Financial Turmoil, Uncertainty, and Institutions: Turkey’s Political Economy in Crises

Yıl 2024, Cilt: 21 Sayı: 84, 65 - 83, 09.12.2024

Serhan Yalçiner

https://doi.org/10.33458/uidergisi.1578799

Öz

Financial turmoil damages national and global economies, but the causes of financial crises vary, with a combination of financial and political factors creating them. By asserting that every financial crisis necessarily involves political aspects, this study aims to certify that the poor policy response of Turkey, which has relied heavily on a “president over institutions” approach, has contributed to the ongoing severe currency and debt crises. Focusing on the two predominantly domestically induced crises of 2001 and 2018, this article analyzes secondary literature and data to put forth a framework that combines the fiscal policy response with a look at the country’s institutional strength and shows how financial uncertainty and instability exacerbated the conditions of the ongoing 2018 crisis. The study also finds that deteriorating political institutions in Turkey, marked by a lack of governmental efficacy that has led to compromised financial and fiscal sustainability, has played a considerable role in the onset of the 2018 crisis.

Anahtar Kelimeler

Financial Crises, Political Institutions, Democratic Backsliding, Institutional Strength, Authoritarianism

Kaynakça

• Acemoglu, Daron and James A. Robinson. 2006. Economic Backwardness in Political Perspective. American Political Science Review 100: 115-131.
• Acemoglu, Daron, et. al. 2019. Democracy Does Cause Growth. Journal of Political Economy 127, 1: 47-100.
• Acemoglu, Daron. 2023. Türkiye İki Büyük Tehditle Karşı Karşıya. DW Türkçe, June 2. https://www.dw.com/tr/daron-acemoğlu-türkiye-iki-büyük-tehditle-karşı-karşıya/a-65807250 (accessed October 18, 2023).
• Adar, Sinem, and Günter Seufert. 2021. Turkey’s Presidential System after Two and Half Years: An Overview of Institutions and Politics. Stiftung Wissenschaft und Politik Research Paper 2.
• Aidt, T. S., and M. Gassebner. 2010. Do Autocratic States Trade Less? World Bank Economic Review 24, 1: 38-76.
• Akçay, Ümit and Ali Rıza Güngen. 2019. The Making of Turkey’s 2018-2019 Economic Crisis. HWR Berlin, Working Paper No. 120.
• Akçay, Ümit 2021. Authoritarian Consolidation Dynamics in Turkey. Contemporary Politics 27, 1: 79-104.
• Akçay, Ümit. 2018. Neoliberal Populism in Turkey and its Crisis. IPE Berlin Working Paper, No. 100/2018, Berlin: Institute for International Political Economy.
• Alesina, Alberto and Allen Drazen. 1991. Why are Stabilizations Delayed? The American Economic Review 81, 5: 1170-1188.
• Alesina, Alberto and Dani Rodrik. 1994. Distributive Politics and Economic Growth. Quarterly Journal of Economics 109: 465-90.
• Allen, Franklin, et. al. 2009. Financial Crises: Theory and Evidence. Annual Review of Financial Economics 1: 97-116.
• Bakir, Caner, and Ziya Öniş. 2010. The Regulatory State and Turkish Banking Reforms in the Age of Post-Washington Consensus. Development and Change 41, 1: 77-106.
• Barro, Robert J. 1996. Determinants of Economic Growth: A Cross-Country Empirical Study. NBER Working Papers, No. 5698.
• Beck, Thorsten, and Ross Levine. 2008. Legal Institutions and Financial Development. Berlin, Springer.
• Bermeo, Nancy. 2016. On Democratic Backsliding. Journal of Democracy 27, 1: 5-19.
• Bernhard, William, and David Leblang. 2008. Cabinet Collapses and Currency Crashes. Political Research Quarterly 61, 3: 517-531.
• Blomberg, S. Brock, and Gregory D. Hess. 2001. Is the Political Business Cycle for Real? Journal of Public Economics 87: 1091-121.
• Bloom, Nick, Stephen Bond, and John Van Reenen. 2007. Uncertainty and Investment Dynamics. The Review of Economic Studies 74, 2: 391-415.
• Bloomberg. 2022. Turkey Delivers Shock Rate Cut Despite Inflation; Lira Plunges. https://www.bloomberg.com/news/articles/2022-08-18/turkey-delivers-shock-rate-cut-as-inflation-set-to-peak-over-80 (accessed August 18, 2022).
• Boutchkova, Maria et. al. 2012. Precarious Politics and Return Volatility. The Review of Financial Studies 25: 1111-1154.
• Cizre, Ümit, and Erinç Yeldan. 2005. The Turkish Encounter with Neo-liberalism: Economics and Politics in the 2000/2001 Crises. Review of International Political Economy 12, 3: 387-408.
• Doyran, Mine Aysen, and Jose Gomez-Gonzalez. 2023. Political and Institutional Determinants of Foreign Direct Investment (FDI) Inflows in Latin American Countries, 1995-2020. Available at SSRN: http://dx.doi.org/10.2139/ssrn.4617587, (accessed October 18, 2023).
• Dufour, Mathieu, and Özgür Orhangazi. 2009. The 2000-2001 Financial Crisis in Turkey: A Crisis for Whom? Review of Political Economy 21, 1: 101-122.
• Foster, John Bellamy, and Robert W. McChesney. 2012. The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the U.S.A. to China. New York, Monthly Review Press.
• Fowler, James H. 2006. Elections and Markets: The Effect of Partisanship, Policy Risk, and Electoral Margins on the Economy. Journal of Politics 68: 89-103.
• Frankel, Jeffrey. 2022. Turkey’s Inflation Mostly Results from Its Own Policies. https://www.jeffrey-frankel.com/2022/11/25/turkeys-inflation-mostly-results-from-its-own-policies, (accessed October 16, 2023).
• Gallego, F. A. 2010. Historical Origins of Schooling: The Role of Democracy and Political Decentralization. Review of Economics and Statistics 92, 2: 228-243.
• Gallo, Andrés, Juan Pablo Stegmann and Jeffrey W. Steagall. 2006. The Role of Political Institutions in the Resolution of Economic Crises: The Case of Argentina 2001-05. Oxford Development Studies 34, 2: 193-217.
• Gandrud, Christopher. 2014. Competing Risks and Deposit Insurance Governance Convergence. International Political Science Review 35: 195-215.
• Gauthier, Bernard, and Jonathan Goyette. 2016. Fiscal Policy and Corruption. Social Choice and Welfare 46: 57-79.
• Gümüş, Ersin 2019. Examination of Financial Sustainability in Turkey (2002-2018). Journal of Finance and Bank Management 7, 2: 37-46.
• Güngen, Ali Rıza. 2020. Turkey’s Financial Slide: Discipline by Credit in the Last Decade of the AKP’s Rule. in Turkey’s New State in the Making: Transformations in Legality, Economy and Coercion, eds. Pınar Bedirhanoğlu et. al. London, Zed Books: 118-133.
• Heinrich, Mathis, and Amelie Kutter. 2014. A Critical Juncture in EU Integration? The Eurozone Crisis and Its Management 2010-2012. In Moments of Truth: The Politics of Financial Crises in Comparative Perspective, eds. Francisco Panizza and George Philip. New York, Routledge: 120-140.
• Hicken, Allen, Shanker Satyanath and Ernest Sergenti. 22005. Political Institutions and Economic Performance: The Effects of Accountability and Obstacles to Policy Change. American Journal of Political Science 49, 4: 897-907.
• Hoeffler, Anke, and Paul Collier. 2005. Democracy and Resource Rents. Economics Series Working Papers-GPRG-WPS-016, University of Oxford, Department of Economics.
• Jensen, Nathan M. 2003. Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment. International Organization 57, 3: 587-616.
• Kindleberger, Charles P. 1987. Financial Crisis. In The New Palgrave Dictionary of Economics, eds. Steven Durlauf and Lawrence E. Blume. London, Palgrave Macmillan.
• Kindleberger, Charles P. 2017. Manias, Panics, and Crashes: A History of Financial Crises. London, Routledge.
• Kleibl, Johannes. 2013. The Politics of Financial Regulatory Agency Replacement. Journal of International Money and Finance 75, 2: 552-566.
• Koch, Levent, M. A. Chaudhary, and Faiz Bilquess. 2002. February 2001 Crisis in Turkey: Causes and Consequences. The Pakistan Development Review 40, 4: 467-486.
• Lacroix, Jean, Pierre-Guillaume Méon, and Khalid Sekkat. 2018. Do Democratic Transitions Attract Foreign Investors and How Fast? ASSA Annual Meeting: Conference Paper.
• Levitsky, Steven, and Lucan A. Way. 2002. The Rise of Competitive Authoritarianism. Journal of Democracy 13, 2: 51-65.
• Li, Quan, and A. Resnick. 2003. Reversal of Fortunes: Democratic Institutions and Foreign Direct Investment Inflows to Developing Countries. International Organization 57, 1: 175-211.
• Mechkova, Valeriya, Anna Lührmann and Staffan I. Lindberg. 2017. How Much Democratic Backsliding? Journal of Democracy 28: 162-69.
• Noble, Simon-Peter. 2018. Turkey: The 2001 Financial Crisis. https://seekingalpha.com/article/4212301-turkey-2001-financial-crisis (accessed June 8, 2022).
• Nyugen, Thanh C., Vitor Castro, and Justine Wood. 2022. Political Environment and Financial Crises. International Journal of Finance and Economics 27, 1: 417-438.
• Obstfeld, Maurice, et. al. 2010. Financial Stability, the Trilemma, and International Reserves. American Economic Journal: Macroeconomics 2, 2: 57-94.
• Orhangazi, Özgür and A. Erinç Yeldan. 2021. The Re-making of the Turkish Crisis. Development and Change 52, 3: 460-503.
• Ostrup, Finn, Lars Oxelheim and Clas Wihlborg. 2009. Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises. Asian Economic Papers 8, 3: 178-220.
• Öniş, Ziya. 2009. Beyond the 2001 Financial Crisis: The Political Economy of the New Phase of Neo-liberal Restructuring in Turkey. Review of International Political Economy 16, 3: 409-432.
• Özatay, Fatih, and Güven Sak. 2002. The 2000-2001 Financial Crisis in Turkey. https://www.researchgate.net/publication/242034963 (accessed June 16, 2022).
• Özbudun, Ergun. 2015. Turkey’s Judiciary and the Drift Toward Competitive Authoritarianism. The International Spectator 50, 2: 42-55.
• Özel, Işık. 2015. Reverting Structural Reforms in Turkey: Towards an Illiberal Economic Governance? Policy Brief 22.
• Özmen, Ümit, and Soli Özel. 2024. The Return of the State and Its Alla Turca Version. Uluslararası İlişkiler 21, 83: 5-23
• Öztürk, Sevinç, and Thomas Reilly. 2022. Assessing Centralization: On Turkey’s Rising Personalist Regime. Southeast European and Black Sea Studies.
• Pepinsky, Thomas B. 2014. Financial Crises and the Politics of Adjustment and Reform. In Handbook of the International Political Economy of Monetary Relations, eds. Thomas Oatley and W. Kindred Winecoff. Cheltenham, Edward Elgar Publishing: 265-284.
• Persson, Torsten, and Guido Tabellini. 2009. Democratic Capital: The Nexus of Political and Economic Change. American Economic Journal: Macroeconomics 1, 2: 88-126.
• Politico. 2023. Turkey’s New Finance Chief Announces Return to ‘Rational’ Economics, https://www.politico.eu/article/turkey-finance-minister-mehmet-simsek-return-to-rational-economic-policy-inflation (accessed October 18, 2023).
• Portes, R. and H. Rey. 2005. The Determinants of Cross-border Equity Flows. Journal of International Economics 65, 2: 269-296.
• Ragauskas, Rimvydas, and Ieva Valeskaite. 2020. Nepotism, Political Competition, and Overemployment. Political Research Exchange 2, 1: 1-16.
• Rawdanowicz, Lukasz. 2010. The 2008-09 Crisis in Turkey: Performance, Policy Responses, and Challenges for Sustaining the Recovery. OECD Economics Department Working Papers, No. 819.
• Rey, Hélène. 2015. Dilemma Not Trilemma: The Global Financial Cycle and Monetary Policy Independence. NBER Working Paper Series, No. 21162.
• Şahinöz, Saygın and Evren Erdoğan Coşar. 2018. Economic Policy Uncertainty and Economic Activity in Turkey. Applied Economic Letters 25, 21: 1517-1520.
• Saleh, Emad Alchikh. 2023. The Effects of Economic and Financial Crises on FDI: A Literature Review. Journal of Business Research 161.
• Söylemez-Karakoç, Büşra, and Merih Angın. 2024. Mitigating the Political Cost of Financial Crisis with Blame Avoidance Discourse: The Case of Turkey. Uluslararası İlişkiler 21, 83: 41-59.
• Taskinsoy, John. 2022. Economic Meltdown in Turkey: Great Divergence Fueled by Erdogan’s Quixotic Policies. Available at SSRN: http://dx.doi.org/10.2139/ssrn.4190664, (accessed October 21, 2023).
• Trevino, Len J., John H. Daniels and Harvey Arbelaez. 2002. Market Reform and FDI in Latin America: An Empirical Investigation. Transnational Corporations 11, 1: 29-49.
• Wade, Robert. 2000. Wheels within Wheels: Rethinking the Asian Crisis and the Asian Model. Annual Review of Political Science 3: 85-115
• Wolkenstein, Fabio. 2022. What is Democratic Backsliding? Constellations: 1-15.
• Yilanci, Veli, and Burcu Özcan. 2008. External Debt Sustainability of Turkey: A Nonlinear Approach. International Research Journal of Finance and Economics 20: 91-98.