Turkey - the end of the economic miracle illusion

These days Turkey is under a revolution. Many analysts see in this a continuation of the Arab Spring. Others see another manifestation of the cruel invasion of Internet and Facebook in politics. But most miss one very important moment – the economy.

Seemingly Turkey is a fast developing economy. Prime Minister Erdogan is often praised as a great reformer. His party is considered very close to European Christian democrats, although being a Muslim dominated country, it is more precise to call them Muslim democrats. In last few years Turkey was a good instance of economic progress.

But this was only the PR. As calculated via the Dobri’s ratings formula (initial version), the credit rating of Turkey was set to B. I.e. a remarkable speculative grade. As this rating measures to high extent also the general economic situation, so obviously Turkey was not this impressive “tiger” in the region.

In fact Turkey has an impressive government debt, constant deficit, high inflation and much political and military problems in region. The country has also one of the highest in the world fuel prices. So it simply cannot become a real economic miracle.

Turkey looks more like a middle-sized bubble. The real economy is not so good, people are not enough wealthy, and the real economic growth is very vulnerable to be consumed by the inflation. So people in Turkey are not living as good as the economic propaganda claims. One of the most serious evidences in this direction is the enormous number of Turkish emigrants and guest-workers to EU (mostly – Germany).

In addition to this is about a 10 year authoritarian rule of Erdogan that is based not so much on his real popularity, but on Turkish electoral system that simply destroys the competition. In Turkey there is a 10% entry-barrier for the Parliament that simply means no new party can be established and promoted. Most of the media are under government influence. This helps Erdogan Party, being de facto supported by the minority of the population, to be every time declared a winner on the elections.
So the combination of non-stable economy and weakened democracy is perfect for riots.

It is good to make a comparison with Russia, where the political situation is similar, but the economy is much stronger and stable. Russian President Vladimir Putin also has a great power and the politics is entirely occupied by him and his allies. But the strong and long term oriented economic policy makes the situation unsuitable for riots. Russians live well and this improves every year. So the limitations in democracy are not becoming a revolutionary problem. For comparison, under Dobri’s formula, Russia is an AA country.

As the economy is an inertia mechanism, so it is not possible fast improvements to happen. This means that the fate of Erdogan is decided – even if he manages to survive this time. He had enough time to become a real economic reformer and did it not to the needed level. So it is a matter of time to leave the power…

June 3rd 2013

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