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It’s the Turkish economy, stupid

REBELLION has shaken Turkey since May 31. Is it comparable to the Arab upheavals that have overthrown four rulers since 2011, to Iran's Green movement of 2009 that led to an apparent reformer being elected president last week, or perhaps to Occupy Wall Street, which had negligible consequences?

The unrest marks a deeply important development with permanent implications. Turkey has become a more open and liberal country, one in which leaders face democratic constraints as never before. But how much it changes the role of Islam in Turkey depends primarily on the economy.

China-like material growth has been the main achievement of Recep Tayyip Erdogan and the party he heads, the AKP. Personal income has more than doubled during his decade in power, changing the face of the country. As a visitor to Turkey since 1972, I have seen the impact in almost everything, from what people eat to their sense of Turkish identity.

That impressive growth explains the AKP's increased share of the national vote in its three elections, from 34 per cent in 2002 to 46 per cent in 2007, to a shade under 50 per cent in 2011. It also explains how, after 90 years of the military serving as the ultimate political power, the party was able to bring the armed forces to heel.

But two vulnerabilities have become more evident, especially since the June 2011 elections, jeopardising Erdogan's domination of the government.

One is dependence on foreign credit. To sustain consumer spending, Turkish banks have borrowed heavily abroad. The resulting current account deficit creates so great a need for credit that the private sector alone needs to borrow $US221 billion ($240bn) this year, or nearly 30 per cent of the $US775bn gross domestic product. Should the money stop flowing into Turkey, the party (pun intended) is over, possibly leading the stockmarket to collapse, the currency to plunge and the economic miracle to come to a screeching halt.

The other is Erdogan's sultan-like understanding of his democratic mandate. The Prime Minister sees his election in 2011, when the AKP won half the popular vote, - as a carte blanche to do whatever he pleases until the next vote. He indulges his personal emotions (recall his confrontation with Shimon Peres in 2009), meddles in the tiniest matters (his decision on a different use for a city park prompted the present turmoil), attempts social engineering (telling couples to bear three or more children), involves Turkey in an unpopular foreign adventure (Syria) and demonises the half of the electorate that did not vote for him (calling them beer-guzzlers who copulate in a mosque).

This attitude has won the fervent support of his once-downtrodden constituency but wrought the fury of the growing numbers of Turks who resent his authoritarianism, as well as the criticism of Europe leaders. German Chancellor Angela Merkel pronounced herself "appalled" by the police crackdown.

These two weaknesses point to the importance of the economy for the future of Erdogan, the AKP and the country. Should Turkey's finances weather the demonstrations, the Islamist program at the heart of the AKP's platform will advance, if more cautiously. Perhaps Erdogan will remain leader, becoming the next president, with newly enhanced powers; or perhaps his party will tire of him and - as happened to Margaret Thatcher in 1990 - push him aside in favour of someone who can carry out the same program without provoking so much hostility.

But if "hot money" flees Turkey, if foreign investors go elsewhere and if Persian Gulf patrons cool on the AKP, the demonstrations could end AKP rule and rupture the drive towards Islamism. Infighting within the party, especially between Erdogan and President Abdullah Gul, or within the Islamist movement, especially between the AKP and Fethullah Gulen's powerful movement, could weaken the Islamists. More profoundly, the many non-Islamist voters who voted for the AKP's sound economic stewardship may abandon the party.

Payroll employment is down by 5 per cent. Real consumer spending in this year's first quarter fell by 2 per cent over 2012. Since the demonstrations started, the Istanbul stockmarket is down 10 per cent and interest rates are up about 50 per cent.

To assess the future of Islamism in Turkey, watch the economic indicators.

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