Ankara, Turkey — Turkey’s deepening currency crisis could mark the definite end of the country’s economic success story and is making ordinary citizens poorer.
Running news: The Turkish currency is fluctuating on a daily basis and has lost 45% of its value against the dollar this year. Investors are abandoning Turkish assets because of concerns about the central bank’s ability to control inflation. Ordinary citizens are rushing to convert their savings into foreign currency and gold.
- In view of the decreasing purchasing power of the citizens, street vendors have started selling half a bagel.
state of play: The economic crisis has damaged the political position of President Recep Tayyip Erdoan and the ruling Justice and Development Party, which has held power since 2002 and based its pitch to voters largely around rising living standards.
- Erdoan’s economic team emphasizes an unconventional economic policy of cutting interest rates despite rising inflation and rising poverty. Erdoan has described high interest rates as “the mother of all evil”.
- Erdoan and his team claim that their policy will boost Turkey’s exports and economic growth by making the currency more competitive.
dispute over interest rates Erdoan headed last week to replace his more mainstream finance minister with a loyalist, Nureddin Nebati.
- Over the past two years, Erdoan has sacked three central bank presidents, raising questions about the bank’s independence.
- Central Bank governor Sahap Kavioglu and Erdogan’s new finance minister have both doubled down on current, unconventional monetary policy.
What are they saying: Nebati, who served for three years as deputy finance minister, this week praised the policy of cutting rates and said, “We are determined to implement it.”
- Central Bank Governor Sahap Kavioglu said the unconventional monetary policy would start showing results early next year.
- erdogan, Those who attribute the current crisis to conspiracy by foreign powers, predict a 10% GDP growth rate by the end of this year and a current account surplus in 2022.
During this, Opposition parties are calling for early elections and holding political rallies attacking Erdoan’s economic mismanagement.
- Erdoan is opposed to calling elections before 2023, by which time some 9 million young Turks will be eligible to vote for the first time.
- But he may struggle to win them. One in five youth is unemployed.
what to watch: The central bank has indicated another limited rate cut in mid-December, after which the bank will likely end its monetary easing policy.
- As the economic strife spreads, there is likely to be a massive brain drain in the coming months.