In the Christian West we’re having the predictable agonizingly slow news week, but Turkey is facing a financial meltdown as investors flee the Turkish lira and the government attempts to stabilize the exchange rate by selling its foreign currency reserves.
Turkey is not the only emerging market facing capital outflows and a falling exchange rate. A healthier economy in the United States, Federal Reserve tapering, and a less-disastrous situation in the eurozone are all conspiring to reverse trends that had gone in the other direction over the past few years. Exchange rate decline has serious distributional consequences in many of these countries, with elite types well-connected to the political establishment disproportionately likely to suffer from it. So a number of central banks are scrambling in a misguided way to try to prop up their exchange rates.
But the Turkish situation has come to be unique due to a burgeoning political crisis.
The precise nature of the crisis is a little bit difficult to pin down, but the basic issue is this: Prime Minister Recep Tayyip Erdoğan and his Islamist Justice and Development Party have dominated Turkish politics for the past decade.* Turkey has a history of authoritarianism where secular liberalism was undergirded by military interventions in politics and subversion of the democratic process. So one big story of the Erdoğan era has been an ongoing effort to undermine the “deep state” through which the military controlled Turkish politics outside the regular political process. A key AKP ally in this has been the transnational (but largely Turkish) social and religious movement headed by Fethullah Gülen, which has influential adherents in the Turkish media and also in Turkey’s police and judicial services.
Having essentially defeated their common enemy in the military establishment, the Gulenists and AKP are now at war with each other. The Gulen movement runs a large network of educational institutions in Turkey (perhaps comparable to the role the Catholic Church has at times played in different national educational systems), and Erdoğan has been pushing policies that are unfavorable to it. At the same time, the Gulenist elements in the judiciary are turning tactics they once used against the Kemalist deep state on members of Erdoğan’s cabinet. The situation is pretty opaque to outsiders, and Erdoğan’s own response to the situation has been fairly confusing. This is the kind of thing foreign investors hate. Not only is a crisis bad for business, but this is the kind of crisis that very flagrantly reminds us how little we actually understand about the domestic politics of foreign countries.
That’s a recipe for capital flight and a falling Turkish stock market, and the economic problems further weaken Erdoğan’s political position.
*Correction, Dec. 27, 2013: A previous version of this post misstated the name of
Erdoğan’s political party. It’s the Justice and Development Party.