Making Sense of Turkey's Economic Crisis

Aug 16, 2018 | 09:00 GMT

A teller holds Turkish lira banknotes at a currency exchange office in Istanbul on Aug. 13, 2018.

A teller holds Turkish lira banknotes at a currency exchange office in Istanbul on Aug. 13, 2018. Turkey's troubled lira tumbled on August 13 to fresh record lows against the euro and dollar, piling pressure on stock markets on fears the country's crisis could spill over into the world economy. (Photo by Yasin AKGUL / AFP)

(YASIN AKGUL/AFP/Getty Images)


  • Even as Turkey's economy bleeds capital in the midst of crisis, President Recep Tayyip Erdogan resists breaking from the outdated pro-growth economic model that built his political dynasty.
  • The president's framing of the economic crisis as a foreign plot to weaken the state is proving effective in building nationalist fervor, giving him the option to move up municipal elections to November and hold off on economic tightening in the interim.
  • Geopolitical friction with the United States is bound to grow in the coming months, especially as Turkey comes under sharp scrutiny for violating Iran sanctions.
  • As Turkey balances among the great powers, Ankara will likely look for financial assistance from sources other than the International Monetary Fund, including China, Qatar and Kuwait.

Once again, economists and financial experts are pulling out their hair trying to understand the populist, authoritarian enigma that is Turkish President Recep Tayyip Erdogan. With the lira plunging to scary new depths, many will ask incredulously how the political steward of an $850 billion economy could be so reckless as to brand utterly rational investors as enemies of the state. Why, they ask, would the government accuse us of conspiring across global financial capitals to take Turkey down -- when it's precisely that kind of bombastic language that will send more capital fleeing? And why won't Erdogan just strike a seemingly simple diplomatic bargain over an American pastor if that will surely bring down the lira's fever? Welcome to Turkey, my friends. To understand Erdogan's behavior today, we have to rewind 15 years....

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