Turkey’s President Recep Tayyip Erdogan has been given emergency powers granting him broad authority to act when the country’s financial stability is seen as under threat.

In line with referendum-approved constitutional changes turning Turkey into a presidential republic—and making Erdogan an executive president whom critics say can essentially exercise near-one-man-rule—MPs voted late on January 16 to authorise Erdogan to pursue all required measures if faced by a “negative development” that could spread across the entire Turkish financial system. Lawmakers also approved the establishment of a Financial Stability and Development Committee. Once also approved by Erdogan, the committee will attempt to coordinate efforts to address financial stability and security risks.

According to some analysts Turkey may already be mired in a deep recession given the impact of last year’s Turkish lira (TRY) crisis and the crushed consumer demand, spiked borrowing costs and confidence and credit crunch that have followed.

Recession during election headache
The timing of the downturn—Turkey’s first recession in a decade—is a headache for Erdogan and his ruling Justice and Development Party (AKP) given that there are important local elections scheduled for the end of March. Internal AKP polling was this week said to have shown that the party fears losing control of Ankara and Istanbul. Erdogan rose to prominence as mayor of Istanbul. He is known to attach special importance to municipal elections, seeing local politics as key to how voters view the national government.

Commenting on the emergency economic powers, Liam Carson of Capital Economics wrote on January 18 in a research note: “More than anything... it signifies a further centralisation of power in Turkey, something we have warned about before. And the president’s response to the lira crisis, which largely consisted of a diatribe against foreign speculators, is an indication that he may not take the action needed to stabilise the economy and soothe investors.”

“It’s not exactly clear what new powers have been conferred but it may be a sign that policymakers are increasingly concerned by the economic fallout from last year’s currency crisis—and particularly the lingering threat of problems in the banking sector.”

How much more power can he need?
The move to give Erdogan more economic powers also begs the question of how much more power can he need. Turkey stands at 111th place among 113 countries ranked on the World Justice Project’s 2017-2018 Rule of Law Index’s sub-category for Constraints on Government Powers, released in February 2018 (before the June 24 snap polls, only after which were the constitutional changes introduced to pave the way for the introduction of an executive presidential office with sweeping powers and the scrapping of the office of prime minister, together with the diminishing of parliament’s role in affairs).

Under the newly introduced legislation, “the president is authorised and responsible for the implementation of all measures beyond the powers” of members of the Financial Stability and Development Committee. The committee will be formed under the supervision of the Treasury and Finance Ministry, which is headed by Erdogan’s son-in-law Berat Albayrak.

Markets remain wary of Erdogan’s economic stewardship given his unorthodox view that rate hikes push up inflation. As pressure mounted on the lira last year and inflation soared, the central bank was seen as slow to act. Analysts questioned its rate-setting independence, especially when Erdogan openly said in an interview that as executive president he would expect to play a leading role in shaping monetary policy.

The president’s decade and a half at the top of Turkish politics has much relied upon popularity generated by a credit-fuelled economic expansion, with mega infrastructure spending projecting a feeling of a prosperous Turkey charging ahead. But the country’s dream of having a trillion-dollar economy has gone up in smoke—at least for the foreseeable future. The time for serious fiscal and monetary discipline looks to have arrived, but there is market anxiety that Erdogan will not be able to resist more grandiose spending that the economists say Turkey should make do without until it gets back on an even keel.