Turkey’s current monetary crisis is certainly not the first that the country has faced. There have been many. However, this recent crisis, which was made all too real during the collapse of the Turkish lira against the dollar and other major currencies in August 2018 (as much as 40%), highlights a stark contrast to the way in which the previous financial crisis was handled just over a decade and a half ago.
Back in 2001, Turkey was rocked by a financial disaster while still dealing with the tremors of the earlier 1994 crisis. The 2001 crisis was a result of the country continuing to run a financial deficit while also experiencing inflation and having to cope with the consequences of foreign divestment – a very difficult obstacle considering that the country was dependent on foreign investment. Add to the equation instability within the coalition government and you have a toxic mix that made an economic meltdown all but certain. The subsequent recovery of the Turkish economy was a result of an IMF $11.4 billion. Following the IMF loan, Turkey saw several years of stable Justice and Development Party (AKP) government which ensured, at least for a while, economic discipline. However, just as importantly, during the critical March 2001 to 2002 period, before the AKP swept into power, Turkey’s road to recovery was paved by Kemal Dervis who was appointed economy minister.
This is important. It is one thing to take an IMF loan and meet the DC headquartered international organization’s conditions geared towards economic restructuring (which isn’t easy – initially the IMF programme was hard to implement), but quite another to actually run a country’s economy during a period of turbulence. One of the most important things politicians must do is to create confidence both internationally and domestically. Perhaps the wisest decision of Bulent Ecevit’s political career was to appoint Kemal Dervis economy minister in March 2001. Later, their relationship deteriorated but that’s another story.
Why was the appointment of Dervis so critical? Well, for a start Dervis was a graduate of the London School of Economics and then went on to earn a PhD from Princeton University. For a while he was a faculty member at the Middle East Technical University in Ankara, the finest higher education institution in Turkey. He then went back to the US to join the economics faculty at Princeton. Dervis spoke a bunch of languages including English, French and German. Now all this is impressive in and of itself, but Dervis then pursed a career at the World Bank. Soon he found himself Vice President of the MENA region and then vice-President for Poverty Reduction and Economic Management. He also had a network of contacts in the financial sector and his positions at the World Bank made him familiar with the inner workings of such organizations such as the IMF.
So what’s my point? It’s simple. When a country is faced with a financial catastrophe, this is the type of person you want at the helm of the economy. Someone who is academically accomplished and has 20 years or so experience at the highest levels of the financial sector. Someone who in a meeting with the CEOs of the world’s top banks, creditors, regulators, credit agencies and the so-called masters of the universe, is seen as an equal – a person who talks their language, commands their respect and can even teach them a thing or two. With Dervis at the helm the framework for the recovery of the Turkish economy was put into place, but following the 2002 general elections it was the AKP and Erdogan who reaped the rewards of Dervis and his team’s hard work.
Fast forward to today, and just before the looming economic crisis and just after the June 2018 Presidential and Parliamentary elections, who does President Erdogan appoint (without oversight as permitted by the new constitutional changes) as his economy minister? Does he choose a seasoned economist with academic and professional accomplishments? No. He didn’t even keep his previous economy minister Mehmet Simsek who had a pretty decent career in the financial services before entering politics and had worked hard to gain the confidence of international investors. Instead, President Erdogan appointed his son-in-law Berat Albayrak.
Now, one could argue that the choice of Albayrak has some merits. As the former CEO of Calik holding, a company sympathetic to the President, Albarak knows the inner workings of Turkish conglomerates and their relationship with government. Also, as the son-in-law of the President, Albayrak certainly has the ear of the most powerful man in the country. Foreign investors would hope that Albayrak would be able to gently steer his father-in-law to a positive economic path.
However, the positives of having the ear of the President is not enough for this sort of position at this particular turbulent time. Turkey needs a Dervis. Short of another IMF bailout, if the Turkish government were serious about putting the economy right they would enshrine the independence of the central bank. They would immediately take measures to release all foreign nationals under detention, especially those who could spark a diplomatic crisis with any country with financial clout. Pastor Andrew Brunson should have been released a year ago. The Turkish government should also create a bipartisan advisory group (a real one I mean) comprising of leading Turkish CEOs both in Turkey and abroad and meets regularly and has an influential advisory role. Turkey should also stop spending and being wasteful. This includes mega projects which have everything to do with vanity rather than real infrastructural development. Also, the idea that Turkey should seek the services of consultancy firms such as McKinsey, which the Turkish opposition lamented leading the government to call off the commission, was actually, in my opinion, a good one. Sometimes it takes an outside party for someone to heed good advice.
In 2001 Turkey was lucky enough to have someone at the helm of the economy who could lead Turkey out of its difficult mess. Today, it doesn’t and this is an important reason why this economic crisis is not going away anytime soon.
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