Introduction: With the rise to power of the Justice and Development Party (AK Party) in 2002, Turkey entered a new era both politically and economically. In the initial years, the continuation of reforms implemented after the 2001 crisis led to remarkable improvements in economic indicators. However, this positive momentum gradually gave way to institutional weakening, erosion of trust in the legal system, and increasing economic deterioration.
Initial Economic Stability
In the early years of the AK Party government, the continuation of IMF-backed programs, fiscal discipline, banking reforms, and privatizations facilitated a rapid economic recovery. Inflation was brought under control, growth rates rose significantly, and foreign direct investment increased. During this period, Turkey was recognized globally as a promising “emerging market.”
These achievements were largely built on the structural adjustments implemented in the aftermath of the 2001 crisis. However, the failure to institutionalize and deepen these reforms left the Turkish economy vulnerable in the long term.
Policy Shift and Economic Deterioration
After 2009, populist and centralized approaches began to dominate the government’s economic strategy. Institutional independence weakened, and economic management gradually prioritized political interests over rational planning.
From 2018 onward, the government’s insistence on an unorthodox policy — summarized by the phrase “interest rates cause inflation” — led to runaway inflation and foreign exchange volatility. Artificially low interest rates increased demand for foreign currency, triggering rapid depreciation of the Turkish lira. As a result, inflation surged, import costs rose, and purchasing power plummeted dramatically.
Decline in Purchasing Power and Social Consequences
Sharp price hikes in basic necessities such as food, energy, and housing severely impacted the general population. Although the minimum wage was raised several times, the real purchasing power of citizens continued to decline. The middle class shrank, and poverty among lower-income groups deepened.
Public Spending, Waste, and Unequal Distribution of Resources
The allocation and use of public funds became a major source of controversy. Large infrastructure projects — such as city hospitals, bridges, highways, and airports — were financed through public-private partnerships (PPPs). These contracts often included revenue and usage guarantees that placed heavy burdens on the public budget. The lack of transparency in tender processes and repeated preference for the same companies led to accusations of a “crony” economy.
Simultaneously, excessive public sector salaries, luxury expenditures, vehicle leasing, and office rents sparked public outrage. Reports from the Court of Accounts revealed widespread irregularities, reinforcing the perception that public resources were not being used efficiently or fairly.
Tax Policies and Income Inequality
The tax system also became increasingly inequitable. The share of direct taxes (based on income) declined, while indirect taxes (such as VAT and special consumption taxes) grew disproportionately. This shift placed a heavier burden on low-income groups and undermined the principle of tax justice.
Erosion of Trust in the Legal and Judicial System
One of the most significant structural issues deepening Turkey’s economic woes has been the erosion of trust in the legal system. Since the 2010s, judicial independence has been widely questioned. Political influence over high courts and judicial appointments severely damaged confidence in the impartiality of the judiciary.
High-profile cases such as the Gezi Park trial, the legal proceedings to shut down the pro-Kurdish HDP, and lawsuits against businesspeople, journalists, and opposition figures have reinforced the perception that the judiciary has become an instrument of political power. These developments not only shook domestic confidence but also contributed to the impression abroad that Turkey no longer adheres to the rule of law.
This perception has had dire consequences for Turkey’s international reputation and financial credibility. In global rule of law indexes and investor confidence reports, Turkey’s rankings have consistently declined, reflecting growing skepticism among foreign stakeholders.
Foreign Exchange Policies and Loss of Economic Confidence
Between 2019 and 2021, a large portion of the Central Bank’s foreign currency reserves — widely known in the public as the “$128 billion question” — was sold off without transparent accounting, dealing a major blow to economic credibility. While the government introduced the “FX-protected deposit” scheme to stabilize the currency in the short term, it came at a high cost to the public budget.
These measures were viewed as temporary fixes rather than structural solutions to deeper economic challenges, and they did little to restore investor confidence.
Loss of Credibility in Foreign Relations
The deterioration of the legal system, suppression of free expression, and departure from rational economic management have all negatively affected Turkey’s standing among Western countries and international financial institutions. Investor confidence weakened due to a lack of predictability, Turkey’s risk premium increased, and long-term capital inflows dwindled.
International credit rating agencies have repeatedly downgraded Turkey’s sovereign credit rating during this period, stripping it of “investment grade” status.
Conclusion and Assessment
Rather than consolidating its initial economic gains through stronger institutions and the rule of law, Turkey has squandered these advantages in pursuit of short-term political interests. This has resulted in long-lasting damage to the economy, the judiciary, and social trust. The weakening of judicial independence has harmed not only the legal system but also economic stability and investor confidence.
Reversing this trajectory requires the restoration of institutional autonomy, increased transparency, firm action against corruption, and a genuine return to the rule of law. Without these reforms, any economic recovery will remain fragile, and Turkey’s social cohesion and international reputation will continue to erode.
