Erdogan Should Break His IMF Taboo

(Bloomberg Opinion) -- It seems an age ago, but only last September Berat Albayrak was boasting about Turkey’s economic turnaround from recession. The finance minister and his boss (and father-in-law) President Recep Tayyip Erdogan were predicting 5% growth for the next two years. Although the recovery was already looking shaky by the end of 2019, they might have pointed with some pride at China-like growth rates for the final quarter.

But the coronavirus pandemic dashed hopes of a Bosphorus bounce. Although Turkey was the last major economy to be hit by the virus — or at least the last to announce its arrival — economic confidence quickly succumbed to the pathogen. Turkish manufacturers’ outlook, a seasonally adjusted index maintained by the central bank, plummeted faster than at any time since the 2008 global financial crisis.

Erdogan, acknowledging the “serious economic consequences” of the pandemic, has authorized Albayrak to throw everything at the problem. Interest rates, adjusted for inflation, are among the world’s lowest. A $15.4 billion plan to help businesses cope with the crisis already looks inadequate. The central bank is hoovering up government bonds, and this week the parliament passed legislation allowing the sovereign wealth fund, known by its Turkish initials TVF, to take over private companies that are at risk of going under.

For all that, Turkey’s economy, the largest in the Middle East, looks likely to  shrink by 5% this year. If the pandemic is prolonged, in Turkey and in the countries with which it has the strongest ties, Albayrak will need to inject much more into the economy to prevent a steeper decline. 

You’d think this would be inducement enough for Erdogan to break his ultimate economic taboo: turning to the International Monetary Fund. After all, it would give Turkey access to funding at competitive interest rates, with relatively few geopolitical strings attached.

The Fund, like Dickens’s Barkis, is willin’—as Managing Director Kristalian Georgieva indicated recently. But Erdogan, unlike Peggotty, remains resistant. His spokesperson has said that “making a new deal with the IMF, inking a new ‘stand-by agreement’, are not on Turkey’s agenda.” 

Erdogan benefited from the political fallout of the last IMF bailout, in 2001: It inflicted pain on ordinary Turks and discredited Turkey’s largely secular political elite, allowing his Islamist party to rise to power. As president, he has frequently reminded his people of the difficult years that followed the deal with the fund, which he has described as “the world’s biggest loan shark.” Erdogan has made it a badge of honor to keep Turkey and the IMF at a distance. Even meeting with its officials has earned opposition leaders the condemnation of AK Party officials.

At any other time, turning to the IMF would represent a loss of face for Erdogan. But the pandemic provides a rare opportunity to escape the corner into which he has painted himself — without a political price. After all, who could hold him to previous promises when his country is in such obvious distress, and when so many other nations are doing just that? For a master at political messaging, this should be an easy sell.

That might yet be necessary. Despite strict measures — 31 cities are under quarantine, including Istanbul — the pandemic continues to surge. By the end of last week, Turkey had risen to  9th in the world in confirmed cases, and 12th in the number of deaths. The World Health Organization has expressed alarm at the “dramatic increase in the virus spread” in the country.

The economic news remains grim: In March Turkey posted its biggest monthly budget deficit, with tax deferrals shrinking government revenue. As the U.S. and European countries keep extending their lockdowns, the outlook for the mainstays of the Turkish economy, manufacturing and tourism, are worsening.

The pandemic is forcing leaders everywhere to overcome old anathemas. Erdogan may not be able to remain an exception for too long.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Bobby Ghosh is a columnist and member of the Bloomberg Opinion editorial board. He writes on foreign affairs, with a special focus on the Middle East and the wider Islamic world.

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