An Assessment of the Turkish Economy in the AKP Era

Abstract

This paper studies the performance of the Turkish economy under the reign of the Justice and Development Party (Adalet ve Kalkınma Partisi, AKP). Most of this period coincides with abundant global capital especially in the aftermath of the Great Recession. We argue that AKP’s economy policies were shaped with the goal of attracting foreign capital to the country, creating a debt ridden speculative growth model and turning a blind eye to the mandate of solving the country’s fundamental problems. Within this model, monetary policy has been the leading actor. Although the Central Bank has been operating with a price stability mandate during this period, inflation targeting performance has been poor, creating doubts about the leading motive behind the reaction function. Fiscal policy became a dependent variable, shadowed by the capital chasing monetary policy. As global liquidity started to become more risk averse in the post-tapering era and as accumulated domestic problems of the country became thicker, Turkey’s growth model proved to be unsustainable, intensifying external fragility for the period ahead.