Turkey is suffering through its worst economic crisis since 2000, and it is at risk of a significant economic meltdown if appropriate emergency policies are not adopted soon. The Turkish lira has suffered a sharp devaluation in recent months because of Turkey’s rising external debt and loss of confidence in its ability to service this debt in the short run. The lira’s decline was accelerated after August 10 as a result of the deterioration of relations between Turkey and the United States. President Trump showed his frustration with Turkey over many diplomatic issues by doubling tariffs on Turkish metal exports, and this unexpected step triggered a lira sell-off.
To avert an economic catastrophe, similar to what happened to Greece in 2016 and more recently inVenezuela, Turkey must introduce very painful fiscal and financial reforms. How President Recep Erdoğan handles this crisis will most likely define the legacy of his political leadership as prime minister and then president since 2002.
More significantly, it will be the first test of how the new presidential government system. That new system was approved in April 2017 and implemented after the June 2018 presidential and parliamentary elections. The question is whether it can prove useful in managing a significant economic crisis.
President Erdoğan and his AKP party campaigned hard for approval of the constitutional reforms in the April 2017 referendum on the promise that a presidential system will bring more political and economic stability to Turkey. They argued Turkey had suffered severe economic instability under its parliamentary system before the electoral victory of AKP party in 2002, because of weak coalition governments were unable to impose fiscal and monetary discipline. The presidential system, it was argued, will be more capable of resisting populist pressures and factional politics that lead to high fiscal deficits and inflation rates.
In that referendum, the voters approved sweeping political reforms, which abolished the post of prime minister and enhanced the powers of the presidency. It also paved the way for direct presidential elections. After that victory, Prime Minister Erdoğan called for the country’s first presidential election in June 2018, which he won. Click on the title (hyperlink) to read more..