Recep Tayyip Erdogan, Turkey’s president, has indicated he could seek to extend his emergency powers indefinitely, driving the currency down past the psychological threshold of three lira to the dollar.
“I believe the nation will support an extension of the emergency rule,” Mr Erdogan said in Ankara on Thursday. He added that even a 12-month extension might “not be long enough for Turkey”.
His comments suggested he was preparing to reverse promises made to investors and the Turkish public. Mr Erdogan had said the 90-day state of emergency implemented after a failed coup in July was a temporary measure designed to flush out coup plotters.
The lira, which plummeted at the beginning of the week after Moody’s downgraded the country’s credit rating to junk status, fell further to 3.007 to the dollar on Thursday, highlighting investors’ concerns that the economy was being held increasingly hostage to politics.
The emergency powers, due to expire around mid-October, allow Mr Erdogan to rule by decree and make decisions that cannot be overturned by the Constitutional Court, the country’s highest legal body.
Mr Erdogan has already targeted the court, removing two of its members, in a sweeping crackdown on officials suspected of allegiance to Fethullah Gulen, a self-exiled cleric he blames for the failed putsch.
Since placing the country under emergency rule, the government has jailed tens of thousands of people, and accused more than 100,000 citizens — from doctors and teachers to journalists and military commanders — of colluding with Mr Gulen.
The government has also seized dozens of businesses, accusing their owners of funding Mr Gulen’s activities.
“These developments indicate that the government is increasingly becoming dependent on a ‘crisis mode’ to manage day-to-day activities,” said Mujtaba Rahman, an analysts at Eurasia Group. “But although the state of emergency affords Mr Erdogan more powers, his dependence on it indicates his sense of vulnerability — Mr Erdogan calculates that he has less to gain and more to lose by giving up his de facto powers.”
Both Moody’s and S&P Global Ratings have cited political instability and an erosion of institutional strength as factors that caused them to strip Turkey of its investment-grade status, as well as slowing economic growth and high debt levels.
Mr Erdogan said Moody’s rating cut was “like revenge on him”.
“No one in Turkey or abroad took the rating cut seriously,” he said. “Cut whatever you can — Turkey’s reality is different.”
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Turkey’s economy, which was one of the world’s better performing emerging markets before the coup attempt, has already cooled and it is unlikely to meet the government’s growth target of 4.5 per cent for the year. In the second quarter, the economy expanded 3.2 per cent, which was lower than forecast.
Mr Erdogan has cut interest rates and encouraged consumer spending. But tourism, a critical sector, continues to struggle, with foreign arrivals down more than a third in August, while the current account deficit has widened to more than 4 per cent of gross domestic product.
Fitch, the third major rating agency, is due to announce its decision on Turkey’s credit rating early next year. A downgrade from all three agencies would trigger the selling of Turkish assets, raise banks’ borrowing costs and increase pressure on the lira.
Mr Erdogan thanked Turks for converting as much as $12bn of their personal holdings into lira since the coup attempt, citing it as evidence of their support for him. But as the currency has weakened, Turks have started buying back dollars — as much as $3.5bn in the past two months — placing additional pressure on the lira.