Turkey is coming apart. The Islamist coalition that crushed the secular military and political establishment–between Tayip Erdogan’s ruling AK Party and the Islamist movement around Fethullah Gulen–has cracked. The Gulenists, who predominate in the security forces, have arrested the sons of top government ministers for helping Iran to launder money and circumvent sanctions, and ten members of Erdogan’s cabinet have resigned. Turkey’s currency is in free fall, and that’s just the beginning of the country’s troubles: about two-fifths of corporate debt is in foreign currencies, so the cost of servicing it jumps whenever the Turkish lira declines. Turkish stocks have crashed (and were down another 5% in dollar terms in early trading Friday). As the charts below illustrate, so much for Turkey’s miracle economy.
Two years ago I predicted a Turkish economic crash. Erdogan’s much-vaunted economic miracle stemmed mainly from vast credit expansion to fuel an import boom, leaving the country with a current account deficit of 7 % of GDP (about the same as Greece before it went bankrupt) and a mushrooming pile of short-term foreign debt. The Gulf states kept financing Erdogan’s import bill, evidently because they wanted to keep a Sunni power in business as a counterweight to Iran; perhaps they have tired of Turkey’s double-dealing with the Persians. And credulous investors kept piling into Turkish stocks.
... No more. Turkey is a mediocre economy at best with a poorly educated workforce, no high-tech capacity, and shrinking markets in depressed Europe and the unstable Arab world. Its future might well be as an economic tributary of China, as the “New Silk Road” extends high-speed rail lines to the Bosporus.
... Turkey was not in line to become an economic power of any kind: it lacked the people and skills to do anything better than medium-tech manufacturing. Its Islamists never were democrats. Worst of all, its demographics are as bad as Europe’s. Ethnic Turks have a fertility rate close to 1.5 children per family, while the Kurdish minority is having 4 children per family. Within a generation half of Turkey’s young men will come from families where Kurdish is the first language.
Now that Turkey is coming unstuck, along with Libya, Egypt, Lebanon, Syria, and Iraq, we should conclude that the entire project of bringing stability to the Muslim world was a hookah-dream to begin with. Except for the state of Israel and a couple of Sunni monarchies that survive by dint of their oil wealth, we are witnessing the unraveling of the Middle East. The best we can do is to insulate ourselves from the spillover effect.Erdogan also lacks the ability to crush Gulen under his thumb. Not only is Gulen extremely rich, but he lives in the United States. He is beyond Erdogan's reach, and teaches a form of Islamic mysticism which has, so far, proved very popular in Turkey.