The Turkish president cannot defy reality for long


mDE TEND getting stubborn with age, and Recep Tayyip Erdogan was barely indulgent at first. During his 19-year tenure in Turkey, first as Prime Minister and then as President, he imprisoned thousands of dissidents and critics: secular military officials, demonstrators, Kurdish activists, members of the Gülen religious movement. He has silenced or purged civil society groups, the independent media and the judiciary. With every challenge he survived – the Gezi Park protests in 2013, an attempted coup in 2016 – his ego has grown. Sensible advisors have resigned and are surrounded by relatives and yes-sayers.

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A leader as powerful as Mr Erdogan can silence voices he does not want to hear. But he cannot wish away the reality they describe. Since September he has been trying to defy the laws of the economy, against which he has no veto. When some emerging economies raised interest rates to fight inflation, Turkey took the other path. Although inflation surpassed 21% in November, its president urged the central bank to cut rates by five percentage points to 14% in order to live up to his ridiculous belief that higher rates cause inflation rather than fight it. In response, the Turks changed more deposits from lira to dollars and euros. This fueled a currency crisis: the lira fell from eight to the dollar in August to 18 at the end of December.

In the past, that might have scared Mr. Erdogan; not now. On December 20, he announced a strange plan to lure back depositors. If Turks tie up their money in lira deposits for at least three months, the state treasury (in lira) will compensate them for any losses from further currency losses. After that, the lira recovered briefly and Mr Erdogan declared victory. But before long it began to fall again.

Officials say the Turks have shifted about $ 3 billion into currency-protected lira deposits since the announcement. But that’s not enough to explain the rally. The main factor was the intervention of Turkey’s central and state banks, which bought around $ 7 billion worth of lira within two days. This buying pace is unsustainable. When it stops, the system will have to stand on its own two feet. The Turks might decide to follow Mr Erdogan’s trick. More likely they won’t.

Even if the lira can be stabilized, it will not end Turkey’s troubles. The inflationary dynamics from previous devaluations, cheap loans and increases in the minimum wage will continue to raise Turkish prices. If the currency remains stable, the rising prices of Turkish goods would not be offset by a cheaper lira. This would undermine Turkey’s competitiveness, undermine its trade balance and dangerously rely on foreign credit to bridge the gap between its imports and exports.

Should it fail, the consequences could be worse. Turkey’s taxpayers will face saving their depositors. That could require painful cuts elsewhere – an austerity measure for the benefit of the relatively wealthy Turks who have savings. Alternatively, if the government cannot tolerate this choice, it will have to print more money. If so, a system to compensate people for currency devaluation would only devalue them further.

Mr. Erdogan rejects anyone who declares such things to be part of an “interest lobby” controlled by foreign powers. Like all populists, he attributes setbacks to the conspiracies of his enemies. He is right that the barriers to his economic fantasies are people: his own people and their efforts to cope with his misguided policies. But maybe the president is not aware of it. At the height of his power in 2014, Mr Erdogan moved into a new presidential palace with 1,100 rooms. The desperate screams of his constituents need barely be heard from within the $ 600 million walls.

This article appeared in the Leaders section of the print edition under the heading “Erdogan vs.


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