Turkey's problems extend past bond purchases and interest rates
to questions about the stability of Prime Minister Recep Tayyip
First, Prime Minister Recep Tayyip Erdogan criticized the bold
move by Turkey's central bank last week to raise interest rates
sharply to halt the decline in the country's currency, telling
reporters that higher borrowing costs would lead to inflation -- an
argument that contravenes accepted economic logic.
Mr. Erdogan's economic adviser, Yigit Bulut, then did little to
reassure skittish investors, suggesting that the prime minister
would do something that would be "very positive for the markets,"
but did not say exactly what Mr. Erdogan's plans were.
The remarks only added to jitters in financial markets, which
have battered the Turkish stock market and in recent weeks sent the
currency, the lira, to historic lows. While Turkey has suffered
along with other developing nations from the "tapering" of bond
purchases by the United States Federal Reserve and the threat of
rising global interest rates, its problems go beyond that to basic
questions about the stability of the government and its ability to
grapple with the economy's problems.
To some extent, Turkey and Mr. Erdogan are victims of their own
success, having created an attractive investment climate that
brought in billions in dollar-denominated lending, particularly
after the financial crisis of 2008. Officials in Western capitals,
including President Obama, came to see him as the prime example of a
leader who could meld democratic values, Islam and economic
But much of the money was funneled to a group of insiders who
made fortunes while building malls and other developments that
increasingly lacked sound economic underpinnings. Now, with bond
investors fleeing and interest rates rising, Mr. Erdogan's economic
turnaround is in jeopardy of unraveling in a toxic stew of bad
loans, accusations of cronyism and the appearance of seat-of-the-
pants economic stewardship.
The first cracks in Mr. Erdogan's aura of invincibility came in
the summer, with violent street protests against yet another mall
that was to replace a popular Istanbul park. Mr. Erdogan emerged
from that with his image tarnished but his power seemingly intact.
But he was jolted once again in December by a sweeping corruption
inquiry aimed at his inner circle. That continues to unfold, further
chipping away at his power.
At the same time, his ambitious foreign policy, which sought to
position Turkey as the leader of a region in turmoil, failed amid
the continuing civil war in Syria, where Turkey has supported the
rebels, and the collapse of the Muslim Brotherhood government in
Egypt, an important ally that Mr. Erdogan enthusiastically
The political attacks, economic instability and higher interest
rates come at an inopportune time for Mr. Erdogan, as he and his
Islamist-rooted Justice and Development Party, known by its Turkish
initials A.K.P., face a series of elections that will determine if
he remains in power.
Local elections in March, and especially the contest for the
influential post of mayor of Istanbul, will be the first test. In
the summer, voters, for the first time, will cast their ballots in a
nationwide election for president, a post Mr. Erdogan is hoping to
Mr. Erdogan, a pious Muslim who has been in power for more than a
decade, is Turkey's longest-serving prime minister and, analysts
say, its most consequential leader since Mustafa Kemal Ataturk, the
secular founder of modern Turkey. Mr. Erdogan has burnished his
power with his charisma and his appeal to the country's religious
masses, a previously oppressed class under Turkey's former secular