As Turkey's economy heads into a tailspin because of the collapse of its currency, the lira, investors and economists wonder why President Recep Tayyip Erdoğan has continued the eccentric economic policy that caused this crisis. He has made clear that his motivation is primarily religious.
 A money changer counts Turkish lira banknotes at a currency exchange office in Ankara, Turkey, Sept. 27. |
Mr. Erdoğan has dominated Turkish politics for nearly 20 years in a variety of roles—head of the Justice and Development Party, prime minister and president. Two notable features marked the first half of his rule: constant worry that the fervently secular military leadership would stage a coup, and extraordinary economic growth.
Everything changed in July 2011, when Mr. Erdoğan forced the military chief of staff to quit, along with the heads of the army, navy and air force, giving him control over the armed forces. With no further fear of a coup, he finally was able to pursue fully the Islamist ideology the secular officers had tempered.
That ideology emerged quickly. Mr. Erdoğan supported fellow Islamists in Syria and Egypt in 2011, provoked tensions with Israel and the West, and flirted with ditching the North Atlantic Treaty Organization in favor of the Russian- and Chinese-dominated Shanghai Cooperation Organisation in 2012. Domestically, the Turkish government raised taxes on alcohol and limited sales and advertisements, and religious schools became more common and better-funded.
 The Central Bank of Turkey. |
When media ridicule ensued, Mr. Erdoğan and his aides fell silent, offering no further explanations for low interest rates as the Turkish lira declined steadily in value. This year, despite massive purchases of foreign currency by the Turkish central bank, the lira has declined from 7 per U.S. dollar in February to about 18 in mid-December. (A short-term fix has moved the exchange rate to 13, but the market appears unconvinced.)
On Dec. 19, Mr. Erdoğan explained that he is crafting policy on his interpretation of the Quran's commandment prohibiting paying interest on money: "They complain we keep decreasing the interest rate. Don't expect anything else from me. As a Muslim, I will continue doing what our religion tells us. This is the command." That single, disastrous remark caused the lira immediately to drop 12%. The realization that Mr. Erdoğan's policies were based on the live commands of the Quran, not the theories of a dead American economist, spooked the market.
 Note the increase in the number of lira per U.S. dollar on Dec. 19 followed by an even larger drop on Dec. 20, thanks to a short-term fix. |
Mr. Erdoğan's conviction about interest rates has terrible implications for Turkey. Protests and hunger are spreading, and the country could go the way of Venezuela. Duke University economist Timur Kuran said the coming chaos gives Mr. Erdoğan and his minions "an opportunity to declare emergency rule and stay in power despite their rising unpopularity."
Mr. Erdoğan's "what our religion tells us" statement shows a subservience to medieval notions about finance, no matter the harm they cause. But medieval religious regulations don't mix well with modern finance—or with almost anything. Muslim success in the modern world requires a reconsideration of Islamic laws in light of current circumstances. Quranic regulations could be interpreted to allow for reasonable interest payments while banning usurious interest.
Five hundred years ago, Jews and Christians shared with Muslims a hostility to interest payments, but they eventually came to terms with this financial necessity. Muslims must follow suit or risk more instability, repression and poverty in Turkey and other Muslim-majority countries.
Mr. Pipes is president of the Middle East Forum.
