded by 160 billion liras this year, but lira deposits have increased only by 33 billion liras — even though banks have raised yields to up to 15% per year. This means a significant shortage of resources in the sector, and the Central Bank is being used to overcome the problem. The inevitable outcome, many fear, will be more inflation, more bad debts and more burden on the public budget.
And if all that comes to pass, what will the Turks do? Trust in their leader? Will he redirect their anger at some minority group? Blame the Greeks?
Blame Trump? (Maybe not.)
Turkey’s not small beans, so if they get in trouble, that could have impact in both Europe and the Mideast.
