Two years on: Erasing the economic remnants of the July 15 coup

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It is a frequently stressed idea in the political science, sociology and economics literature that military interventions that interrupt democratic politics via brutal force and suppression of legitimate authorities damage institutional structures and social fabrics. The unorthodox coup attempt perpetrated by the Gülenist Terror Group (FETÖ) on the Turkish security establishment on July 15, 2016 was certainly no exception. The coup attempt was organized by a secretive order that infiltrated state institutions, private corporations and civil society institutions over the course of the last four decades.

Therefore, the July 15 coup triggered a deeper shock for state institutions and democratically-elected authorities compared to military coups that were launched through the army's chain-of-command over the course of Turkey's troubled political history. This episode caused extensive damage to the sense of national unity, shattered trust among key social and economic groups including professionals and market actors and exerted a heavy blow to the development impetus. It was only the charismatic leadership of President Recep Tayyip Erdoğan and the unique emotional bond between him and Turkish society that kept the institutional integrity of the state intact during the initial post-coup period and allowed swift economic recovery afterwards.

Mainstream approaches in the above mentioned literature purport that coup attempts are more likely to occur during times of economic distress, stagnation and crisis when the democratic legitimacy of elected authorities tends to weaken. Acute economic underdevelopment and weakness of democratic norms, institutions and regulatory frameworks are also cited as facilitating factors that encourage armies to take over direct administrative control. Typically, developing countries that are primary goods producers or oil exporters have one-sided socioeconomic structures that are sensitive to the welfare effects of price and demand fluctuations in world markets.

Sudden loss of public revenue due to falling international prices might trigger fiscal crises, undermine political legitimacy and prepare a fertile ground for military interventions. The respective impact of military interventions on economic performance is usually negative, as coup attempts increase country risks for international investors, slow down economic activity, curb social and structural reform initiatives, damage predictability and distort equitable distribution. Therefore, developing countries that experience military interventions are often forced to enter into standby agreements with the IMF to meet their financing needs and revitalize economic growth under international monitoring.

Over the course of Turkey's political history in the multiparty (post-1950) period, frequent military interventions created typical third-world dynamics whereby periods of economic stagnation were followed by social tensions, political polarization, international pressures and military takeovers. Recurring military interventions in 1960, 1971, 1980 and 1997 displayed these patterns and critical shifts in socioeconomic development strategies were imposed under extraordinary conditions. However, the unconventional military coup attempt that was launched on July 15, 2016 was not surrounded by economic stagnation, social polarization and political impasse as its predecessors.

There was a strong single party government with robust democratic legitimacy, dynamic economic performance with high growth figures and relative social peace. Therefore, economic response to the coup attempt was unprecedentedly successful and the national economy showed exceptional resilience to the externally imposed volatility. Institutional agents responsible for macroeconomic governance including ministries, autonomous councils and the central bank displayed prudence in crisis management, as a result of which growth momentum was quickly restored.

Added growth impetus was provided by financial incentives through the Credit Guarantee Fund, which supported small and medium-sized enterprises. The outcome was a highly respectable 7.4 per cent growth rate for the year 2017 that represented one of the highest growth figures in the world.

Currently, the Turkish economy is going through a critical passage whereby liquidity in international markets is contracting due to interest rate hikes in the U.S. and the EU, while a domestic transformation is in progress to institutionalize the presidential system. The new governance architecture that is formed around the presidency with specialized committees, expert offices and centralized ministries will oversee a new period of high and sustainable growth that will erase the remaining negative remnants of the July 15 coup.

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