The Turkish lira has fallen three percent during the month of April, hitting a new low of 2.7306 to the dollar on April 14. Turkey’s poor economic performance thus far in 2015 has made it the worst-performing emerging market currency in the world, with Brazil’s real coming in second.
Slowing economic growth, rising inflation and high unemployment, coupled with political uncertainty, have Turkey heading towards its June parliamentary elections with an economic picture that is far from rosy. Turkey’s leaders have publicly clashed with the independent central bank over interest rates and are now lashing out at another target: the Turkish Industrialists and Businessmen Association (TÜSİAD).
TÜSİAD is Turkey’s top business union, comprised of executives of Turkey’s major industrial and service companies. Out of Turkey’s private sector, TÜSİAD members have the largest share of revenue, employment and taxes paid to the state.
At a conference hosted by TÜSİAD on inflation dynamics in Turkey, TÜSİAD chairwoman Cansen Başaran Symes expressed concern about rising inflation in Turkey, which she attributed to “Turkey’s tarnished reputation and spoiled environment of confidence.” Government data showed that month-on-month inflation had the fastest increase in March of this year since March 2003.
Turkey’s previous economic advancements, Symes said, are undermined by deteriorating democracy in Turkey, which is an essential component of investor confidence and therefore Turkey’s economic health, which relies on foreign investment. Turkey’s economic success story, Symes said, has “been replaced by negative conditions that challenge the success story. The EU membership target is now vague and the rule of law is weakening. A slower structural reform-making process is now the case.”
President Erdoğan criticized TÜSİAD heavily after Symes’ remarks, saying “they don’t know their place. They have no rationality. Their capital has increased fivefold, and they are saying this because they are spoiled. Such NGOs should know that you cannot dynamite the peace and happiness of this country, or its unity.” The president of the Istanbul Chamber of Commerce echoed Erdoğan’s remarks. “Whenever dark groups want to press the button to play their games on Turkey, the button is always TÜSİAD,” he said, adding that TÜSİAD criticism of the government is akin to “the acts of a hired hitman.”
This is not the first time TÜSİAD has clashed with the Justice and Development Party (AKP) government. Previous TÜSİAD’s previous chairman angered President Erdoğan when he said in an interview that he saw the prime minister’s office as TÜSİAD’s interlocutor within the Turkish government instead of Erdoğan himself. In response, Erdoğan announced that he would boycott TÜSİAD’s plenary sessions. Another previous TÜSİAD leader heavily criticized the AKP government following the 2013 Gezi Park protests, saying “a county where the supremacy of law is not heeded … it is not possible for foreign capital to come to such a country, ”a statement which Erdoğan labeled “treason.”
The Turkish government’s ongoing battles with big business highlight the current reality of Turkey’s economy: growing political risk. President Erdoğan has worked to suppress corruption investigations against his government, to undermine the independence of the Turkish judiciary and to crack down on journalists critical of his policies. These attacks have had economic consequences, decreasing Turkey’s attractiveness to foreign investors.
And, as Turkey approaches parliamentary elections, its economic future looks even more uncertain. Polls showing decreased support for the AKP increases the possibility of a coalition government in June—which investors view as unstable. Additionally, the future makeup of Turkey’s economic team is uncertain, adding to investor uncertainty.
Deputy prime minister in charge of the economy Ali Babacan is subject to the three-term limit and will be unable to continue on in his post. Rumored replacements for Babacan include Erdoğan’s son-in-law Berat Albayrak or his chief economic advisor Yiğit Bulut, who famously suggested that Erdoğan’s enemies were seeking to kill him using telekinesis. Additionally, the head of the central bank Erdem Başçı’s term expires in 2016 and, due to his public battles with Erdoğan’s government, his reappointment appears highly unlikely.
Given these factors, Turkey’s economic future looks cloudy.
Seyma Akyol contributed to this post.