Mustafa Akyol:  Where does Erdogan’s obsession with interest rates exactly come from?-Islamic economics

One of the most startling stories in the world these days is what the Wall Street Journal recently called “The Erdogan Lira Crisis.” The crisis is that Turkey’s national currency has been plummeting at an astonishing rate: in 2012, 1 U.S. dollar equaled 1.8 Turkish liras. Today, after an accelerating downward spiral of the Turkish currency, 1 dollar equals 13.7 liras.




The dramatic decline of the Turkish lira

This economic catastrophe is really an “Erdogan crisis,” because its key factor is what experts have called “Erdoganomics”: Turkey’s all‐​powerful president believes in a bizarre economic theory that if the central bank lowers the country’s interest rates, it will lead to lower levels of inflation.


Which is exactly the opposite of what Economics 101 will tell you. (Hence in 2015, when Erdogan began pushing for his theory, a former head of the central bank, a sane one, said that to believe in this theory, one must “burn the books of Adam Smith.”) Yet President Erdogan doesn’t care much about such conventional wisdom, which for him means “Western,” which also means worthless. “We don’t care about what George or Hans says” he declared repeatedly in the past five years, in populist denigrations of the Western standards of liberal democracy and the market economy. (Which are the very standards he used to follow in his earlier years in power, when he was not yet overtly ideological and arrogantly unrestrained, making Turkey then quite successful.)

Where does Erdogan’s obsession with interest rates exactly come from?

Where does Erdogan’s obsession with interest rates exactly come from? As I briefly explained in my latest book, “Why, As a Muslim, I Defend Liberty,” it comes from “Islamic economics.” (Economist Steve Hanke rightly makes the same point.) This ideological construct, which appeared in the mid 20th century with unmistakably Marxist influences, is different from the 14‐​centuries‐​old economic experience of Islamic societies, which, especially in the beginning, reflected a vibrant and pioneering commercial capitalism.

Surely, interest was a problem also in this pre‐​modern Islamic capitalism, as the Qur’an strongly condemned riba, or “usury.” But some jurists distinguished “excessively exploitative” moneylending from “reasonable” interest rates, allowing the “cash foundations” in the Ottoman Empire, which functioned as pre‐​modern banks. More importantly, as historian Timur Kuran has noted, the concern with riba was never taken as the basis of a distinct economic system, until the rise of “Islamic economics,” which itself was a component of the modern‐​day Islamist movement.



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Erdogan, a veteran of Turkey’s Islamist movement, seems to be committed to this ideological construct, which he apparently cannot distinguish from being a pious Muslim. That is why, he recently defended his relentless war on interest rates by saying, “there is nass [Qur’anic decree] on this; so what is up to you or me?” In other words, he presented his economic theory as a religious truth that good Muslims should not question.


Yet all of this would be less of a problem if Erdogan did not have the power to impose his peculiar beliefs on the whole nation. (For a comparison, recall that President Trump believed at some point that hydroxychloroquine was effective against Covid‐​19. But this pseudoscientific view did not become government policy, and it was freely criticized, if not ridiculed, by a free press.)


Turkey’s real problem


Which brings us to Turkey’s real problem. It is not just that there is an ideologically delusional and personally hubristic president. The real problem is that this president has unlimited power. Throughout the past decade, with all the well‐​tailored constitutional and legal redesigns, as well as dirty tactics of patronage and intimidation, Erdogan has taken control of the whole state apparatus: the executive, the legislation, and the judiciary. He has also taken control of some 90 percent of the media, all universities across the nation, and the central bank, which controls the Turkish lira.



Meet the boogieman–Mastermind


That is why Erdogan was able to impose his bizarre theory on interest rates on Turkey’s central bank, whose presidents he changed five times over the past ten years, at times publicly complaining, “they don’t listen to me.” In the meantime, his sycophants that filled the mainstream media sold the public the big lie: that the decline of the Turkish lira, as any other problem in the nation, was the work of a global cabal — the vague “mastermind,” sometimes specified as “Jews” — which is trying to sabotage Turkey’s glorious rise under Erdogan’s heroic leadership.


All this reminds me of a dark episode from the mid 20th century: the Lysenko Affair in the Soviet Union. It began when Russian biologist Trofim Lysenko convinced Soviet dictator Josef Stalin that Mendelian genetics was “bourgeois science,” and therefore worthless by definition. Instead, Lysenko promoted an alternative — and more “socialist” — theory of plant breeding and heredity, proposed earlier by Russian horticulturalist Ivan Michurin. Stalin embraced this pseudoscience and imposed it on Soviet institutions for years, even by purging and executing objective scientists who raised concerns. The result was mass experiments on Soviet crops, which had disastrous results, leading to prolonged famines that killed millions.


To be fair, Erdogan’s Turkey — a formal democracy where elections still matter and life seems normal — is not nearly as brutal as Stalin’s USSR. Still, under Erdogan’s authoritarian populism, it has devolved into a republic of fear, where vocal critics of the thin‐​skinned president fear ending up in jail, or at least losing their jobs. And the language of the regime, which depicts a great leader standing against endless conspiracies, saboteurs, and traitors, sounds disturbingly similar to Soviet propaganda.


Whether Turkey will find a way out this nightmare soon, before it gets worse, is unclear. There are elections scheduled for June 2023, and polls show that this time Erdogan may be finally defeated. But whether he would accept defeat is a difficult question with no clear answer.


Yet there is something else that is clear: In the past decade, Turkey has experienced a growingly deepening autocracy, which has proven increasingly destructive. It is a sad story that confirms that good‐​old liberal lesson, proven repeatedly throughout world history:


Never give too much power to one man. His delusions of grandeur may be the making of your own misery.


Published in CATO Institute papers

Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.