As the chair of the Royal Institute of International Affairs, I recently hosted an offsite event with some of the organization’s strongest supporters, research staff, and other leaders. I left with a clearer view of three of the biggest issues of our time: slowing productivity growth, anti-establishment politics, and the rise of China.

Since the 2018 economic crisis, when the value of the lira plummeted and borrowing costs soared, Turkey’s economy has achieved a miraculous ‘V-shaped’ economic recovery from a recession lasting three quarters to a return back to quarterly growth above 1 per cent in the first three months of 2019.

But this quick turnaround has been built on vast amounts of cheap credit used to re-stimulate a consumption and construction boom. This so-called ‘triple C’ economy generated a rapid growth spurt akin to a modestly able professional sprinter injected with steroids.

This has made the currency vulnerable. The lira has steadily depreciated by 11 per cent against the US dollar since the beginning of 2019 and crossed the rate of 6 lira versus the US dollar on 7 February. And there are further warning signs on the horizon.

Credit bonanza

Statistics reveal that Turkish domestic credit grew by around 13 per cent on average throughout 2019.  The credit bonanza is still ongoing. Mortgage-backed home sales jumped by a record high of 600 per cent last December alone and the 2019 budget deficit catapulted by 70 per cent due to higher government spending.

Turkey’s central bank fuelled this credit expansion by cutting interest rates aggressively to below inflation and, since the start of this year, purchasing lira-denominated bonds equivalent to around one-third of total acquisitions last year to push yields lower.

Equally, it has linked bank lending to reserve requirements – the money that banks have to keep at the central bank – to boost borrowings via state and private banks. Banks with a ‘real’ loan growth (including inflation) of between 5 and 15 per cent enjoy a 2 per cent reserve ratio on most lira deposits, which authorities adjusted from an earlier band of 10-20 per cent that did not consider double-digit inflation.

Cumulatively, bond purchases (effectively quantitative easing) and reserve management policies have also contributed to eased credit conditions.

Commercial banks have also reduced deposit rates on lira accounts to less than inflation to encourage consumption over saving. Together with low lending rates, the boost to the economy has flowed via mortgages, credit card loans, vehicle leasing transactions and general business borrowings.

Accordingly, stimulus is at the forefront of the government’s economic approach, as it was in 2017 and 2018. It does not seem to be implementing structural change to re-orient growth away from consumption towards productivity. 

In addition, governance is, again, a central issue. President Recep Tayyip Erdogan’s near total monopolization of policymaking means he guides all domestic and external policies. He forced out the previous central bank governor, Murat Cetinkaya, in July 2019 because he did not share the president’s desire for an accelerated pace of interest rate reductions.

New challenges

Despite the similarities, the expected future financial turbulence will be materially different from its 2018 predecessor in four crucial respects. 

Firstly, foreign investors will only be marginally involved. Turkey has shut out foreign investors since 2018 from lira-denominated assets by restricting lira swap arrangements. Unsurprisingly, the non-resident holdings of lira bonds has plummeted from 20 per cent in 2018 to less than 10 per cent today.

Secondly, the Turkish government has recently introduced indirect domestic capital controls by constraining most commercial transactions to the lira rather than to the US dollar or euro to reduce foreign currency demand in light of short-term external debt obligations of $191 billion.

Thirdly, the Turkish state banks are intervening quite regularly to soften Lira volatility, thereby transitioning from a ‘free float’ to a ‘managed float’. So far, they have spent over $37 billion over the last two years in a futile effort to buttress the lira. This level of involvement in currency markets cannot be maintained.

Fourthly, the Turkish state is being far more interventionist in the Turkish stock exchange and bond markets to keep asset prices elevated. Government-controlled local funds have participated in the Borsa Istanbul and state banks in sovereign debt to sustain rallies or reverse a bear market.  

All these measures have one running idea: exclude foreign investors and no crisis will recur. Yet, when the credit boom heads to a downturn sooner or later, Turks will probably escalate lira conversions to US dollars; 51 per cent of all Turkish bank deposits are already dollar-denominated and the figure is still rising.

If Turkey’s limited foreign reserves cannot satisfy the domestic dollar demand, the government may have to impose comprehensive capital controls and allow for a double digit depreciation in the value of the lira to from its current level, with significant repercussions on Turkey’s political stability and economic climate.

To avoid this scenario, it needs to restore fiscal and monetary prudence, deal the with the foreign debt overhang in the private sector and focus on productivity-improving economic and institutional reforms to gain the confidence of global financial markets and Turks alike.

Michelle Bachelet, as a young woman you became involved with political issues, supporting Chile’s transition to democracy following the Augusto Pinochet regime. What first sparked your interest in politics and what was it like for you as a young woman in Chile at this time?

I guess it’s related to the environment that I lived in as a child because none of my parents were involved in politics but they were people who were interested in what happened to other people. We would have interesting discussions about what was going on in Chile and around the world and I had grown up being a person who wanted to be part of finding solutions to different challenges.

When I was a student, there were lots of things happening in Chile that I became interested in even though I was in medical school at the time. Then came an important political moment in the 1970s for Chile and I thought that I needed to help make Chile a better place for everyone – that my voice alone would not be enough – so I wanted to meet other people who might have answers to the questions I had. That’s when I became politically active.

I always say that, in my milk bottle, the word responsibility was included because I always have felt responsible for things. My parents also always used to tell me that we’re all human beings and, although we might have differences, we should all have dignity and be respected and have the same rights and opportunities because it is the right thing to do. So that’s how I became what I became.

You became the first woman in Latin America to hold the post of minister of national defence in 2002 and pushed to include more women in conflict resolution. Given that the inclusion of women in peace processes increases the likelihood of agreements being reached, yet women are largely excluded from the negotiating tables, why should more women in peace and security be prioritized? 

I used to push hard to have more women as negotiators and mediators at different levels when I was minister of national defence but I was told ‘We don’t have enough women with the capacity’. Of course that was not true. So one of the tasks I set myself was to build a roster of capable women so that tomorrow nobody could use this excuse. 

We built a roster, but still, as you say, there was a tendency not to have women included at all levels. I think this is because there’s still machoism and sexism that exists at some levels. Some men feel that women are weaker, that they’re not capable enough, and that’s not true. Women are important because women have the right skills to be negotiators and mediators.

I have to say that UN Secretary-General António Guterres has done a great job by appointing women in half of all the posts for special envoys and special representatives in conflict places. But we still need to do more. 

Why do I believe women make a difference? Conflicts matter to both women and men because they impact both, but usually, the experiences of women are invisible in the eyes of many who work in negotiating and mediating peace. That’s why you need people that can bring this perspective to the table. 

The other thing is that women can often get close to other women in conflict places, and in that case, they can get a lot of useful information from women on the ground because they don’t feel threatened by other women. This is particularly true of women who have been victims of sexual violence who are more willing to tell another woman what they have experienced. 

But, at the end of the day, women are half of the population of the world and I think we need them to be represented adequately.

In 2006, you became the first female president of Chile, what was this like for you and did you feel pressure taking up this mantle?

Yes of course. I mean, there were a lot of people who would say ‘I want to vote for you but I don’t think it’s a woman’s place’. Journalists would also ask you ‘You are divorced and don’t have a man by your side. How are you going to cope?’ and I would respond by saying ‘I have always done it myself.’

Sometimes if I took some time to make a decision, because I thought it needed a bit more time to reflect on what to do, they would say ‘She doesn’t take decisions’ but if you made a quick decision then they would say ‘She improvises’. I’m not complaining, I’m just describing the kinds of things that go on, and these are the things I have spoken about with other female leaders from around the world. For example, I once talked to Helle Thorning-Schmidt, the former prime minister of Denmark, and she would tell me that during the election campaign they would discuss the size of her purse and if she had a boyfriend. I mean, really, people tend to diminish women by talking about unsubstantial issues – there will be a lot of attempts to try to bring a woman’s self-esteem down. 

What I would say is, if you know exactly why you are there and what you want to do as a president, parliamentarian or whatever and you’re sure that what you want to do is the right thing – and the smart thing – then do it. Pick a team that is honest, that works with the same passion as you and that is loyal to you but is not afraid to tell you when things aren’t working. But it’s hard and difficult and politics is getting nastier every day.

You said politics is getting nastier. Julia Gillard recently spoke to me about the dark side of social media for women. In what ways do you think politics is changing for women in particular?

I remember seeing that, in the European Parliament, about 85 per cent of women have experienced psychological violence whether they have received death threats or threats of rape and all kinds of things just because they’re female.

There is also a bias against women during election campaigns where people say she cannot be elected because she’s not capable just because she’s a woman. 

Then there are those that, as I mentioned before, try to talk about personal things or spread fake news. Politics has always been about debate between people with different positions, and that’s fine, but I think sometimes you see it goes past the limit in terms of respect for the other person.

Then there is the language. Failing to understand that the other person is a competitor, not an enemy, and using language to, sort of, symbolically destroy the other one is not right. I see it everywhere and I think that’s not what politics is for – we came to serve the people and words matter. 

I think all of these things are making a lot of people not want to get involved in politics anymore because it’s not the kind of environment that we want to be in. But I hope, on the other hand, that if we have more women in politics, maybe we can turn that trend to a more positive and constructive one, where there can still be intense debate but in a way where everybody feels that we’re all part of the same country and we can all build the country together.

How did you find your male counterparts responding to you as leader? Was there a time, for example, your gender became an issue for you while you were in office?

When I was a student of medicine, what mattered was whether you were a good student or a good doctor, not if you were a man or a woman, but in politics, I found that when I appointed ministers, some of them struggled with me being a woman. For example, sometimes I would conclude a meeting by saying ‘We’re going to do this’ but there would be a male minister who would have to have the last word. Or some of them, particularly the more senior ones who had been in senior positions before, found it challenging to accept a secondary role to a woman.

On the other hand, with the military, I had no problem. Neither as minister of defence and neither as president because they understood the chain of command.

It’s interesting to look at women in other leadership positions too. For example, I remember a friend who worked in a place many years ago and she would tell me that she needed to swear and almost to spit on the ground so that men would respect her because the majority of the leaders there were men. I said to her ‘You don’t need to look like a man to be a leader.’

Perhaps sometimes it’s more difficult because strength is understood in different ways but my message would be that you can be a leader in your own way. 

While president of Chile, you introduced a number of policies aimed at addressing women’s rights issues notably on the gender pay gap and on sexual and reproductive rights for women.

How do you view your legacy on these issues? Were there other policies you wanted to implement but were unable to? And how would you like these initiatives to be furthered today in light of, for example, the rolling back of reproductive rights for women in some parts of the world?

We went from trying to improve the legal framework that applies to women to creating the Ministry of Women and Gender Equity. We also tried to push for changing the electoral roll with quotas for women which we got to an extent but not as much as I wanted. There was no appetite for having a quota for 40 per cent of all those elected to be women so we settled for 40 per cent of all candidates to be women. We still improved a little bit in terms of the number of women being elected from 14 per cent to 24 per cent through this but I didn’t get everything I wanted. Nevertheless, during my time in office, we were able to increase the representation of women in the Senate and the House which was positive. 

On sexual and reproductive rights, in Chile, abortion was criminalized so we were able to decriminalize abortion and we also advanced LGTBI rights and so on. We also developed a better legal framework for dealing with sexual violence but of course sexual violence is a complicated issue that cannot be solved in a short period of time and we need to continue working strongly on that.

The other thing I’m a believer of is the importance of early child development which is good for both boys and girls. So we set up a network of kindergartens free of charge, particularly for poorer people, because there are so many women who cannot afford to put their children in kindergartens while they study or work. So we tried to do lots of things to expand women’s opportunities and women’s rights during my time in office.

Women are increasingly making it to the top level of politics around the world, yet in Latin America, the number of female heads of states has dropped to 0 following a generation of female political leaders across the continent.

Why do you think this is the case and could we see this change again in the future? Do you think Chile is likely to see another female president soon, and if so, who do you think could take up the mantle?

The truth is that there was a moment that I think the region had four or so female heads of states, and although there are currently some female vice presidents, the number of presidents is 0 but I wouldn't be able to say that this is necessarily a bad thing. There doesn’t need to be a female president every time. We need to have female leaders where their citizens believe that they’re the best people to lead their countries.

But we do need to do more to support women making it to the top so they can have all the skills needed to be a president or a prime minister and work more with young women too so that they can think of themselves as being able to take up such positions of leadership in the future. 

In Chile, I hope, of course, there will be another woman president one day but I have no idea when. I will not run again, I can tell you that, but I hope when the time comes, the people of Chile will believe in them.

In your current role, you have said that ‘The climate crisis is the greatest threat to human rights’ and that climate change and gender equality are inextricably linked. How do you see this link and what does that mean for how these issues should be addressed?

Climate change is the biggest threat to human rights because it affects the right to life, to food, to health and to live without violence, and if we are not able to tackle it, it will lead to water scarcity, food insecurity, forced migration and conflict – all of which we are seeing already.

Why is it linked to gender equality? There are many reasons. One of them is that women, who make up half the global population, are usually among the most vulnerable people in the world. Today there are billions of people who don’t have access to water, sanitation or housing with women having less access to all of these tools that would permit them to adapt [to a changing climate].

For example, women will be more affected by food insecurity because imagine a woman who is pregnant without food. She will likely end up being underweight, and then afterwards, this will impact her child who will be at risk of malnourishment. We see it everywhere where women avoid eating so that their children can eat.

Furthermore, if we have water scarcity, that will also affect women because today, in many parts of the world, women and girls fetch the water for their families. If water becomes increasingly scarce, they will have to walk longer to fetch it, and today we already see women and girls who are subject to sexual gender-based violence as they carry out their day-to-day tasks. 

That’s why we need to provide women with the tools to empower them and to devise gender-responsive policies to climate change. 

Throughout your career, have you seen the scale and pace of change for human rights, particularly women’s rights, around the world that you would have wanted?

It depends on how you look at things. It has been over 70 years since the Universal Declaration of Human Rights was written when maternal mortality was incredibly high in many parts of the world and women did not have the vote everywhere.

If you look from that time to now, of course, women’s rights have seen a lot of progress. Maternal mortality has reduced and women can vote I think [in almost every democracy].

But over the last few years, we have seen a pushback on women’s rights, particularly in some areas like sexual and reproductive health rights, and that it something that concerns me a lot.

So I would say we’re not there yet. I hope we will be able to push back the pushback and move forward. Because if we go on along the same trajectory as we are now, we will have economic equality for women in 120 years, which is too long. I mean, nobody wants your great, great, great grandchildren to have to wait so long for equality. We need to stand up for women’s rights – and for all human rights – now and accelerate the progress we’ve been making.

In the past couple of months, there have been ongoing protests in Chile and around the world. What in your estimation is driving the protests and in what ways should governments, civil society and others respond to help address their demands?

I think it’s a phenomenon we are seeing in Chile and many places around the world. It’s a new process where young people are voicing their grievances but with no particular leaders. It’s what some people are calling a ‘new power’ and I think the situation in Chile is very similar to what’s happening in Lebanon, Hong Kong and elsewhere but with different triggers. 

In some places, people are challenging the outcome of an election; in other places, they are protesting because leaders want to change the constitution to be re-elected again; in other places, it can be, like in the case of Chile, a result of economic issues following the increase of the price of what you would call the Underground here. These inequalities lead to a mistrust in our institutions and in traditional leaders and I think this is a universal experience at the moment.

The current political and economic system is not delivering and it’s failing to meet people’s needs. So these young people protesting don’t see, in the current political and economic system, the solutions to the concerns they have.

The other thing that is interesting is the role social media has played in many of these recent protests. Social media has become a different way to allow people to learn from each other. When the students in Chile decided to protest against the increasing price of public transport, they went to the Metro and jumped over the barriers and then, two weeks’ later, I saw it in New York. Hundreds of students, for different reasons – against police brutality – doing exactly the same thing. So they learn from each other and they see what works in one place. 

So I think there is something in the world that is making people go to the streets. If it’s peacefully done then that’s fine. The problem is that sometimes it has triggered a harsh response from governments and that leads to more violence. 

I believe what needs to be done is to try to set up a national dialogue that includes all sectors of all societies where governments listen to the grievances that people have. You cannot change things in a day but I think people are reasonable enough to understand if you are committed to change. 

That’s why the UN has developed the Agenda 2030 on Sustainable Development to leave no one behind. It probably won’t solve everything, but it will, I guess, if we are able to achieve the goals, help us have a planet that’s for everyone.