Erdoğan has wrecked Turkey's economy – so what next?

• After years of currency crashes, vanishing foreign currency reserves and surging inflation, rethinking economic policy will be a top priority for whoever is sworn in after the vote on May 14.
• This produced sizeable productivity gains, and benefited large parts of society, significantly reducing inequality.
• This encouraged investors to borrow cheaply and put money into emerging markets like Turkey in search of decent returns.

Choppy waters

• This would become a defining characteristic of his regime, permeating through to all other aspects of governance.
• Around the same time, international investors began pulling back from emerging markets as the US Federal Reserve started tightening monetary policy.
• There have been several cycles of loosening and tightening since then, but the money hasn’t returned to Turkey.
• Foreign ownership of Turkish government bonds has fallen from 25% in May 2013 to below 1% in 2023.
• Investor concerns grew worse after a referendum in 2017 created an executive presidency that bestowed enormous powers on Erdoğan.

What next?

• Turkey has been difficult over major issues such as Sweden and Finland joining Nato, recently yielding on Finland but continuing to object to Sweden.
• With the EU the major destination for Turkey’s exports and hence source of hard cash, Ankara’s approach to the west could potentially soften under Erdoğan after the election.
• On the other hand, the AKP’s election manifesto has not offered any novelty on the economic policy front.
• It seems very unlikely that Erdoğan would change his stance on low interest rates, in which case the lira is likely to plunge further.