The Turkish economy is collapsing and President Erdogan is engaged in a bitter battle with U.S. President Donald Trump. NATO could turn out to be the loser, while Moscow is the primary beneficiary.
By Tim Bartz, Maximilian Popp and Christian Reiermann
August 17, 2018
Berat Albayrak is one of Turkey’s most powerful men, but on the stage at the Dolmabahce Palace in Istanbul last Friday, he clearly felt uncomfortable. As Turkey’s finance minister, he had called in CEOs and bankers to present his plan for preventing a currency collapse and a further worsening of his country’s economy as it slides into the abyss. He had to say something, he needed to be encouraging and come up with a plan. But instead, he struggled helplessly to find the right words, clearly nervous.
He then clicked through a PowerPoint presentation reminiscent of the kind of work a first-year economics student might produce. “It was weird,” says the CEO of a Turkish company.
Up until a few weeks ago, Albayrak, 40, was still regarded by many people in Turkey as a man who could do no wrong, despite his arrogance. He’s the son-in-law of Turkey’s autocratic president, Recep Tayyip Erdogan, and has enjoyed an impressive career. In 2015, he was appointed energy minister before being promoted in July to the role of finance minister. Supporters of the government used to view Albayrak as a possible successor to Erdogan, but now he has become the poster child for the serious economic turbulence the country is currently facing.
The reality, though, is that Erdogan himself is responsible for the disaster, having relied on extensive borrowing to fuel the economic boom that solidified his almost unlimited power. It’s bad enough that the house of cards he built is now collapsing, but the crisis has been further exacerbated by the irascible autocrat’s attempt to take on Donald Trump, a man cut from the same cloth, but of a much higher caliber.
Indeed, Trump flexed his muscles two weeks ago in the dispute over an American pastor being held by Turkey, slapping sanctions on two Turkish ministers and announcing a doubling of tariffs on aluminum and steel from Turkey. The moves have shaved one-fifth of the value off of Turkey’s currency, the lira, with the exchange rate on Thursday hovering around 6.14 lira to the dollar. Companies that have done their borrowing in euros and dollars are teetering on the brink of bankruptcy.
‘The Stakes Are Extremely High’
The crisis is a disaster — and not just for the people of Turkey. Foreign banks, which have lent Turkey $265 billion, fear they will lose that money while economists are warning of the possibility of a chain reaction that could trigger a collapse of the international financial system just as the Lehman Brothers bankruptcy did in 2008.
The situation is also wreaking havoc on the world’s security architecture by threatening NATO cohesion, particularly given that neither Trump nor Erdogan appear willing to stand down. Erdogan views the U.S. sanctions as a conspiracy against Turkey and has described the moves as “economic war” and “economic terrorism. “Don’t forget, if they have their dollars, we have our people, our God,” the Turkish president has said.
Trump has been just as firm. National Security Adviser John Bolton told the Turkish government this week there would be no further negotiations on anything until the pastor is released.
The U.S. and Turkey have NATO’s two largest armies and the dispute is already weakening the alliance. The two powermongers in Ankara and Washington have locked horns so tightly that, in the most extreme scenario, Turkey could actually leave NATO. Erdogan also appears to be demonstratively seeking to close ranks with Russia’s Vladimir Putin. Several months ago, he even threatened that his soldiers in Syria could open fire on American troops.
“Trump and Erdogan are gambling and the stakes are extremely high,” says Sinan Ülgen, head of the Istanbul-based think tank EDAM. “They don’t realize what’s at stake for both countries.” Erdogan, in any case, has his back up to the wall economically. And the temptation to distract from his own failings by launching attacks on others is great.
‘We’re Getting Poorer By the Day’
The Grand Bazaar in Istanbul’s Fatih district is a labyrinth of jewelry outlets, spice stores and rug shops. Sultan Mehmed II built it in the 15th century, and it has been attracting visitors from all over the world ever since.
“We’re getting poorer by the day,” laments Osman Güldagi, who sells baklava and nuts at the bazaar. Like the other vendors, Güldagi must pay his rent in dollars, even as his customers pay in lira. When he opened his shop five years ago, the exchange rate between the dollar and the lira was 1:2. Since then, the lira has lost more than two-thirds of its value and Güldagi says his business is struggling as a result. During the past two years, hundreds of the bazaar’s 2,000 shops have closed.