This is a critical moment for the Turkish economy, in the wake of a currency crisis last year that wiped 30 per cent off the value of the lira. With president Recep Tayyip Erdogan tightening his grip on Turkish institutions and ahead of the delivery of a contentious S-400 Russian missile system – which could draw a fresh round of US sanctions next week – international investors are spooked.
With many ordinary Turks struggling financially, Mr Erdogan should be focusing on stabilising an erratic economy.
Instead, on Saturday, the Turkish president sacked the central bank governor, Murat Cetinkaya, by presidential decree. When markets opened on Monday morning, the lira's value fell 3 per cent. Again, Mr Erdogan has run roughshod over state institutions, after last year appointing his son-in-law, Berat Albayrak, as the country's finance minister.
The Turkish economy is heavily dependent on foreign investment and investors hold central bank independence in extremely high regard.
Mr Erdogan’s meddling is driven in part by his own unorthodox views on monetary policy. Despite two centuries of economic consensus to the contrary, the president is adamant that high interest rates cause inflation. Indeed, he once labelled interest rates the “mother and father of evil”. That is why Turkish central bank autonomy is so important.
Last September Mr Cetinkaya defied the president and raised rates, ushering in a period of relative fiscal calm. However, few expect his replacement, deputy governor Murat Uysal, to do the same. During a closed-door meeting after Mr Cetinkaya’s departure, Mr Erdogan reportedly told politicians and bureaucrats that they need to support his verdict on interest rates or face the consequences.
As Mr Erdogan's challenges mount, he might grow more authoritarian at home and more assertive abroad.
Turks are wrestling with high prices and double-digit unemployment. Last year, inflation reached 20 per cent as the country dipped into a recession and Mr Erdogan’s recklessness is again pushing Turkey’s economy to the brink. Last month, the people of Istanbul made their disenchantment with his leadership clear, voting out his AKP party in the mayoral election after a quarter-century of control.
But rather than addressing their concerns, Mr Erdogan has doubled down on his own bizarre convictions. Ever since he took on the sweeping powers of the newly created executive presidency in 2018 following a referendum, the Turkish leader has tightened his grip on Turkish institutions.
With the spectre of fresh US sanctions next week, the Turkish president has again undermined the credibility of an institution whose effectiveness depends entirely on its independence. In doing so, he has laid the groundwork for another recession and – if Turks respond again at the ballot box next time around – possibly his own downfall.