To Go Forward, Turkey Must Look Back

The lira crisis has faded from the headlines, but the Turkish government’s stopgap measures to halt the hemorrhaging will not fix what ails the economy. There are other crises around the corner: Foreign capital flows financing the country’s massive current account deficit have dried up following the row between President Donald Trump and President Recep Tayyip Erdogan over the fate of Andrew Brunson, the American pastor jailed by Turkish authorities. The heavily indebted corporate sector, especially real-estate and construction companies, are hanging by a thread.

How does Ankara get out of this mess? There has been no dearth of policy prescriptions. Some, like Paul Krugman, have recommended temporary capital controls and the repudiation of foreign-currency debt. Others are pointing to ways to shore up the corporate or the banking sector, by restructuring private-sector debt, tightening fiscal discipline and perhaps reaching out to the International Monetary Fund again. But what Turkey needs to do is both simpler and more difficult: Start reversing the downward slide of its institutions.