If it takes brief visits to both extremes to plot a middle course, then 2008 provided Turkey with an opportunity to write the manual for the rest of the world. Still riding high from a decisive election victory in the previous year, the ruling Justice and development Party (AKP) was faced with decimation when the Constitutional Court was called to rule on accusations the party had been indulging in practices that breached the sacred separation of state and Islam.
The AKP had pushed through parliament a measure to allow female university students to wear headscarves, a measure that infuriated the staunchly secularist establishment (including the army). Had the most severe penalty been imposed in the event of conviction, President Abdullah Gul, Prime Minister Recep Tayyip Erdogan and around 70 of the deputies would have been banned from politics, not only bringing down the government but also destroying the party.
In the event, a heavy touch of realpolitik set in with accommodation and compromise all around. The AKP was given a mild slap over the wrist, Gul, Erdogan and their supporters in parliament kept their jobs and the army appeared to take a course signaling its appreciation of stability.
Attributing motives is a sport that serves only to keep the chattering classes alert and is rarely based on evidence. Even so, it seems both the Constitutional Court and the army viewed that the presence of the strongest political and economic stability for decades, not to mention a booming economy, gave the AKP the right to continue. In a gesture that screamed reconciliation, the army even forewent its annual purge of officers suspected of Islamist leanings.
On the mind of business
The alternative — new elections bringing the inward- looking and fractious opposition parties back into play — was viewed with alarm by the business community. The Istanbul Stock Exchange (ISE) dipped sharply and the national currency came under pressure. Both setbacks were instantly reversed when the AKP was allowed to carry on ruling and that in itself is a measure of how much Turkey has come to rely on its steady, pro-business guiding hand.
Even if one immense threat was removed, a series of lesser, though still significant, worries kept the government on its toes. Fierce clashes with the Kurdish PKK separatists based in Iraq perpetually grabbed the headlines, especially when Turkish soldiers crossed the border almost certainly with the tacit support of Washington. Negotiations to join the European Union are becoming a sick national joke, with popular support for the application declining in proportion to the lack of progress. The target for inflation, set at 4% at the beginning of the year, was abandoned by its author, the Central Bank of Turkey, and revised upward to 7.5%. Even the new and higher number is optimistic since the final tally is likely to be around 10-11%.
Unemployment rose by nearly half a percent to 9.8% and then — finally — there descended the fallout from the international credit crunch. By the end of the year the ISE followed the freefall of the rest of the world and the lira went in the same direction, losing around 30% of its value within a matter of weeks, plunging from around 1.18 to the US dollar to a low of 1.70. Foreign direct investment went in the same direction, leaving Erdogan with an interesting balancing act going through to 2009.
Negotiations with the IMF to re-institute a standby loan to help bridge the current account deficit and provide extra foreign currency liquidity to the banks brought to the surface diametrically opposing views. The IMF said the growth target for 2009 should be slashed to 2% to allow consolidation and a cut in inflation, even at the risk of higher unemployment. Erdogan, doubtless with an eye on the municipal elections in March of next year, was unimpressed and pondered the possibilities of solving the problem in a different way — a temporary currency swap with the US or even a separate deal with the World Bank. In any event he presided over a cut in interest rates, preferring attempted stimulation of the economy to a counter- inflationary move of raising them.
Yet even with the prospect of a devalued currency making exports cheaper, the horizon is still cloudy. With Turkey’s major markets in Europe officially in recession, the price of exports becomes a little academic. The number juggling game that will dominate 2009 — not only for Turkey of course — may make the AKP’s Constitutional Court problems of 2008 appear a trifling affair.
Peter Grimsditch is Executive’s Turkey correspondent