Recep Tayyip Erdogan, the Prime Minister of Turkey, is lashing out in several directions, most recently turning on his country’s international lenders. He should calm down and cease his provocations against protesters and bankers alike.
On the one hand, riot police made a renewed assault against the protesters in Taksim Square in Istanbul on Tuesday, again wielding tear gas. Yet on the same day, Bulent Arinc, the Deputy Prime Minister, announced that Mr. Erdogan would meet with representatives of the protesters on Wednesday.
During Mr. Erdogan’s years in power, Turkey has achieved remarkable economic progress. Much of its business community supports him and the Justice and Development Party that he leads. The country has not, however, built up a strong homegrown financial sector.
Turkey has a substantial current account deficit, more than $8-billion in April. That is not simply a weakness; the corollary is that Turkey attracts a lot of foreign capital, but the bulk of that is not foreign direct investment; rather, it is “portfolio captial” that can quickly flow in and out of the country. Consequently, there is a real vulnerability, and many foreign investors are unsettled by signs of instability, although Turkey is very far from civil war or revolution.
Mr. Erdogan is unwise to respond to the anxiety of foreign investors by denouncing “speculators,” accusing them of trying to “damage the Turkish economy.” Investors have no motive for doing anything of the kind.
The Prime Minister has gone so far as to complain that “the interest-rate lobby” wants to drive up borrowing costs. That phrase carries overtones of the prohibition of usury in Islamic law – a far cry from the realities of the Turkish economy, which is deeply tied in to the international system.
The exchange rate of the Turkish lira has fallen, and the Central Bank has intervened to counteract this trend. Nonetheless, first-quarter GDP numbers, released on Tuesday, are healthy – better than they were last year.
Mr. Erdogan ought to be trying to reassure his country’s lenders and investors, as well as the citizens of Turkey itself; he should refrain from demagoguery. Fortunately, Abdullah Gul, the President, and Mr. Arinc are taking a very different approach. A controversy over the redevelopment of one area in Istanbul need not disturb Turkey’s thriving.