Turkey: Turkish lira depreciates to all-time low as graft probe erodes Erdogan power base
January 10, 2014
After last summer's antigovernment protests finally wound down, Prime Minister Recep Tayyip Erdogan's administration was shaken by a corruption investigation in mid-December. The graft probe targeted a host of people connected to the ruling AKP party (Justice and Development Party), which included four ministers and the Prime Minister's son, Bilal Erdogan. Erdogan denounced the graft probe, claiming that it was a plot to make his government fall. Nevertheless, he chose to reshuffle his cabinet and replace 10 ministers. In an attempt to prevent further corruption probes, the government fired hundreds of police officers that were involved in the investigations. Because the government lacks authority over the judiciary, judges' and prosecutors' positions were not touched. However, the government did send draft legislation to Parliament that would tighten control over the judiciary. If approved, the bill would enable the government to appoint its allies to key positions in the judicial system. In addition, the Erdogan administration plans to tighten its grip on the Internet by monitoring user activity and blocking websites that are considered to infringe upon privacy.
Analysts believe that the recent developments mostly reflect a power struggle between Erdogan and Fethullah Gulen, an influential Turkish Muslim cleric living in the United States, who has gained influence within Turkey's police force and in the judiciary system over the past decade. In an attempt to both promote an Islamist agenda and to reduce the secularist establishment's influence, Gulen has supported the AKP since Erdogan took office in 2003. However, Erdogan's decision to close down the private schools that Gulen's movement runs has caused their relationship to deteriorate. Analysts reckon that Erdogan is attempting to curb Gulen's financial and political power in an attempt to reaffirm his position ahead of this year's electoral cycle.
Local elections will be held in March, which will be a crucial test for Erdogan and the AKP in advance of the presidential election scheduled for the summer in which Erdogan is expected to run. However, the government's handling of the Gezi Park protests, its open conflict with Gulen's movement and the current corruption probe that is under way will make it difficult for Erdogan to gather the support of nationalists, Islamists and liberals that allowed him to win the 2011 general election by a landslide. According to recent polls, support for the AKP stands at 42.3%, which is below the 50.0% the party received in the 2011 general elections.
Against a backdrop of political turmoil within the country and the U.S. Federal Reserve tapering of its bond-buying program, the Turkish lira slid to an all-time low in recent weeks. On 9 January, the lira traded at 2.19 per USD, which was 7.5% weaker than last month. On an annual basis, the lira is down 23.1%. FocusEconomics Consensus Forecast panelists expect the lira to trade at 2.12 per USD by the end of this year. For 2015, the panel projects the lira to trade at 2.11 per USD.