Turkey has become a major player in the new world order

Turkey’s economic crisis connects it to other emerging markets in an era of mobile international capital, while its new political leadership and structures under Recep Tayyip Erdogan make it a key player in the multipolar world they seek to fashion. Current travails put it at the centre of contemporary geoeconomic and geopolitical change.

Turkey has been called the China of Europe because international loans and investments were attracted to its strong manufacturing base at a time when European and US interest rates were low. Rapid growth and huge infrastructure programmes since the early 2000s brought prosperity and a better life to tens of millions of its poorer people and regions. That sustained Erdogan’s first 12 years in power when he took on many parts of the Turkish establishment, realigned the country’s foreign policy towards Europe and neighbouring states and proved unassailable electorally.

Growth and infrastructure programmes since the early 2000s brought prosperity and a better life to tens of millions of Turkey's poorer people and regions

The period since then saw him shift from this substantive programme towards perpetuating his power in office. The economic momentum he established in the first decade facilitated that, giving him legitimacy with his supporters in Anatolia and Istanbul sufficient to push through the extensive presidential reforms he is implementing since the referendum last year and his election victory last month.

Turkey’s economic problems flow from its over-reliance on capital inflows and its $220 billion corporate debt mainly to Spanish, German and Italian banks. A looming balance of payments crisis is caused by the collapse of its currency the lira, which has lost 45 per cent of its value against the dollar this year. Erdogan has refused to raise interest rates to head that off, spooking international markets and raising fears of capital controls. The question is whether the standoff will force company closures and civil protest before exports gain from such a precipitate devaluation.

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Partisan and authoritarian

Markets are not reassured by the performance so far of Erdogan’s son-in-law, Berat Albayrak, in charge of the finance and treasury ministries. That coincides with the replacement of the technocratic heads of these and other ministries in a transformation of Turkey’s governing structures reflecting Erdogan’s new presidential powers and privileging those politically close to him. The new system looks less competent and is more partisan and authoritarian.

Political and diplomatic rows with US president Donald Trump’s administration have made these economic troubles far worse. Erdogan’s demand for the extradition of the Islamic preacher Fethullah Gülen from the US was matched by Trump’s championing of an American pastor Andrew Brunsen, held prisoner since the failed coup in July 2016 Erdogan blames on Gülen. A deal to ease this tension collapsed, leading Trump to impose tariffs on Turkish steel and aluminium to which Erdogan has retaliated with a ban on high-technology imports.

Turkish-US relations were already strained by contradictory policies towards the Syrian Kurds, problems in Nato because of closer Turkish relations with Russia and Erdogan’s championing of Qatar against Saudi sanctions. He has also refused to cease trading with Iran as Trump demands. All of this feeds into wider geopolitical uncertainty concerning his new foreign policies.

Collapse of trust

These involve not least his uncertainties with the European Union. The EU is Turkey’s main trading, borrowing and investment partner. Its longstanding application to become a member state is still extant. Turkey is host to 3.5 million Syrian refugees with EU funding, so any collapse of trust arising from this economic and political crisis could reopen that agreement, which stemmed the flow to Germany and other states in 2015 that gave rise to the right-wing populist surge now changing the continent’s politics.

The EU is Turkey's main trading, borrowing and investment partner. Its  application to become a member state is extant

Erdogan has flirted not only with Russia but with the Brics group of middle income countries (Brazil, Russia, India, China and South Africa). He attended their summit in South Africa last month and wants to join. He hopes to attract more finance from China and sympathises with the emergence of Eurasia arising from their “belt and road” initiative. His denunciations of the American-dominated international economic order this week and hints of a US conspiracy against Turkey chime with the damage these countries are suffering from US protectionist policies. That opens up a wider debate on how existing policies and rules should be changed to reflect new global realities.

So, for all his weaknesses, Erdogan has some leeway to manoeuvre through these crises, because they arise from bigger global transitions. A new world is emerging from the liberal international order laid down after the second World War dominated by the US and Europe. They should take care with Turkey if they want to maintain their influence.