Erdoğan’s trouble with the good-old AKP

One the recurrent themes in contemporary Turkish politics is President Recep Tayyip Erdoğan’s uneasiness with Turkey’s Central Bank. In the past six months, Erdoğan has repeatedly called on the institution to lower interest rates, but the Central Bank has by and large resisted this political pressure. Its president, Erdem Başçı, a respected name among economists and investors, has politely explained that he and his colleagues are simply trying to do the rational thing in the face of a rising dollar. In return, Erdoğan has accused them of “high treason.”

This week, Erdoğan further raised the stakes and blamed not only the Central Bank, but also the very master of the economy, Deputy Prime Minister Ali Babacan, for not listening to his economic wisdom. “They need to correct themselves,” he said about both Başçı and Babacan, just before boarding his plane to Saudi Arabia.

This is no simple matter. Ali Babacan is the number one architect and manager of the economic success that the Justice and Development Party (AKP) has accomplished over the past 13 years. He is very respected and trusted by both the national and international businesspeople and economy experts. It is no wonder that since the AKP came to power in 2002, Ali Babacan is the only minister who has always kept his seat. Word has it that when Ahmet Davutoğlu was appointed as the prime minster by Erdoğan last August, one of his conditions was for Babacan to remain in the cabinet.

Why, then, is Erdoğan today publicly chiding Babacan and his team?

One answer is that since the Gezi Park protests of June 2013, Erdoğan believes in the existence of something called the “interest rate lobby,” which supposedly conspires against his rule by secretly organizing mass demonstrations and other plots. Accordingly, the members of this “interest rate lobby” are dirty capitalists who used to make easy money from the high interest rates in the pre-AKP era.
Now, they want to go back to the “Old Turkey” and again swim in their dirty pool of easy profit. 

The other thing is that, again since the Gezi Park protests of June 2013, Erdoğan began promoting a whole new theory of economics, which apparently derives from Islamism: High interest rates cause high inflation. Various economists, including the previous head of the Central Bank, Durmuş Yılmaz, an AKP appointee, have politely said that this is ridiculous, but Erdoğan was not deterred. From his statements to the press, we understand that he has tried to impose the same view on Babacan and Başçı. When they explained to him that interest rates are in fact a response to inflation, Erdoğan replied, “No. That is your thesis, and this is my thesis.” When his thesis was not accepted, he suspected that the Central Bank might be serving some dark powers.

All this, of course, is bad news for the Turkish economy: Erdoğan’s public jabs at the Central Bank only give negative signals to outsiders, and there is no wonder that the dollar rises against the lira whenever he speaks on this issue. Moreover, all this points to the fact that Erdoğan is increasingly dismissing the rational and pragmatic paradigm that his own party followed in its initial years. That rational and pragmatic paradigm blessed the AKP with great success, but that very success soon began to tempt Erdoğan and his close circle to believe they can simply imagine a new ideological world and turn it into reality. That is why the good-old AKP, and its keystones like Ali Babacan, do not fit them anymore.