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Turkey's Problem Isn't Trump, It's Erdogan's Gunboat Economics

Somehow the Istanbul Stock Exchange doesn't seem to be asking how their fearless leader plans to extract economic prosperity from occupied territory

David Rosenberg
David Rosenberg
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Turkish President Recep Tayyip Erdogan gestures as he addresses his ruling party legislators at the Parliament, in Ankara, Wednesday, October 16, 2019.
Turkish President Recep Tayyip Erdogan gestures as he addresses his ruling party legislators at the Parliament, in Ankara, Wednesday, Oct 16, 2019.Credit: Burhan Ozbilici,AP
David Rosenberg
David Rosenberg

Trump’s threat to decimate the Turkish economy doesn’t really add up to much. His tweets are bloodcurdling but the follow-up in terms of sanctions and the like have been anemic.

Yet decimation may result because he has a ready and willing partner in Recep Tayyip Erdogan.

Turkey was sort of emerging from recession when Erdogan ordered an invasion of Kurdish Syria last week, so it is hardly in a position to cope with the uncertainty that war and the growing chill between Turkey and its Western partners will cause. Already Volkswagen has decided to put off plans to build a $1.4 billion plant in the country. But Turkey's biggest problem of all is Erdogan himself.

As Pence pushes Syria cease-fire with Erdogan, Trump undercuts negotiationsAs Pence pushes Syria ceaCredit: Haaretz

The Turkish leader briefly flirted with thoughtful economic policy in the early 2000s after the International Monetary Fund demanded controls on government spending, transparency, central bank independence and more open and better-regulated markets. But as the economy prospered and Erdogan cemented his authority, the rules of the game changed for the worse.

Cronyism and debt-fueled growth, especially in his favorite sector, construction, have become unofficial economic policy. These days central bank does what it is told, and the treasury has been placed in the hands of his son in law. Turkey’s economic policy is guided by Erdogan’s personal and political needs.

Erdogan is even willing to call out the troops in the name of economic development. Instead of cooperating with the other countries of the Eastern Mediterranean to tap the region’s vast reserves of natural gas and develop export markets, Turkey has opted for gunboats. It’s claiming vast swathes of the Eastern Mediterranean for itself, denying Cyprus the right to drill for gas in its own territorial waters; it has sent Turkish drill ships instead, and has used the navy to threaten foreign energy companies.

Haaretz Weekly Ep. 44Credit: Haaretz

There’s an element of gunboat economics in the invasion of Syria, too. While Erdogan has emphasized his goal of chasing down Kurdish militants, he has an economic rationale for occupying a chunk of the country: to resettle most of three million Syrian refugees Turkey is presently hosting back in their own country, while providing fat contracts to Turkey’s construction sector in the process.

Erdogan and, it seems, the majority of Turks welcomed the refugees in the early days of the Syrian civil war, as a gesture of solidarity with the anti-Assad rebels. But the war has dragged on, and Turkish unemployment has soared. Sending the refugees just over the border (voluntarily, of course) to a Turkish-managed safe zone not only dilutes the local Kurdish population with Syrian Arabs but eliminates the competition from refugees for jobs in Turkey.

There’s a more insidious economic agenda at work, too.

The Erdoganomics boondoggle

In his UN General Assembly address last month, Erdogan outlined a vision for the future of the refugees draped in humanity and diplomacy. “Whether with the U.S. or the coalition forces, Russia and Iran, we can walk shoulder to shoulder, hand in hand so refugees can resettle, saving them from tent camps and container camps,” he said.

But what it really is a boondoggle for Turkish construction companies, ideally paid for by the European Union.

What Erdogan has in mind is to build some 200,000 homes for the refugees as well as schools, medical facilities, mosques and sports fields at a cost media reports say could reach $27 billion. No more tents and cargo containers, but then again, no jobs either. But hey the boondoggle is about fat construction contracts, not about helping refugees.

Does anyone take this seriously? The EU has already said in effect “over my dead body” vis a vis footing the bill, and it stretches the imagination to envision a swathe of occupied territory in a war zone turning into a flurry of construction activity.

People cheer as Turkish military vehicles drive on a street in the Turkish border town of Akcakale in Sanliurfa province, Turkey, October 16, 2019. Credit: \ STOYAN NENOV/ REUTERS

But on the Istanbul Stock Exchange, they don’t see that as a problem. Since Erdogan revealed his refugee condos plan late in September, the shares of all 15 cement-makers trading on the bourse’s All Shares Index have outperformed their peers. Mardin Cimento, a concrete maker with facilities near the Syrian border, has soared close to 70%.

Savvy stock market investors understand Erdoganomics well. The rest of the market has been down on news of the Syrian invasion, the lira has weakened and credit default swaps on Turkish debt have skyrocketed, all of which makes sense given the military and diplomatic upheavals of the past week. But if you’re situated in the right place in the Erdogan economy, you’re set.

The Turkish leader is often compared to the emerging cadre of quasi-autocrats like Vladimir Putin -- “strong” leaders who fan nationalist flames. After the invasion of Crimea, ordinary Russians loved Putin for his display of strength and defiance, even if it meant that at the end of the month they felt the sting of Western sanctions in their paychecks.

Erdogan is taking the same route, whipping up nationalist fervor over the invasion while ordinary Turks pay the price.

Five years later, however, the Russian economy is in the doldrums, and waking up every morning knowing the Russian flag is flying over Sevastopol doesn’t compensate. These days Putin’s poll numbers are bad, but the future for ordinary Russians is even worse because their fearless leader prefers military adventures over economic development. That’s all he has to offer. And it seems that’s all Erdogan has too.

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