The Frenzied Economy of Turkey: Erdogan Unfazed by the Ineluctable Financial Collapse


Inflation is a ubiquitous word nowadays in almost every discussion worldwide. While the concept is tricky to quantify objectively, the subjective interpretation (at least to a layman) is straightforward: prices rise, goods become expensive, and money loses value. Ever since the pandemic upended routine life, inflation has garnered attention from almost every walk of life. Consequently, the mechanism and its impact have been a prominent topic of debate since last year. The United States, for instance, posted an inflation rate of 6.8% this year through November (highest since 1982). Naturally, the global focus has shifted from stimulating the economy to reigning back soaring prices before they get ingrained in consumer expectations. However, Turkey seems to paddle in the reverse direction. More problematic, however, is the utter conviction of the incumbent Turkish President Recep Tayyip Erdoğan in his failing policies that would all but certainly obliterate the emerging economy in the foreseeable future.

According to the Turkish Statistical Institute, the official inflation rate of Turkey has surpassed the 20% mark: clocking a 21.3% annual rate in November. However, the alleged belief is that the on-ground inflation has sailed past the 58% rate. The prices of necessities have soared relentlessly this year, while recurrent shortages have crippled the already debilitated economy. There is a general misconception that the problem is transient (reflecting the rhetoric of the US fed): a wave of hyperinflation currently engulfing most countries. Sure the perpetual Covid variants are to blame for this global financial hodgepodge. However, not entirely. Supposedly, that is the obscure version of reality peddled by Mr. Erdogan to fend off objurgation over his non-sensical economic escapades. Whether it is his political intervention in the monetary policy or his mercurial nature to depose central bank officials resisting his pressure campaign, Turkey is in hot water unilaterally due to its President almighty.

Even before the pandemic embued the economic crisis across the world, Turkey was embattled amidst an impending recession, a mound of debt, and a befuddling wave of inflation. The pandemic merely pushed acceleration on a gradually moving cart towards economic turmoil. To journey back briefly, Mr. Erdogan undertook aggressive pro-growth policies when he took the presidential office in 2003. His core agenda was to enjoin domestic and foreign investors to borrow and invest in Turkish infrastructure to fortify growth in the emerging economy. His efforts got praised worldwide. Domestically, Mr. Erdogan embodied a progressive leader. His policies worked efficaciously as employment took off (slicing poverty into half), and the standard of living swelled beyond expectations. Unfortunately, however, the progress was short-lived. The problem was Erdogan’s apparent ego complex: emulating infallibility and omnipotence above the standard norm. Despite turning the economy piping hot, his rhetoric exhorting excessive borrowing never subsided and continued to fuel the monstrous inflation in the face of limited resources and stunted growth. Today, he openly defies the orthodox view of tightening monetary policy to curb rising prices. Instead, he advocates an inane perspective – higher interest rates lead to higher inflation and low growth. More outrageous (and a little frightening) is the fact that he somehow seems excessively confident in his strategy to lower the interest rates to allow people to borrow and spend more – completely overlooking the toppling domestic currency and economic confidence.

Over the past year, the Turkish Lira has lost more than 45% of its value against the US Dollar. Evidently, the deterioration started back in 2018 (way before the pandemic) partly due to a political fallout with the United States. While the standoff resolved, the Lira never regained footing against the greenback. The fundamental reason was the same: underlying hyperinflationary pressure and a confusing economic policy. Mr. Erdogan’s ossified commitment to cheap borrowing has forced Turkish banks to expend dollar reserves in the forex market to buoy the domestic currency: though the efforts have proved futile lately. Earlier this week, the Lira plunged to an all-time low of more than 18 Lira against the US Dollar. Compare that to the rate of under 4 Lira against the greenback in 2018. While the volatility has been deemed transitionary by the Erdogan regime, the domestic producers dependent on imports have been crushed under prohibitive costs: leading to further shortages and subsequent price hikes.

As a result, the tumbling currency has further colored the country with economic uncertainty (above and beyond the already nebulous reality in the guise of the Omicron variant) as legions of domestic businesses with excessive foreign debt have filed for bankruptcy. Foreign investors have noticeably shown prudence and aversion in the face of Erdogan’s draconian intervention in the economic policymaking and political point-scoring. The sharp irony of the situation is that the policies that once lowered the poverty level have now actively contributed to the youth unemployment level of 25% this year. Furthermore, the pandemic has truncated any immediate prospects of investment. To sum up, Mr. Erdogan’s aim to let the Lira depreciate in order to cheapen exports has veritably backfired as the pandemic has limited the sale of Turkish goods around the world. Due to intermittent lockdowns, Turkey’s tourism industry has failed to reap expected foreign exchange. In contrast, expensive imports like fuel, medicine, and fertilizers have turned more costly: pushing the BOP further into the negative territory. With scarce dollar reserves, shortage of necessities, blistering inflation, and an ever-growing pile of foreign debt, it is chilling to witness the nonchalance of President Erdogan.

While the economic crash is imminent, President Erdogan is eying his chances of reelection in 2023. However, an emboldened opposition and his slumping popularity are probably starting to pull him out of his utopian purview. In an October survey, more than 80% of the Turkish population believed that the government was handling the economy abysmally. Their apprehension is boiling in the form of mass protests throughout the country. Yet, President Erdogan seems as inflexible as ever. The reality is that Mr. Erdogan has been in the office as a king in domination. Since September, he has influenced three consecutive rate cuts cumulating to 500 basis points. Has dismissed the chiefs of the Turkish Central Bank resisting his preposterous interventions. And he is the sole reason why Turkish inflation is estimated to scurry past 30% next year. Compare the outrageous figure to the 4.9% rate in the eurozone that is already setting off alarms and taper talks. In a bid to exude confidence, the Turkish ministry recently announced Mr. Erdogan’s commitment to financing the losses of the Lira deposits losing value against hard currencies. Further, Mr. Erdogan himself announced a 50% hike in the minimum wage rate: inadvertently pushing inflation. These unorthodox moves would drive the budgetary deficit, push more businesses into the ground, and ultimately lead to more unemployment and shortage.

These absurd steps are all but a campaign to regain support before elections. The facade of confidence and control is similar to the bid calling interest rates as ‘father and mother of evil’ in the guise of Islamic principles against usury. He clearly never had a problem with interest payments at the pinnacle of his office; in a political fix, he is more inclined to attract support from the Islamic orthodox fraction of his voter pool instead of correcting a ludicrous approach against inflation and currency depreciation. Simply put, Mr. Erdogan’s strategies lack basic financial logic. Combined with his intolerance for an alternative viewpoint, his policies might win him another term, but they would inevitably drag Turkey into a financial black hole.

Syed Zain Abbas Rizvi
Syed Zain Abbas Rizvi
The author is a political and economic analyst. He focuses on geopolitical policymaking and international affairs. Syed has written extensively on fintech economy, foreign policy, and economic decision making of the Indo-Pacific and Asian region.


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