Turkey, the G-20 and Self-Confidence

June 28, 2010

It’s been more than two years since Turkey became a proud member of the G-20, the club comprising the largest and most developed economies in the world. This membership means a lot for a country like Turkey where people used to suffer from an inferiority complex.

Back during the Cold War decades, Turkey perhaps felt unambiguously part of the Western military camp. But as far as the economy was concerned Turkey was in many ways still a third-world country with a gloomy outlook due to its poor economic performance. These old days of depressing self-doubt are history now. In fact, if there is one adjective that most accurately defines Turkey’s foreign policy these days it is “self-confidence.” From the decision to vote against the United States-led camp of sanctions against Iran in the United Nations Security Council, to the expectations of an apology from Israel, Turkey is a country that feels supremely confident these days. It believes it can afford to be so thanks to one major fact: its solid economic performance. In other words, if you want to understand today’s Turkey and the psychology of its leadership you have to understand the links between Turkish self-confidence and the economic performance that backs it up.

In many ways, the economy is the story of the dog that did not bark. Only two years most domestic and international analysts pontificating about the Turkish economy argued that Ankara desperately needed to sign a new agreement with the International Monetary Fund (IMF). After all, the global financial crisis was just unfolding and emerging markets such as Turkey appeared very vulnerable to the vagaries of financial flows and fiscal imbalances. Turkey’s high current account deficit was a particular source of concern. Yet, the Justice and Development Party (AKP) government stubbornly insisted that signing an IMF deal would bring an unnecessary straightjacket to Turkey’s economic performance. The government was particularly concerned about sacrificing growth and employment prospects for deflationary measures. I remember a conversation at Brookings with Minister Mehmet Şimşek where he argued that the IMF would bring an austerity package to a Turkish economy that did not suffer from a banking or financial crisis. Turkey’s public sector was not the problem and the country seemed somewhat immune to the global storm. Even two years ago, there was a sense of self-confidence in the statements of AKP officials, including Prime Minister Recep Tayyip Erdoğan, who argued that “this global crisis will not affect us.” Guess what? He was proven right. At a time when the fiscal future of Greece, Portugal, Spain and Ireland, (the infamous PIGS), is a major source of concern and the euro zone is in deep crisis, the Turkish economy appears to be doing relatively well. People keep comparing Turkey and Brazil in terms of their ability to weather the global financial crisis with relatively little negative impact.

This is where being in the G-20 and self-confidence has helped Ankara. The decision not to sign an austerity package with the IMF proved to be the right one. At a time when the whole Western world and China were engaged in Keynesian stimulus programs and fiscal expansion, Ankara did not want to go the opposite way and deprive itself from public spending to boost domestic demand. As a G-20 country Turkey wanted to follow the same policies that the Western economies and Asian tigers followed. At the end of the day, Ankara was proven right in its self-confidence.

Yet, it remains crucial for Turkey not to get too carried away. Self-confidence can become dangerous when it turns into hubris. Today, Turkey may be doing better than Europe economically, but it still needs the European Union politically. Democratization is still a work in progress in Turkey. Solving political problems is always easier when the government can prove there is no authoritarian or Islamic agenda. And the only road to end domestic political polarization and build a genuine national consensus for democratization goes through Brussels, not Brazil or Iran. This is why Ankara should maintain its transatlantic vocation despite its growing self-confidence.