Erdogan begins mending fences but are economic compulsions behind change of heart?

Turkish President Recep Tayyip Erdogan. (File image)

In the past 50 days since his re-election, Turkish President Recep Tayyip Erdogan has been in a tearing hurry journeying between the East and the West in an attempt to revive the country's sinking economy. There are also many signs of a significant shift in economic and foreign policy.

It is no longer about leading the Islamic world. Instead, the focus is on reviving the economy, reconciling with the Gulf states and the West, measures to discourage immigrants, and continuing the policy of keeping both Ukraine and Russia happy.

Economic Worries

Erdogan also had to swallow his pride by appointing Mehmet Simsek, a highly respected former Merrill Lynch banker, as finance minister and Princeton-educated economist Hafize Gaye Erkan as governor of the central bank. Insiders say that before agreeing to head the economy, Simsek had set a condition that the presidential office not interfere in his affairs.

In a series of moves, the new finance minister reversed Erdogan's unorthodox economic policies by raising interest rates and allowing the Turkish lira to free-fall in the market. Erdogan had consistently refused to raise interest rates in the past, citing the Islamic aversion to interest rates, which discouraged people from depositing their money in banks for long periods.

The lira has lost more than 90 percent of its value over the past two years as the country has been hit by soaring inflation. Since the end of 2022, more than $27 billion of the central bank's foreign exchange reserves have been depleted as the government propped up the currency and financed the huge budget deficit.

The economy is important because the ruling party AK (Justice and Development Party) faces local elections early next year, with earthquake rehabilitation still a challenge. Instead of state governments, Türkiye is governed by local bodies. Like state governments in India, this level of government is responsible for tax collection, transportation, infrastructure development, and spending for social and welfare schemes.

Local governments include 30 major cities, 1,351 district municipalities, 1,251 provincial councils, and 20,500 municipal councils. Currently, the ruling party AK controls only 15 of the 30 district councils. The influence of local bodies is so significant that the mayor of the megacity of Istanbul can be equated with the chief minister of India's largest state, Uttar Pradesh, in terms of power, influence, and control of funds. Erdogan, who himself was mayor of Istanbul before becoming prime minister in 2003, lost this megacity and the capital of Ankara to the opposition Republican People's Party (CHP) in 2019.

Supping With Old Rivals

On the geopolitical front, evidence that Erdogan is on his way to improving diplomatic relations with the West became clear when he suddenly dropped his long-held objection to Sweden's application to join the military alliance. Just hours before arriving in the Lithuanian capital of Vilnius for the June 11 NATO summit, he had accused Stockholm of not doing enough to combat terrorism.

His boldest statement, however, is to welcome right-wing Israeli Prime Minister Benjamin Netanyahu, expected in Ankara on July 28. To ward off negative reactions from Islamists, he invited Palestinian President Mahmoud Abbas to also visit Ankara before Netanyahu's visit.

In August 2022, Israel and Turkey resumed full diplomatic relations through the exchange of ambassadors after the latter had downgraded relations in 2018 over Israeli forces killing 60 Palestinians during the Great March of Return.

The rebalancing of foreign policy also includes the restoration of relations with Egypt and a symbolic handshake between Erdoğan and his Egyptian counterpart Abdel Fattah el-Sisi. No less significant was Erdogan's tour of Saudi Arabia, the United Arab Emirates and Qatar.

Relations with Saudi Arabia and UAE have been strained because of Ankara's support for pro-democracy movements in the Middle East and Erdogan’s quest for leadership in the Islamic world. The Gulf trip brought Erdogan $50.7 billion worth of investment from the UAE and a lucrative deal to sell drones to Saudi Arabia.

Fixing Syria, Friending Europe

Preparations are also underway to restore relations with Syrian President Bashar al-Assad. New Turkish Foreign Minister Hakan Fidan, a former intelligence chief, has been a key figure in overseeing back-channel contacts with Syria over the past two years.

According to Ahmet Furkan Ozyakar, a scholar, the resumption of full relations with the Syrian regime is due to domestic political pressure to repatriate the 3.4 million Syrian refugees. Since last year, Erdoğan has been pushing for repatriation but the Assad regime has stressed that any reconciliation will depend on complete withdrawal of Turkish troops from Syrian territory.

While agreeing to Sweden's accession, which came too soon after the Quran burnings in Stockholm, Erdogan received assurances that negotiations on Türkiye's EU accession would resume. Full membership negotiations began in 2005, shortly after Erdogan came to power. They have stalled since 2016.

Experts believe that the economic boom in Türkiye during the first 10-12 years of Erdogan's government between 2003 and 2013 was largely due to expectations of EU accession. Investors from around the world came with pockets full of money and invested in Türkiye anticipating that the country would become part of the EU and they would get a large market.

This led to a boom in real estate construction. But as hopes of Türkiye joining the EU faded, those investments ran away. Whether Erdogan will now succeed in winning this game and getting the economy going again, and whether he will now really turn inward and put his extraterritorial interests on hold, remains anyone's guess.

Iftikhar Gilani is a journalist currently based in Ankara, Turkiye. Views are personal, and do not represent the stand of this publication.