COVID-19: Turkey should learn from the last crisis
2020 will go down in history as the year of the coronavirus. Just like 2001 is synonymous with 9/11 and 2008 with the global financial crash. For Turkey as well as for the international community writ large, the recent past might hold some lessons.
Over the past few weeks, states around the world, from France to the United States to Turkey, have embarked on more or less the same set of measures. They have ordered comprehensive lockdowns, closed public places, including restaurants, bars and cafes, schools and universities, restricted travel, and even shut national borders.
Hospitals and other medical facilities are gearing up to cope with a surge of acute cases, in the hope they will be spared the nightmare scenario seen in Italy. Before our eyes the interconnected world we took for granted appears to be falling into pieces.
When leaders say “we are all in this together” they are speaking to their national electorate rather than the global public. Never mind the fact that the threat governments are reckoning with, a new virus that has spread rapidly from a city in China to the nearly all corners of the planet, is a quintessentially transnational one. Everyone is fending for themselves.
Such a strategy will soon show its limits and the economic aftershocks will be profound.
We are on the verge of a world recession which might even rival that of 2008-2009. The shutdowns in China, Europe and the United States, the three most important markets around the globe, will take a heavy toll on growth this year. Goldman Sachs has lowered its eurozone growth projections from 1 percent to –1.7 percent. According to the bank, Italy’s gross product will shrink by 3.4 percent, Germany’s by 1.9 percent and that of France by 0.9 percent. The U.S. economy might stay in positive territory with a growth rate of 0.4 percent. Chinese GDP will expand by 3 percent which, by its standards, is low.
No wonder then that the last few days one government after another is rushing to unveil stimulus measures to keep their economies afloat, and reassure investors as well as ordinary citizens.
But fiscal injections at the national level might fall short in tackling the looming threat. International trade and interlinked financial markets might spread contagion as rapidly as cross-border travel helps transfer the virus from a country to country. A coordinated response would be preferable to a patchwork of policies carried out with domestic politics in mind.
After the 2008 crisis, global leaders pulled together in the name of restoring health in the markets. The G20, an international forum bringing together both the main Western powers and rising economies, including Turkey, was born. Yet back then, unlike now, the United States and China enjoyed an overall cooperative relationship. And there was no President Donald Trump to pick fights with the European Union and to accuse it of ripping off America. The prospects for international cooperation to deal with the new crisis look murky.
This is bad news for Turkey. Firstly, Turkey is dependent on foreign trade and especially on global financial markets. Secondly, its economic fundaments are not in good shape, even if the government may wish to believe that the 2018 currency crisis has been overcome. As Mark Bentley wrote in a commentary, the lira remains vulnerable to external shocks while the authorities are traditionally unwilling to hike up interest rates (remember President Recep Tayyip Erdoğan’s long-standing hostility to high interest rates).
A reduced demand from the EU - Turkey’s top trading partner - coupled with a run on the lira driven both by international investors and ordinary citizens is not a far-fetched scenario.
The government appears to be well aware of the trouble ahead. Erdoğan has just announced a 100 billion-lira ($15.4 bn) package to boost the economy threatened by the fallout of the COVID-19 crisis. That might not be enough. Turkey could soon find it lacks the firepower needed to avoid sliding into recession like the eurozone countries. Much depends, of course, on the severity of the coronavirus pandemic and how effective the health system proves to be in containing the disease.
But Turkey’s forecast of 3 percent GDP growth is unlikely to come true. Turkey will not bounce back either, as it did in 2010 when its economy expanded by 8.5 percent thanks to an influx of foreign investment. Erdoğan will probably be loath to go knocking on the IMF’s door for a bailout package, even as a worst-case scenario. Yet he will be well advised to reach out to Europe and the United States, in addition to advocating for the G20 to be brought back to life. A global problem requires global solutions.