Will Turkey recalibrate foreign policy in the new era?

The past week has marked some significant developments and changes concerning Turkish politics and the economy. Two years after the formation of the current Justice and Development Party (AKP) government under the new governance system, President Recep Tayyip Erdoğan has appointed a new economy management following the surprise resignation of his Treasury and Finance Minister Berat Albayrak.

In an address to his parliamentary group, President Erdoğan conveyed important messages on both economy and justice with an emphasis that Turkey was now stepping into a new era. Experts have interpreted these messages as a return to orthodoxy in economics with expectations that the Turkish government and economic institutions will resort to the standard fiscal and monetary policies, including a substantive interest rate hike on Nov. 19.

Emphasizing the need for implementing what he calls a “painful prescription,” Erdoğan stated, “To this end, we will not refrain from implementing the right prescriptions, even though they may be painful, and from sacrificing as the state and the nation, if need be, in line with the spirit of this critical period we are living in.”

President Erdoğan’s messages were not limited to the economy. He has singled out the need to further improve the investment climate in Turkey by empowering the judicial system in line with the universally approved principles of the rule of law.

“In the months ahead, we will be taking additional steps regarding the consolidation of the state of law principle as well as concerning a legal system that is predictable, easily accessible, fast and effective. We have also been making preparations for structural reforms to further improve the investment climate, increase the depth of the financial markets, enhance the quality of the public incomes and expenditures and prevent unregistered economy as well as for good governance,” he stated on Wednesday.

Erdoğan’s messages on the economy and the rule of law were taken note by both the international community and the investors who have long been criticizing Turkey for the continued democratic backsliding. Justice Minister Abdülhamit Gül echoed Erdoğan on Nov. 12 by issuing a strong call on the justice to abide by the constitution and do justice regardless of the political conditions. He also signaled that some problems concerning the judicial practices could be addressed through the Human Rights Action Plan being drafted at the ministry.

These messages bear a positive approach. Deterioration in the economy and the rule of law in the past few years was so severe that no symbolic and palliative measures could reverse the picture. Although at a rhetorical level, for now, revisiting the structural moves and reforms in both fields was enough to boost optimism in the markets. For sure, the markets have responded well to these messages, but they recall that the deeds will be more important than words.

It’s believed that the Central Bank under its new Governor would raise the interest rates on Nov. 19 in a way to satisfy the markets and to give a sigh of relief for the economy, at least for the short-term.

Despite this cautious optimism, one should not forget about pending geopolitical and foreign policy risks that may have a painful impact on the Turkish economy. The election of Joe Biden as the new American president may further complicate the Turkish-American relationship, particularly in the context of the looming S-400 sanctions.

Those who follow the bilateral ties very closely urge that the possibility of the imposition of the S-400 sanctions on Turkey is growing as the legislation and enactment of the 2021 National Defense Authorization Act in mid-December will force the administration to punish Turkey as suggested through the Countering America’s Adversaries Through Sanctions Act (CAATSA).

Also, in December, the European Council will hold a summit where 27 members will discuss how to tackle the ongoing tension in the eastern Mediterranean and whether they should impose sanctions on Turkey because of the continued seismic works in the area.

Many European countries no longer hide their disappointment with Turkey’s dispatch of its research vessel Oruç Reis to the region. As can be recalled, the European Council on Oct. 1 sought to open a window of opportunity for engagement with the Turkish government. But they think Turkey’s sending the vessel back to the region has nixed the EU’s plans to move forward and strengthened Greece and Greek Cyprus, who push the EU to punish Turkey. Yet, nobody believes sanctions will work in this context, but it is hard to rule out the possibility for the same.

All these show that Turkey should also evaluate its entire foreign policy in a bid to mitigate risks and protect its economy in the new era launched by President Erdoğan last week.