Tuesday, June 4, 2013

Why Are They Rioting in Turkey?

Once upon a time Turkey was the great Muslim hope. The Obama administration and many others saw Turkey as a role model. Its successes showed definitively that Islamist democracy could co-exist with capitalism.

Until recently, the Erdogan regime had presided over a rapidly growing economy.

The Obama administration has been notably friendly to Turkey because it expected that Mohamed Morsi in Egypt would follow the example set by Recep Tayyip Erdogan. Heck, it even prevailed on Israeli Prime Minister Netanyahu to apologize to the Turkish prime minister.

Today, young Turks are rioting against the Erdogan regime and the old narrative no longer seems to be quite as viable.

For decades a secularized Turkey has maintained a proud separation between mosque and state. Many commentators believed that Erdogan would maintain the separation, but they have found out that he meant it when he said that he would champion Sharia law.

The protest began over some trees in a park, but it is more important to note the symbolism. Taksim Park, the site of many protests, is a symbol of Turkish secularism. Underlying the violence is the fact that Erdogan wants to build a mosque there.

A liberal democratic Turkey has increasingly felt the jackboot of Islamist repression. The Erdogan regime has been systematically silencing the free press. Reporters Without Borders called Turkey: “… the world’s biggest prison for journalists.”

Most commentaries say that young people are rebelling against authoritarian repression. There is more to it.

David Goldman has put it all in economic context. He reports that the much-vaunted Turkish economic boom was more mirage than reality.

Goldman sets the stage:

The credulity that the mainstream media display towards Turkey continues to astonish. One reads today in the New York Times of Turkey’s “booming economy and a self-confidence expressed by the religiously conservative ruling elite,” at a moment when a mass uprising betrays the weakness of the Turkish economy and the bumbling of the ruling elite. As I report in the essay below cross-posted from Asia Times Online, employment in Turkey’s formal economy has shrunk by 5% in the past year (equivalent to the worst of the 2008 Great Recession in the US) and Turkish households are cutting spending under the weight of a crushing debt burden. Western reporters who turn up for a few days in Istanbul see a lot of construction activity, to be sure — that’s because Turkey’s Islamists are spending like drunken sailors on Islamic vanity projects while the private sector is shrinking. Two things have gone terribly wrong for Tayyip Erdogan. The first is his commitment to the Syrian quagmire, and the second (and ultimately more important) is the collapse of his consumer credit bubble.

As always, Goldman’s analysis deserves special attention. What everyone has been touting as a Turkish economic miracle has really been a credit bubble:

Erdogan did not preside over an economic miracle – contrary to the credulous estimates of many Western observes – but arranged, rather the usual sort of Third World credit bubble, which has left Turkish consumers to tighten their belts in response to a devastating debt burden. “Economic troubles will dominate the political agenda, and Erdogan’s claim to leadership of the Islamic world – let alone his own country – will look far less credible,” I warned in this space April 23 (see Turkey’s ticking debt time-bomb, Asia Times Online), just before Moody’s assigned Turkey an investment-grade rating, perhaps the poorest judgment by the rating agency since it put a “Aaa” stamp on securities backed by subprime mortgages.

Currently, the Turkish economy is on life support, that is, it is being sustained by government spending:

GDP growth is close to zero, propped by a 20% rate of growth in government consumption. With government spending dominating economic activity at the margin, it is not surprising that Turkey’s inflation rate stands at 7%.

Outsiders believe that Erdogan has managed the Turkish economy effectively. Insiders know better:

Consumer debt outstanding has risen nearly 10-fold since 2006, and jumped by 40% during the past year. As I noted in my April 23 essay, it is hard to reconcile a 40% annual increase in consumer debt with a 5% annual increase in nominal consumer spending (inflation is running at 7%, so real spending is down by 2%). The data imply that Turkish consumers are borrowing enormous amounts to refinance the interest they owe on their existing debt.

Erdogan’s spending spree of 2011 has left Turks with a horrendous hangover. Banks cannot balloon their consumer loan book by 40% a year indefinitely; when the music stops, Turkish households will have to reduce their consumption sharply. Debt-burdened consumers know that this must happen sooner rather than later, and this presentiment probably helps sour the national mood.

To say the least….


Anonymous said...

Turkey has been secular only since after WWI, not "for centuries".

Stuart Schneiderman said...

Corrected... thanks.

Sam L. said...

NYT thinks WE have a booming economy, other than the horde of "unexpectedly" bad reports on the economy.

Not likely right about anything else, as well.