The religious roots of the currency crisis in Turkey
As the Turkish economy collapses due to the collapse of its currency, the Lira, investors and economists wonder why President Recep Tayyip Erdogan continued the eccentric economic policies that caused this crisis. He clarified that his motivation is above all religious.
Mr Erdogan dominated Turkish politics for almost 20 years in various roles: leader of the Justice and Development Party, prime minister and president. Two notable features marked the first half of his reign: the constant concern that the staunch secular military leadership was staging a coup and extraordinary economic growth.
Everything changed in July 2011, when Mr. Erdogan forced the chief of military staff to resign, as well as the heads of the army, navy and air force, giving him control of the armed forces. . No longer afraid of a coup, he was finally able to fully pursue the Islamist ideology that secular officers had tempered.
This ideology emerged quickly. Mr. Erdogan supported other Islamists in Syria and Egypt in 2011, sparked tensions with Israel and the West, and flirted with the abandonment of the North Atlantic Treaty Organization in favor of the ‘Shanghai Cooperation Organization dominated by Russia and China in 2012. Domestically, Turkey’s government has increased taxes on alcohol and limited sales and advertising, and religious schools have become more common and better funded.
When Mr Erdogan took full control of Turkey’s central bank in 2018, he demanded, unlike the practice of all other central banks, that it fight high inflation by cutting interest rates. At first he tried to hide his motives. During a monetary crisis of 2018, Mr. Erdogan’s advisor, Cemil Ertem, summoned the ghost of the great Yale economist Irving Fisher (1867-1947) to justify the policy of low interest rates. Mr. Ertem even asserted that Mr. Erdogan’s views “are today the subject of contemporary scientific economic theory”.
When media ridicule ensued, Erdogan and his aides fell silent, offering no further explanation for the low interest rates as the Turkish lira steadily declined in value. This year, despite massive purchases of foreign currency by the Turkish central bank, the lira has fallen from 7 per US dollar in February to around 18 in mid-December. (A short-term fix moved the exchange rate to 13, but the market doesn’t seem convinced.)
On December 19, Erdogan explained that he is developing a policy on his interpretation of the Quran’s commandment against paying interest on money: “They are complaining that we keep lowering the interest rate. Don’t expect anything else from me. As a Muslim, I will continue to do what our religion tells us. This is the command. This one disastrous remark immediately caused the pound to drop 12%. The realization that Mr. Erdogan’s policies were based on live commandments from the Quran, and not the theories of a deceased American economist, has scared the market.
Mr Erdogan’s belief in interest rates has terrible implications for Turkey. Protests and hunger spread, and the country could follow Venezuela’s path. Duke’s economist Timur Kuran said the coming chaos gives Erdogan and his underlings “the opportunity to declare a state of emergency and stay in power despite their growing unpopularity.”
Mr. Erdogan’s statement “what our religion tells us” shows a submission to medieval notions of finance, whatever harm they cause. But medieval religious regulations do not mix well with modern finance – or with almost anything. Muslim success in the modern world requires a re-examination of Islamic laws in light of current circumstances. Quranic regulations could be interpreted to allow reasonable interest payments while prohibiting usurious interest.
500 years ago, Jews and Christians shared a hostility to interest payments with Muslims, but they came to accept this financial necessity. Muslims must follow suit or risk further instability, repression and poverty in Turkey and other Muslim-majority countries.
Mr. Pipes is President of the Middle East Forum.
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