22 April 2017

Is This the Beginning of the End for Erdogan?

The results of last week's referendum in Turkey were rather unexpected.

While some polls predicted the 51-49 split, most of them and almost all of the pundits thought that the gap would be much larger, something like 60-40.

This anticipation is understandable since the referendum took place under extraordinary and extraordinarily unfair circumstances. To begin with, emergency rules were (and still are) in effect.

Secondly, co-leaders and many of the MPs of the pro-Kurdish HDP were in jail, therefore unable to campaign.

Ironically, one of the opposition parties (MHP) campaigned for a Yes vote even though the party's base was overwhelmingly against the changes. The sole voice for No (CHP) was blocked from appearing on TV or other media outlets.

Moreover, clerics declared Yes a religious duty.

Erdogan, the supposedly neutral head of state, campaigned relentlessly and equated a No vote with terrorism and moral deficiency.

And most importantly, he maintained throughout that, unless he was given these new powers, the country would be lost as there were too many looming crises.

Make me the leader of all three branches of government and you will be saved, he intoned.

Well, now he has got those powers and he will have to face these crises.

Let me make a bold prediction, no one, especially not Erdogan can fix what is broken in Turkey. And with him at the helm, the task is nothing less than Herculean.

This is not because the problems in question are insurmountable. It is because Erdogan damaged all the state institution that can tackle them. The only thing left standing is him and his sycophantic advisers. And they are not up to the challenged. Not by a country mile.

This does not mean that he will leave anytime soon. Quite the contrary he will cling to power like never before. And he will double down on his victim-bully strategy. But sooner or later, serious economic crises and the institutions he destroyed will make crisis management impossible and will lead to his demise.

And maybe that of the country.

Dysfunctional Economy

Turkey's sovereign debt is cut to junk status by Moody's last Autumn, making borrowing prohibitively expensive and foreign direct investment a thing of the past.

Last year Turkish Lira lost over 20 percent of its value.  Indicating deeper structural issues, the Lira's loss of value was not accompanied with a rise of exports:
Turkey's trade deficit increased to USD 3.69 billion in February of 2017, compared to a USD 3.21 billion gap a year earlier. Exports fell 1.9 percent, dragged down by manufacturing while imports rose 1.6 percent, boosted by mining and quarrying.
Unemployment has reached 13 percent and if you add people who have given up looking for a job in the last four weeks that figure goes up to 19.6 percent. Youth unemployment hovers around 25 percent.

Inflation has risen to double-digit levels (11.29% in March 2017), the highest since 2008.

New investments have stalled since the comical coup attempt last July.

Tourism sector, which accounts for 13 percent of GDP, imploded after the Russian jet downing debacle and with Erdogan's recent name calling of Europeans, the number of incoming tourists is expected to decrease further.

Current account deficit is likely to reach a historic high this year:
In the first two months of 2017, the current account deficit widened to USD 5.29 billion from USD 4.17 billion in the same period of 2016. 
Against this dismal picture, you have Erdogan calling Turkey's biggest trading partner, the European Union, Nazis and fascists and threatening to re-introduce the death penalty to ensure the cancellation of Turkey's membership bid.

This is nothing short of economic suicide since the new constitutional system (along with the death penalty) might also lead to the expulsion of Turkey from the Customs Union (CU).

CU is not just about EU regulations governing production and trade, it also requires general compliance with EU rules and principles. Indeed, this one was one of the prerequisites of the 1995 Agreement: it was signed only after Turkey passed a series of reforms of the criminal justice system and scrapped undemocratic laws.

No one knows how a country can be ejected from CU or you might dispute whether the EU has the political will to do so; but with Erdogan upping the ante, European politicians might turn Turkey's expulsion into a winning electoral platform.

If that happens, I expect a colossal economic collapse.

What is perhaps worse than the looming economic catastrophe, after years of frontal assault by Erdogan, there are no properly functioning state institutions.

Crumbling Institutions

From the get go, Erdogan was so worried that the secular bureaucracy and army might block his Islamist Sultan aspirations that he appointed his ally Fethullah Gulen's highly educated Islamist cadres to the top echelons of state apparatus.

This was largely because Erdogan's followers, like himself, are mostly graduates of vocational religious schools (Imam Hatip schools) with little or no managerial skills. Or skills of any kind other than delivering Friday prayer sermons.

The process started out with the judiciary and the police as the first targets. At some point, many of the prominent prosecutors and judges belonged to Gulen's Islamist Calvinist movement, Hizmet (Service).

As part of the mission given to them by Erdogan, they launched the first purge of the military, the infamous Ergenekon and Sledgehammer prosecutions, indicating in the process that they would cynically manipulate the law whenever they could.

AKP base was happy and supportive, since they were on the winning side. The opposition was bewildered and in disarray as they have never seen the Turkish military so vulnerable. But most importantly, the erosion of trust in the judiciary was near universal.

Gulenists also took over key economic management posts and strategic positions in the bureaucracy. For instance, the main architect of AKP's economic miracle, Ali Babacan, was almost certainly a Gulen sympathizer.

Through Abdullah Gul's efforts, another likely Gulenist, one of the strongest state institutions, the Ministry of Foreign Affairs saw most of its senior diplomats gradually removed from key positions and its corporate memory disappear.

After Abdullah Gul, successive ministers continued to purge secular diplomats and to promote Gulenists. Since it takes time to move someone up in foreign service, for a while, important capitals remained in the hands of experienced diplomats but they were now getting their instructions from Gulenists in Ankara.

As a movement that emphasizes education, Gulen supporters also established a strong presence in many academic institutions.

In the second part of 2013 Erdogan and Gulenists became rivals and eventually enemies. Since Gulen supporters controlled the police and the judiciary, they assumed that they could easily topple Erdogan.

On 17 December they leaked several audio tapes in which Erdogan was giving orders to his son Bilal to get rid of tens of millions of euros stashed in his residences. They were also pre-dawn raids to the houses of AKP ministers which uncovered millions of dollars in shoeboxes and many very expensive luxury items.

Erdogan did the unexpected: he launched a massive attack on Gulenists and ordered their dismissal from state institutions. Instead of denying or acknowledging the massive corruption hinted at in those tapes, he declared himself the victim of a huge conspiracy. His followers ate it up and Gulen lost his bid to overthrow Erdogan.

From that point onwards, it was open field for all state institutions, In successive waves, the last of which began after the botched coup attempt, Erdogan removed many qualified personnel from state bureaucracies and academic institutions.

When you look at the whole process a clearer picture of the devastation emerges. The first purge replaced secular bureaucrats with Gulenists destroying institutional traditions and corporate memory. The second replaced Gulenists with highly unqualified and unskilled Erdogan supporters hampering the proper functioning of these institutions.

The Central Bank provides the best illustration.

When Erdogan came to power, there was already a Governor in place, so he appointed a Gulenist, Erdem Basci, as Deputy Governor (2003). In 2011, Basci became Governor. As he was a reasonably competent economist, he became a target for Erdogan after 2013 and in 2016, he was replaced with Murat Cetinkaya.

Cetinkaya holds a B.A in International Relations, has no macro-economic qualifications but he is the perfect candidate as he has some background in Islamic finance and he is a disciple of Erdoganomics which maintains that high interest rates are responsible for high inflation.

By all accounts, he is useless. And he has a critical role in steering the economy.

In any event, the worst affected institution by this systematic cleansing was the military. As I recently pointed out, the once formidable Turkish army is now incapable of accomplishing basic tasks after it lost half of its senior officers and a good chunk of its pilots and non-commissioned officers (NCO).

In short, thanks to Erdogan and his personal survival struggle, Turkey is facing a whole host of serious problems without being able to count on its highly damaged state institutions.

Besides its economic woes, Turkey has to deal with a long standing Kurdish insurgency, an increasingly risky Syrian involvement, a volatile region in which Sunni-Shia rivalry might engulf the country and countless geopolitical issues involving Russia, the US and EU.

The problem solver and crisis manager in all of this, is a graduate of Imam Hatip high school with a fake university diploma and an army of advisers who are mostly temperament fluffers, to use Graydon Carter's apt expression.

How likely is that they will prevail?

And how likely is that they will take the country down with them?

Time will tell. But I am not optimistic.

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