The Turkish government’s vacillations and zigzagging in the face of the country’s economic woes reflect how squeezed it has become economically and politically and how concerned it is about it with elections scheduled for March.

Turkish President Recep Tayyip Erdogan has quickly returned to anti-American ranting after conciliatory messages to Washington and Berlin two weeks ago that seemed to herald a bid to mend fences with the West. In an Oct. 6 speech heavily peppered with anti-American rhetoric, Erdogan nixed a consultancy deal with the US company McKinsey that Finance Minister Berat Albayrak had recently announced as part of efforts to fix the ailing economy. Turkey can manage it by itself, Erdogan asserted, only days after Albayrak, who happens to be his son-in-law, said that those opposed to collaboration with McKinsey were “either ignorant or traitors.”

Such zigzagging in Ankara reflects how economically and politically squeezed Erdogan’s government has become. On the economic front, it faces a hefty debt stock, a badly weakened currency, an inflation rate of nearly 25%, a serious unemployment problem and stagnation, which are causing loud grumbling among the electorate, including long-time voters for Erdogan’s Justice and Development Party (AKP). With municipal elections looming in March, the circle around Ankara tightens by the day.

The International Monetary Fund (IMF) appears to be the only source of much-needed recovery funds — in return for an austerity program, of course — but Erdogan has bluntly rejected that option, maligning past IMF-backed programs as an “IMF yoke.”

All in all, Ankara seems bent on deferring the bitter pills the crisis calls for, which involves enacting serious measures. Instead, its course of action until elections appears to be based on buying time by distracting the electorate, sweeping the dirt under the rug of the Treasury and foisting corporate debt woes onto banks, especially when it comes to companies in the good graces of the AKP.

Erdogan is averse to calling the turmoil a “crisis,” instead often describing it as “manipulations” or a foreign conspiracy against Turkey. The IMF, however, sees a Turkey in the grips of crisis.

The IMF’s “World Economic Outlook 2018,” released Oct. 8, prescribes tighter monetary policies for Turkey to curb “unanchored inflation expectations” amid the lira’s sharp depreciation. Pointing to “significant stress … emerging in bank and corporate balance sheets,” the fund calls for “strengthening bank supervision and enhancing the crisis management framework.”

The IMF expects a sharp decline in Turkey’s economic growth, projecting the rate to drop to 0.4% in 2019, from 3.5% this year. By implication, this means that the economy would shrink by 1-2% between the last quarter of 2018 and the third quarter of 2019. High inflation and economic contraction, coupled with increasing unemployment, make for the particularly vicious type of crisis called stagflation. Instead of acknowledging reality, however, Ankara is pursuing measures that deny the crisis while producing little in terms of results.

In mid-2018, Turkey’s external debt stock stood at $457 billion. Over the next 12 months, the country will need $181 billion to roll over maturing debts. The financing of the current account deficit requires another $40 billion, at the least, though the gap has begun to decrease under the impact of the economic downturn.

In total, Turkey needs a minimum of $220 billion over the next 12 months, or roughly $18 billion a month, but it has become a high-risk country for creditors. Its risk premium, reflected in credit default swaps, has decoupled from those of other emerging economies, hovering above 400 basis points despite occasional drops. In sum, borrowing has become more expensive for Turkey.

Under pressure from Erdogan, the central bank had dragged its feet in hiking interest rates to prop up the melting lira before announcing a massive hike of 625 basis points in mid-September. With inflation hitting 24.52% last month, however, the hike has quickly become irrelevant. Anticipation is now building for another hike of up to 300 basis points at the bank’s next meeting, on Oct. 25. Increased interest rates on the Turkish lira have had limited effect in shoring up the currency. The price of a dollar remains at about 6 liras, and although the lira’s free fall has stopped, the exchange rate appears prone to fluctuation.

Ankara’s zigzagging on economic policies is fueling the perception of risk. Albayrak’s deal with McKinsey was aimed at providing some international credibility to Ankara’s economic management and restoring confidence among fleeing foreign investors. In less than a week, Erdogan rebuffed the deal. This flip-flopping has of course stoked foreign creditors’ and investors’ mistrust.

Consumer inflation is widely expected to climb further in the coming months under the pressure of producer inflation, which stood at a staggering 46% in September. In the eyes of the AKP, however, malicious forces are again to be blamed.

Ankara is telling the nation that opportunists, speculators and hoarders are fueling the inflation. In an unprecedented move, it has mobilized municipal police to inspect supermarkets to hunt for price gougers. Furthermore, Albayrak asked businesses this week to grant customers 10% discounts by the end of the year as part of an “all-out struggle” against inflation.

Fighting inflation with discount pledges from sellers is nothing but fantasy, yet Ankara’s efforts appear aimed at producing an argument against inflation-indexed pay rises at the end of the year. When the time comes for pay and pension hikes in December, Ankara is likely to argue that its measures will bring inflation down to 16-17% next year, so the hikes should be fixed accordingly, not in line with the current rate. Such a fiat would affect some 19 million working people and about 10 million pensioners, threatening political fallout for the AKP in the March polls.

The problem does not end with the real income loss caused by inflation. Unemployment is on the rise as well, and no measures are being discussed to stem layoffs. Moreover, the assets of the Unemployment Insurance Fund, amounting to 125 billion liras (about $21 billion), have been put in use to shore up the gaps of public banks, adding to popular discontent. Many among the electorate are also struggling to repay bank debts.

Hundreds of indebted companies, big and small alike, are in a financial bottleneck and pressing banks to make sacrifices. The banking system itself needs safeguarding.

In sum, the challenges are many, but Ankara’s means are limited. As the government scrambles for solutions, budget deficits and other, less visible gaps in public finances are widening, and Ankara’s room to maneuver is shrinking.

Written by Mustafa Sönmez