A Central Bank as the Symbol of Turkey’s Political Thriller

On the night of July 5–6, Turkey’s president dismissed the country’s central bank governor. At issue was a long-running dispute between the head of state and successive governors over interest-rate levels. As a result, Turkey may be going through another currency crisis—on top of a major debt crunch, inconsistent foreign policy and defense choices, and powerful new trends in domestic politics. Seen from abroad, Turkey’s leadership is more than ever living in a self-made echo chamber and putting the country at great risk. This is a quandary only Turkish citizens can solve.

Turkish President Recep Tayyip Erdoğan’s verdict on Central Bank Governor Murat Çetinkaya was crystal clear: “We told him several times to cut interest rates at meetings on the economy. We said that if rates fall, inflation will fall. He didn’t do what was necessary.” Gone was the bank’s independence in just three short sentences. Predictably, the markets’ verdict was clear too: on the Monday after the Friday night announcement, the value of the Turkish lira fell by 3 percent against the dollar and the Istanbul stock index dropped by 1.5 percent.

This absurd dispute is not new. It has gone on for years with successive central bank governors and ministers of economy and finance. The president’s firm belief that low interest rates will decrease inflation has zero credibility with international markets, but the recent move made things worse. Çetinkaya’s departure deals a blow to the bank’s independence, putting monetary policy firmly in the hands of Erdoğan, who adheres to the principles of Islamic finance, which prohibits the charging of interest. And it leaves his minister of economy and finance, who is also his son-in-law, peddling the usual conspiracy theories about supposed foreign enemies trying to bring the country to its knees. 

It was bad enough that such ill-footed economic theories and echo-chamber behavior elicited bemusement and sarcasm from international financial circles. It is now apparent that the average citizen of Turkey or member of the ruling Justice and Development Party (AKP) has lost confidence too. Çetinkaya is the first governor to be sacked since 1981, a time when Turkey was ruled by the military after the 1980 coup.

The implications of the saga are wide ranging. In today’s one-man-rule system, no alternative views or policy choices have a place in Turkey. When, against a dire economic backdrop, the leadership insists on an absurd policy that is firmly rejected both internationally and internally, it will be implemented no matter what by yes-men or family members. Other examples of misguided policies abound, from a biased public-procurement system to a penchant for infrastructure megaprojects of dubious sustainability. A system in which the rule of law has disappeared and dissenting voices are not tolerated cannot lead Turkey onto a path of stability and prosperity.

Coincidentally (or not), the sacking of the central bank governor was followed by former Turkish deputy prime minister Ali Babacan’s resignation from the AKP with a strongly worded statement: “Under the current conditions, Turkey needs a brand new vision for its future. There is a need for correct analyses in every area, newly developed strategies, plans and programs for our country. . . . It has become inevitable to start a new effort for Turkey’s present and future. Many of my colleagues and I feel a great and historic responsibility towards this effort.”

Babacan, a conservative politician with a highly successful economic record, enjoys unsurpassed international credibility. Seen from abroad, his resignation conveys a simple message to his fellow citizens: correcting past policy mistakes in the economic, governance, and foreign relations fields can no longer be achieved in the current system of government.

Many voices, especially in the AKP in recent days and weeks, have tried to impress on the leadership that profound changes are necessary. But there seems to be no more room for dissent, as their objections to prevailing policy choices have simply been brushed aside.

Turkey’s problems have grown much larger than just economic policy concerns. Turkey’s one-man presidency is resulting in increasingly inconsistent defense and foreign policy choices. Defense is a case in point: This month, the country is involved in NATO’s Sea Breeze military exercise in the Black Sea off Ukraine—a show of force aimed at Moscow. But at the same time, Ankara conducts naval exercises with the Russian navy and may deploy Russian S400 missiles on its soil, with the use of associated Russian personnel.

Foreign policy is not immune either from abrupt U-turns. Turkey’s president was a long-standing staunch defender of China’s Uighur minority, but his recent trip to China resulted in unexpected praise for the happy lives of the Uighurs: “It’s a fact that residents of all ethnicities in China’s Xinjiang [province, home to the Uighurs] are living happily amid China’s development and prosperity.” Turkey’s need for investment and trade, as well as to showcase the leadership’s popularity in non-Western countries, may explain this move.

Government officials put a veneer of consistency on such wide splits, saying that Turkey should entertain good relations with all powers in the world. This would be a legitimate objective if some of those powers—China and Russia—had not been at war, economically and strategically, with Turkey’s traditional allies in the past, and if Turkey’s economy were not profoundly integrated with that of the EU.

The current reality is that Erdoğan’s choices can prevail only at the cost of a continued dismantling of the rule of law in the country, an endless chase for the AKP’s former allies who support self-exiled preacher Fethullah Gülen, and ramped-up anti-Western narratives. All these options are detrimental to the country’s political stability, economic attractiveness, and diplomatic standing. The AKP’s resounding defeat in the June 23 rerun of the Istanbul mayoral election was not just a vexing miscalculation; it was a clear sign of a deep longing for major political changes.

Similarly, leaders of allied countries have tried to convey messages of moderation on defense, economic policy, political trials, and freedom of expression. They have consistently been ignored.

For the moment, Turkey’s political thriller goes on unabated. How it resolves itself will be for the citizens of Turkey to say. The questions are how much more damage the current system of governance will inflict on the country, and how long and costly fixing the destruction will be.