Turkish economy suffers, unemployment soars under presidential system

Turkey has
faced severe economic losses under its executive presidential system.
Thursday
marked the second anniversary of Recep Tayyip Erdoğan taking the presidential oath on
July 9, 2018. Rising unemployment, plummeting economic output and surging inflation
have become top concerns of most citizens in the country. Outside of Turkey,
foreign investors are shying away.
Turkish
voters approved the introduction of the executive presidential system by a
narrow margin in a nationwide referendum on April 17, 2017, which was marred by
allegations of vote-rigging.
Just over
a year later, on June 24, 2018, Erdoğan, the leader of the ruling Justice
and Development Party (AKP) and Turkey’s long-time prime minister and incumbent
president, was re-elected, but this time with vast new powers.
The day
after the July 9 swearing in ceremony in the capital Ankara, Erdoğan issued the first of many
presidential decrees afforded to him under the new system to announce his
cabinet. He officially began his current presidential term the next day.
In the two
years since, the presidential system that replaced Turkey’s parliamentary
system of government has been the focus of much debate. Discussion has centred
on a diverse range of issues, including the system’s impact on foreign policy,
the executive and legislative powers afforded to Erdoğan and surging presidential
spending.
Still, the
presidential system has impacted the economy the most. Erdoğan had promised voters that the new
arrangement would bring economic stability, growth and increased investments
and prosperity. Instead, GDP has shrunk by $125 billion, the budget deficit has
posted record highs and inflation has soared.
The lira
had traded at around 4.73 per dollar when Erdoğan assumed his enhanced role. It hit
a record of 7.269 per dollar in early May. Today, it trades at 6.85 per dollar.
While the
lira has slumped, Inflation has been heading upward. Annual price increases now
stand at 12.6 percent compared with 8.6 percent last October despite a slump in
demand caused by the COVID-19 outbreak.
Turkey’s
central bank, on Erdoğan’s orders, has slashed benchmark
interest rates to 8.25 percent from 24 percent in July last year, helping to
spur consumer demand and economic activity.
Inflation
and monetary policy is perhaps where the impact of one-man rule in Turkey has
been felt the most economically. Erdoğan asserts that, in order to bring
inflation down, you must lower interest rates. This assertion flies in the face
of conventional economic theory.
A currency
crisis in the summer of 2018 and the outbreak of the COVID-19 pandemic has also
taken its toll on the economy, and no more so than in the jobs market.
Unemployment
stood at 12.8 percent in the three months to May, the Turkish Statistical
Institute said on Friday. That rate fell from 13.2 percent in April but had
risen from 10.1 percent in July 2018.
The number
of people employed in Turkey has contracted dramatically. The figure dropped by
2.59 million people to 25.6 million in the three months to May compared with
the same period of 2019. The employment rate, or the proportion of the working
age population in a job, was 41.1 percent, declining by 4.9 percentage points.
Erdoğan and his government have taken
several measures to help boost jobs since the outbreak of COVID-19 in early
March. Among them is barring companies from laying off workers. That means
jobless figures are effectively massaged because businesses in Turkey may only
put workers on unpaid leave and the data does not include those persons.
Meanwhile,
Turkey’s budget deficit has widened to record levels as the government sought
to stimulate the economy and cushion the impact of the coronavirus.
The budget
deficit was 17.3 billion liras in May, widening 44 percent from a year earlier
and pushing the gap to 90.1 billion liras for the first five months of the
year, a figure equating to 65 percent of the government’s year-end goal of
138.9 billion liras. The deficit was 43.2 billion liras in April, just short of
the record gap of 43.7 billion liras posted for March.
Meanwhile,
Turkey’s economic output has declined to $758 billion in the 12 months to
March. That figure is 16 percent lower than GDP of $883.9 billion registered
for the same period to March 2018, just prior to the introduction of the
presidential system.
At the
same time, foreign investment in Turkey’s financial markets has plummeted. The
value of stocks floated on the Istanbul Stock Exchange owned by institutions
and persons abroad has slumped by $8 billion this year to $24.4 billion. That
means foreign capital now equates to less than 50 percent of total investment
in the exchange for the first time in 16 years.
Turkey has
been paying the significant price for the transition from a parliamentary to a
presidential system of government, economist and professor at Yeditepe
University’s Faculty of Commerce, Veysel Ulusoy, told Deutsche Welle
“The
picture we see now reflects the impact of economic policy and a lack of
oversight,” Ulusoy said.
There is
now serious doubt over who controls a myriad of key economic institutions that
were once independent, including the central bank, the Capital Markets Board,
the Court of Accounts and the Banking Regulation and Supervision Agency (BDDK),
according to economists.
Management
of the economy has become more difficult as the government’s goals and
society’s expectations do not match, according to Öner Günçavdı, professor at
Istanbul Technical University’s Management Engineering Department. That has
meant that the economic results of the past two years are exactly the opposite
of what the government promised, he said.
So long as
the government fails to implement projects to deal with Turkey’s most chronic
problems such as employment and inflation, the crisis will only deepen,
Günçavdı said.
“Looking
at several indicators, we see that the economy is not in fact soaring, like
some say, but that it has started to spiral downwards.”