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The Turkish Coup – Defeated By Democracy Or By Growth?

 7 min read / 

Turkey is no stranger to military coups, but after four successful government upheavals, since it joined NATO in 1952, the nation finds itself in unfamiliar waters after Friday’s failed attempt. As the events of the weekend place downward pressure on the country’s currency and economy, fears of political instability chase away foreign capital like an unwelcome refugee. Hundreds killed and thousands more arrested, it is hard to rally behind this victory in democracy in the ever-growing shadow of Erdogan. The first failed coup in modern times has left the nation shrouded in uncertainty and halted an overachieving emerging market in its tracks. Last weekend’s repercussions are myriad and unknown, perhaps even too much for one freelance capitalist and a burgeoning liberal to cover completely.

Democracy Vs Secularism

It seems strangely perverse to feel solidarity with colonels and squaddies rising up against a democratically elected leader; to feel a slight flutter of the heart as tanks and machine gun-sporting soldiers crawl across a news screen towards an airport as citizens rush by. Yet this is how it felt for many distant secular liberals watching events in Turkey unfold on Friday evening. On the one hand, one sympathised with the stated aims of the military rebels of upholding Turkey’s delicately secular constitution and preventing President Recep Tayyip Erdogan from maintaining his suffocating control of the country’s public square. On the other people were repelled by the idea of the democratically elected president, being blindfolded and executed on a rooftop, only to be replaced by a moustachioed man in khaki.

15,000 education staff were suspended post-coup in Turkey

President Erdogan deserves respect for his impeccable political nous. When news of the military uprising emerged, Erdogan displayed his trademark instinct self-preservation as he spoke on TV via mobile phone and urged ordinary citizens to come out to the street and demonstrate not only in defence of him but of democracy itself. The call brought forth thousands of Turks to the streets, squares and public buildings of the nation. There were supporters of Erdogan’s conservative Islamist AK Party storming military tanks with opposition supporters right beside them in the thick of the action. Never before has Erdogan enjoyed such multi-lateral support. It’s a shame it took an all-out assault on democracy for it to happen.

“If anything the failed military coup attempt, will reinforce the current political status quo in Turkey”

Lena Komileva, G Plus Economics

What Erdogan did by calling on all ordinary Turks to come out and defend their democracy – in a sense, their nation – from the attack was to paint those who didn’t and those who criticise him as the enemy within. A dichotomy has emerged, and Turkish citizens now have two pressing but illusory options: support democracy and President Erdogan, or support tyranny and someone else. The opposition party rightly criticised the coup attempt but was forced to place themselves and Erdogan as allies against anti-democratic forces. Obviously, this is admirable in terms of securing stability, but it gives the President’s administration even greater freedom to trample the secular principles of the country’s constitutions into dust.

“It’s not the failure or success of the coup but rather the failure or success of Erdogan’s actions now that will determine the shape of Istanbul”

Riad Hamade, Bloomberg News

 

People Are On The Side Of Prosperity

One thing is for certain, the Turkish people answered Erdogan’s call. Whether it was down to an inner belief in the defence of democracy is another question. The past four coup attempts have been characterised by an amplification of the people’s wishes and a progression of pre-existing unrest, but this opening was different. The economic success of Turkey this year may shed some light on why the military found their tanks swarmed by protestors instead of cheered on to the capital.

Screen Shot 2016-07-20 at 23.38.56

Source: Bloomberg

After WWII, Turkey’s economy entered a period of rapid expansion, for which domestic investment and foreign capital inflows struggled to keep up with. The result was a sharp incline in import demand in almost all sectors dampening the growth of national industries. An all too little too late effort to devalue the lira resulted in a recession in the late 1960s and, as inflation rocketed to close to 80%, rising unemployment led to widespread unrest. Understandably, the military had support when in March 1971 they intervened and demanded a ‘strong and credible’ government replace the current one.

Unfortunately, nine years later the same was required of the army, as Turkey saw 11 political leaders in almost as many years that together left the nation’s economy in a state even today’s Venezuela would turn their nose up to. In brief, the Turkish government spectacularly miscalculated the effect on the country’s deficit of a sharp increase in world oil prices from 1973/74. In an effort to finance these shortcomings the government piled on short-term debt which, by 1979 it was unable to pay even the interest on. Nilgun Onder, writing in 1990, describes an economic landscape of triple-digit inflation, soaring unemployment and an industrial sector operating below half of its capacity. The coup was delayed several times before succeeding in September 1980. So for all of the above economic disaster, Turkey was a different country in the run-up to this most recent coup.

Before Friday, the Borsa Istanbul 100 Index had climbed 15% year-to-date signalling the benefits Turkey has reaped this year from a growing appetite for risk which investors are currently starved of in developed assets. The Turkish lira was holding strong and for once the increase in capital inflows since 2010 was being mirrored in wage increases in the labour market. It’s hard to rally the nation against its elected democracy when, at least economically, there’s nothing to be incensed about. If Turkey were the scene of food riots or wage protests perhaps the coup would have succeeded.

Screen Shot 2016-07-20 at 23.38.15

Source: Bloomberg

 

Post-Coup Purges

Any coup, failed or successful, translates into uncertainty to the global investor audience, and they were all ears on Monday. The Borsa Istanbul 100 Index struggled to pare the 7.1% fall from Friday, breaking lows of 2013. Government 10-year yields followed a similar trend as an increase of 64 basis points broke three-year highs and signalled how much more expensive it could get to insure Turkish debt. The central bank will likely follow the rest of the world in easing policy while the positive capital inflows that have characterised the nation in the last six months will almost certainly reverse. There’s a long path to recovery for Turkey and Erdogan should be careful not to negate the economy in place of his own political ambitions.

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Source: Bloomberg

The administration has wasted no time at all in responding to the rebellion, and the changes could eradicate any and all opposition to Erdogan’s rule in Turkey’s political institutions. Nearly 3,000 judges have been removed from duty, with the country’s Supreme Court having five members expelled. This purge of the judiciary has been coupled with the President’s apparent readiness to reintroduce the capital punishment and the arrests of around 15,000 police officers and military personnel. Such a sea-change in Turkey’s social and political institutions make the future incredibly malleable to the wishes of Erdogan and his allies. A potent mix of growing presidential confidence, public support and massive instability is forming a worrying picture for those who care about Turkey’s status as a democratic nation governed by the rule of law.

(Co-authored with Nick Hoare)

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