The Demise of Erdogan's Unorthodox Economics

Initially, the prospective policy reversal will be received with suspicion and conceived as opportunitism rather than commitment to policy reversal.

Reportedly, Erdogan's party, the Justice and Development Party (AKP), will be introducing a policy reversal on economics in its upcoming election manifesto. According to sources, the manifesto will promote orthodox economic policy rather than advocate for the continuation of ongoing unorthodox policy.

The major policy reversal comes after years of financial and economic turmoil that ravaged the Turkish economy, which was characterised by high inflation (85% last year) and low growth (5% in 2022).

In a bid to sustain employment rates to gain voters’ support, Erdogan government insisted on devaluing the Lira to artificially boost growth and employment. However, this has led to a loss of confidence in the economy among foreign investors which resulted in a persistent decline in FDI.

Increasing the minimum wage and offering cheaper loans were populist policies Erdogan needed to enhance his chances of winning the election. However, to restore economic health to Turkey, higher interest rates and a more stable currency and inflation will be needed following the election to attract foreign investments to generate growth, especially after the earthquakes.

Erdogan's recent de-escalatory foreign policy moves signal his recognition of the challenges ahead and the growing dissatisfaction with his cross-border adventurism.

The recent UAE and Saudi push for investments in Turkey incentivise Erdogan to pursue orthodox economics to regain investors’ trust and attract additional funding.

However, Erdogan actions may be received with suspicion and conceived as opportunism rather than a commitment to policy reversal. Hence, investors will take time to engage Turkey as it rolls out new policies that are investors friendly.